Dividends and Investors (Part 4)

So are dividends the secret sauce? Are dividends the best way to divine a stock’s future?

Lots of folks think so. We’ve discussed how steady and growing dividends can indicate financial health, commitment to investors, and provide a stable real income stream. So many folks have gotten the dividend bug that there are some 800 mutual funds with over $400 billion in assets that focus on a dividend strategy. So what’s not to like?

Well, like anything, you can have too much of a good thing. Dividends take cash away from the firm. If sales are growing, the company may need that cash to expand. If the dividend is too high, future earnings will suffer.

On the other end of the scale, companies in stable, highly regulated businesses, like utilities and telephones, often pay out most of their earnings in dividends. Normally there’s little risk in this, but if the competitive or regulatory climate changes, those dividends may be cut.

But just because a corporation hasn’t begun to pay or has a fairly generous payment doesn’t mean it’s inappropriate or appropriate for you. What suits you depends on what you’re looking for. Long-term growth? Stability in the face of uncertainty? An improving real income stream? The best way to evaluate an investment is first to evaluate yourself.

When it comes to investing, you need all kinds of ingredients. There is no secret sauce.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net
By | 2014-09-05T19:38:26+00:00 July 1st, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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