When invest in stock market, why are people so hard up over dividends?

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(02-02-2014, 09:33 PM)wahkao Wrote: Eratat Lifestyle are borrowing money at crazy interest rates of 12.5% EAR.

10 year risk free is at 2.5%. They are screwing up their capital structure with this bond commitment. Only desperate indebted companies would accept to such deals to delay their death

Worse, they have the cheek to give dividends. They are effectively borrowing at 12.5% to give dividend.

Now, trading halted because default on bond

So do not be fooled by dividends and use it as your first screen

[Image: okToQyv.png]

1) Dividends tells you the company has cashflows to pay. It is a function of comfort... obviously your credit risk with S-chips and Apple are not the same thing. But Apple can become Blackberry in just a decade... Blackberry didn't pay dividend either, so for those who think they can reinvest in similar IRR as past decade....

2) Dividends are cash flows to the investors, which is very different from cashflows WITHIN the company. To realise cashflow from capital gains you need to sell.

I would say dividend payment is one of the best tool for investors, but simple caveats of borrowing for paying dividends should be monitored closely. Eratat is not even a good example as it was too obvious a duck. No hindside needed. I can also tell you that China Sports is also a duck while I'll be VERY surprised if YZJ is fake. Just need to think like a rational businessman.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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RE: When invest in stock market, why are people so hard up over dividends? - by specuvestor - 03-02-2014, 04:34 PM

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