Author Topic: Itching for a dividend play  (Read 7207 times)

Captain Cactus

  • Stubble
  • **
  • Posts: 159
Itching for a dividend play
« on: May 18, 2016, 08:19:55 AM »
 hello everybody, I have a few thousand dollars that I'm itching to put into a dividend stock or stocks. It's a small quantity, but there's something exciting about getting that dividend.

I have about $13k in a couple BDCs, now I was thinking about AT&T, KO, something like that.

I am 100% equities, primarily Vanguard index funds. 

Am I crazy?  Should I just push that over to VTSAX?

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 2671
Re: Itching for a dividend play
« Reply #1 on: May 18, 2016, 08:24:41 AM »
Is the few $k investing money (goes to VTSAX) or entertainment money (goes to dividend stocks)?

Frugal D

  • Stubble
  • **
  • Posts: 230
  • Age: 34
Re: Itching for a dividend play
« Reply #2 on: May 18, 2016, 08:32:25 AM »
Dump it in WFC - great long term hold with a 2.5-3% divi.

talltexan

  • Magnum Stache
  • ******
  • Posts: 2889
Re: Itching for a dividend play
« Reply #3 on: May 18, 2016, 08:47:41 AM »
Target (TGT) is having a big pullback today. Might be a nice buying opp if you shop there a lot anyway. I like to own companies that I use their products.

ohana

  • Stubble
  • **
  • Posts: 172
    • An Ocean Lover in Maine
Re: Itching for a dividend play
« Reply #4 on: May 18, 2016, 09:00:24 AM »
I like the Target idea . . . . 

Do you think the Target pullback is due to the bathroom issue, and it will blow over?  If so, this is a great bargain.

JetBlast

  • Bristles
  • ***
  • Posts: 345
Re: Itching for a dividend play
« Reply #5 on: May 18, 2016, 09:20:18 AM »
Wall Street couldn't care less about who uses which bathroom and who gets bent out of shape about it.

TGT is down big today because they gave disappointing guidance and had an insignificant miss on revenue when reporting quarterly numbers. They said the retail environment is "volatile" and that YOY same store comps would likely be down roughly 2% next quarter. Some analysts are also annoyed that online sales are only growing in the mid 20% range YOY instead of 30+ like last year.

Long term it's probably a nice buying opportunity unless you think Amazon will destroy all the old discount retailers. They've finally got all the Canada bullshit out of their system so they can focus on margins, cost containment, and the City Target concept.

Greenpez

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Re: Itching for a dividend play
« Reply #6 on: May 18, 2016, 09:28:34 AM »
 I'm pretty partial to JNJ. Some part of that is because I work for it, but working for it I have researched it quite a bit.

Frugal D

  • Stubble
  • **
  • Posts: 230
  • Age: 34
Re: Itching for a dividend play
« Reply #7 on: May 18, 2016, 09:32:51 AM »
Long term it's probably a nice buying opportunity unless you think Amazon will destroy all the old discount retailers.

Bingo. I would avoid brick-and-mortar retailers. There's no denying that AMZN has and will continue to destroy them.

peppaz

  • 5 O'Clock Shadow
  • *
  • Posts: 29
  • Age: 35
  • Location: NYC
  • There's always money in the banana stand
Re: Itching for a dividend play
« Reply #8 on: May 18, 2016, 10:41:34 AM »
Yesterday some on the boards were talking about HRZN, which apparently gives huge (10%+) dividends

Captain Cactus

  • Stubble
  • **
  • Posts: 159
Re: Itching for a dividend play
« Reply #9 on: May 18, 2016, 11:12:36 AM »
Is the few $k investing money (goes to VTSAX) or entertainment money (goes to dividend stocks)?

I guess it's a combination of both.  If I'm honest with myself, individual stocks are very entertaining!

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5133
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: Itching for a dividend play
« Reply #10 on: May 18, 2016, 11:13:13 AM »
It's a small quantity, but there's something exciting about getting that dividend.

Invest like a Vulcan. If you execute investment decisions because it's "exciting" or provides any other emotional response whatsoever, you're almost certainly doing it wrong.

Captain Cactus

  • Stubble
  • **
  • Posts: 159
Re: Itching for a dividend play
« Reply #11 on: May 18, 2016, 11:14:39 AM »
Yesterday some on the boards were talking about HRZN, which apparently gives huge (10%+) dividends

That was me!  :)
HRZN is a BDC, which is a high yield category.  Presumably it's "riskier" too, but I look at it from a dividend perspective vs a capital appreciation perspective.

Captain Cactus

  • Stubble
  • **
  • Posts: 159
Re: Itching for a dividend play
« Reply #12 on: May 18, 2016, 11:16:25 AM »
It's a small quantity, but there's something exciting about getting that dividend.

Invest like a Vulcan. If you execute investment decisions because it's "exciting" or provides any other emotional response whatsoever, you're almost certainly doing it wrong.

I like that thought but I get deep satisfaction whenever I invest in VTSAX too.  I like investing more than spending!

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5133
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: Itching for a dividend play
« Reply #13 on: May 18, 2016, 11:18:55 AM »
Satisfaction is fine. Excitement or fear will cloud your logic and cause you to make poor decisions.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Itching for a dividend play
« Reply #14 on: May 18, 2016, 12:15:39 PM »
VTSAX has a 2% dividend. There's really no point to buy stocks specifically because they pay a dividend. That dividend just means that the board thinks that reinvesting their profits in their business will provide a lower rate of return than they want it to. So they hand out the cash instead. The very high yield stocks are also selling off assets (i.e. making the business worth less) and handing out the sale proceeds. So their stock prices should fall over time.

What you should care about is long term total return. VTSAX is a great investment. If you think it's fun to buy individual stocks instead of a bunch at once (i.e. an index fund) for whatever reason, then it's an expense that keeps you from hitting FIRE as quickly. Your choice.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1347
Re: Itching for a dividend play
« Reply #15 on: May 18, 2016, 12:42:32 PM »

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1487
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Itching for a dividend play
« Reply #16 on: May 18, 2016, 04:02:08 PM »
If you are indexer and you want more focus on dividends, how about Vanguard's Dividend Achievers Index?  VIG at your broker VDADX at Vanguard.  All dividend payers that have raised distributions 25 or more years in a row...

doggyfizzle

  • Bristles
  • ***
  • Posts: 365
Re: Itching for a dividend play
« Reply #17 on: May 19, 2016, 11:48:51 AM »
Long term it's probably a nice buying opportunity unless you think Amazon will destroy all the old discount retailers.

Bingo. I would avoid brick-and-mortar retailers. There's no denying that AMZN has and will continue to destroy them.

Spoken like someone who misunderstands Amazon's 20 year record of growing sales without profit.  Wal-Mart reports more in net income in a single quarter than Amazon has in its entire history as a publicly-traded company.  Some brick and mortar retailers are vulnerable, many are not.

Depending on your anticipated holding period, Nordstrom (JWN) might appeal to you.  Good starting dividend yield right now, plenty of cash on the books thanks to the sale of its credit card portfolio to TD, and as coming to the tail end of a significant CapEx burn.  Hold it for a year, collect the dividends, and you'll probably be sitting pretty.

For a truly long-term play go with Altria.  Starting yield of 3.7%, exposure to an industry with very little competition and little market share disruption, owns a near 30% stake in SAB that will roll into a 10% stake in the new ABMiller.  SAB was returning about $1B in divs alone to Altria every year, so couple that going forward with continued strength in domestic tobacco pricing and you can count on a low-risk yearly increasing income stream.  I regularly buy Altria, and some of my first $1,000 purchases made in 2009 are yielding 15%.

Tester

  • Stubble
  • **
  • Posts: 231
Re: Itching for a dividend play
« Reply #18 on: May 19, 2016, 02:53:08 PM »
Long term it's probably a nice buying opportunity unless you think Amazon will destroy all the old discount retailers.

Bingo. I would avoid brick-and-mortar retailers. There's no denying that AMZN has and will continue to destroy them.

Spoken like someone who misunderstands Amazon's 20 year record of growing sales without profit.  Wal-Mart reports more in net income in a single quarter than Amazon has in its entire history as a publicly-traded company.  Some brick and mortar retailers are vulnerable, many are not.


I will start by saying that I am not good with financials.
But I also think that Amazon is a real threat to all retail.
And more, I think that Walmart is one of the retailers which have a change in fighting Amazon, but only if they really focus on it. If they will do a half effort job they will lose faster than they imagine, although I am sure they imagine bad things already.

And now to look at some numbers:

http://www.nasdaq.com/symbol/wmt/financials?query=ratios
http://www.nasdaq.com/symbol/amzn/financials?query=ratios

You can see that the gross margin for Amazon increased, while for Walmart is stayed the same.

http://www.nasdaq.com/symbol/wmt/financials?query=income-statement
http://www.nasdaq.com/symbol/amzn/financials?query=income-statement

You can see that in 2015 Walmart's income declined.
You can also see that Amazon's income is now 25% of Walmart's income.

You can look at the other tabs with interesting numbers to see the whole picture.
Walmart is a solid company but it seems it stopped growing.
Amazon is not very profitable, but it grows very quickly. Plus, recently it showed it can have be profitable.

Again, as I said, I am not good with financials but what I see is a company which reinvests everything and a company which does not do that.
The one which reinvests grows, while the other one seems to struggle a little finding an area to grow into.
Perhaps in the end Walmart should not even try to catch Amazon online and try to find something else, but for me it seems Walmart does not know exactly what direction to follow.
And if they will just try with half effort (in any direction) they will lose.

Anyway, this discussion is a little off topic for this thread :).

doggyfizzle

  • Bristles
  • ***
  • Posts: 365
Re: Itching for a dividend play
« Reply #19 on: May 19, 2016, 07:02:08 PM »
How is 596 mil 1/4 of almost 15 bil? 

Tester

  • Stubble
  • **
  • Posts: 231
Re: Itching for a dividend play
« Reply #20 on: May 19, 2016, 08:04:42 PM »
How is 596 mil 1/4 of almost 15 bil?

Did you look at the numbers and you did not find the 1/4 ones?
In my native language income is revenue. And I already said I am not fluent with financial data.
Now perhaps you can take a look at the numbers a try to use them to support your case instead of getting caught in technicalities. It should not be too hard - I already saw they are solid numbers and acknowledged that.

mrpercentage

  • Handlebar Stache
  • *****
  • Posts: 1236
  • Location: PHX, AZ
Re: Itching for a dividend play
« Reply #21 on: May 19, 2016, 09:39:50 PM »
OHI it 7.5% right now

doggyfizzle

  • Bristles
  • ***
  • Posts: 365
Re: Itching for a dividend play
« Reply #22 on: May 19, 2016, 11:08:10 PM »
How is 596 mil 1/4 of almost 15 bil?

Did you look at the numbers and you did not find the 1/4 ones?
In my native language income is revenue. And I already said I am not fluent with financial data.
Now perhaps you can take a look at the numbers a try to use them to support your case instead of getting caught in technicalities. It should not be too hard - I already saw they are solid numbers and acknowledged that.

Maybe I should have specified net income as "net profit?"  But my greater point is that Amazon is able to basically generate sales at a near-loss (for two decades) because of its first mover (or survivor) advantage in e-commerce, but brick and mortar stores are still able to actually make money y selling products (unlike Amazon).  Amazon stock is priced as though eventually sales margins will expand enough to report meaningful net profit on a consistent basis, but what people seem to forget is that at that point Amazon will likely have to compete on price with brick and mortar stores instead of underselling them.  If you back out the early recognized revenue from AWS the picture doesn't look near as rosy.  I'm glad people want to own stock in a company that operates as a near non-profit, but I'd take Wal-Mart anyday over Amazon stock.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5133
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: Itching for a dividend play
« Reply #23 on: May 19, 2016, 11:11:08 PM »
Amazon plows all of its revenue back into growing the business. If they were focused on short-term earnings results they could easily scale back on capital expenditures  and report profits much bigger than what they have shown, but they're instead focused on becoming as large of a company as possible. Seems like a valid strategy to me, and the market tends to agree.

doggyfizzle

  • Bristles
  • ***
  • Posts: 365
Re: Itching for a dividend play
« Reply #24 on: May 19, 2016, 11:27:54 PM »
And yet they've been doing it for 20 years and still can't make a consistent profit.  Presently retail and institutional investors are willing to pay out the nose for Amazon shares.  Does it make sense to me? No, it seems absurd.  Think of it in real estate terms (or any other business terms).  Would you pay nearly 200 times expected earnings for a rental property?

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5133
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: Itching for a dividend play
« Reply #25 on: May 20, 2016, 11:13:22 AM »
And yet they've been doing it for 20 years and still can't make a consistent profit.  Presently retail and institutional investors are willing to pay out the nose for Amazon shares.  Does it make sense to me? No, it seems absurd.  Think of it in real estate terms (or any other business terms).  Would you pay nearly 200 times expected earnings for a rental property?

I think you used the wrong word. They choose not to have a profit. They take all the cash they get from growing sales and plow it back into more distribution centers, more data centers, building up a fleet of freight aircraft and doing R&D on autonomous drones so they don't need to pay FedEx as much, producing original television programs so they get more Prime subscribers, etc. At some point in the distant future they may decide that returning cash to shareholders would be better than expanding their empire in all these ways, but that time is not now.

So no, this is not remotely comparable to a rental property, and I would not use the same standards when evaluating whether I should invest in it.

Telecaster

  • Handlebar Stache
  • *****
  • Posts: 2009
  • Location: Seattle, WA
Re: Itching for a dividend play
« Reply #26 on: May 20, 2016, 11:36:18 AM »
And yet they've been doing it for 20 years and still can't make a consistent profit.  Presently retail and institutional investors are willing to pay out the nose for Amazon shares.  Does it make sense to me? No, it seems absurd.  Think of it in real estate terms (or any other business terms).  Would you pay nearly 200 times expected earnings for a rental property?


I would say instead AMZN has no intention of making a consistent profit.  Bezos clearly is only focused on growing the company.   We've seen this year that Amazon is now moving into transportation logistics, leasing trucks and aircraft, for example.  Building that out will cost huge sums of money now with the possible benefit of saving money at some future point. 

But I agree, it makes valuing the stock problematic.  Stocks are typically valued in terms of profits.  Since Amazon basically has none and doesn't any, what should the stock price be? 



EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 2550
  • Age: 46
  • Location: Houston
    • EscapeVelocity2020
Re: Itching for a dividend play
« Reply #27 on: May 20, 2016, 12:00:15 PM »
Probably super-boring, but VWIUX has been a huge winner for me (medium term muni bonds).  I still have a significant income, so the tax free dividends are progressively more valuable as income taxes seem to take a larger and larger bite.

Tester

  • Stubble
  • **
  • Posts: 231
Re: Itching for a dividend play
« Reply #28 on: May 20, 2016, 12:09:16 PM »
Time will tell if Amazon will be "able" to be profitable.
Right now my feeling is that it can be but it invests everything back. When it showed two consecutive quarters of profit the shares price jumped a lot.
But I would not assess Amazon based on the same metrics I would assess a rental property.
The rental property remains in the same place and it is one thing, a rental property.
Amazon is evolving, moving and becoming several different things.

I would compare it more to an athlete which would ask me to train him (if I would be a coach :)) - the athlete did not win any competition yet, but I can look at some things and decide if he is able to win it if I train him.
Now, not to mention that Amazon won some competitions already.

Another interesting number is revenue per employee.
Amazon is at 966,000 USD right now and Walmart is at 220,000 USD.
That shows a different business model, but it is also a sign that Amazon has an advantage in this area right now.

In the end, Amazon is not just the retail part, AWS is growing very fast, while Walmart is mostly retail as far as I know.
So my  opinion remains: Walmart is one company which can at least survive but they have to get their act together.
And I also have money where my mouth is :) I bought one share of Walmart last year (I am only buying individual stocks for fun, and only doing this with 80 USD per month), and I will buy one or two more the next month.

doggyfizzle

  • Bristles
  • ***
  • Posts: 365
Re: Itching for a dividend play
« Reply #29 on: May 20, 2016, 12:30:44 PM »
And yet they've been doing it for 20 years and still can't make a consistent profit.  Presently retail and institutional investors are willing to pay out the nose for Amazon shares.  Does it make sense to me? No, it seems absurd.  Think of it in real estate terms (or any other business terms).  Would you pay nearly 200 times expected earnings for a rental property?

I think you used the wrong word. They choose not to have a profit. They take all the cash they get from growing sales and plow it back into more distribution centers, more data centers, building up a fleet of freight aircraft and doing R&D on autonomous drones so they don't need to pay FedEx as much, producing original television programs so they get more Prime subscribers, etc. At some point in the distant future they may decide that returning cash to shareholders would be better than expanding their empire in all these ways, but that time is not now.

So no, this is not remotely comparable to a rental property, and I would not use the same standards when evaluating whether I should invest in it.

Of course Amazon (and any company) can be compared to a rental property (or any other equity investment).  I find it actually helps make a rational choice whether to own a stock or not.  A rental property (hopefully) has some equity value, incurs expenses (CapEx) and depreciation, and allows for distribution of excess rents above costs to owners.  Stocks should too.  Amazon's present valuation is absurd.  In FY2015, they produced almost $8 billion in FCF, of which more about half was accelerated due to recognizance of equipment lease payments.  So they're being valued at almost 200 times cash flow.  As far as the investment in freight and drones, it is just fluff and cash burn.  UPS and FedEx have about $20 billion in aviation equipment that eats of a ton of cash each year to maintain.  Amazon might consistently try to be "me too" in everything from entertainment to shipping, but their core businesses are AWS and consumer retail.  AWS faces near-continuous shrinking prices and margins, and competition from truly profitable, cash-rich companies like Microsoft, Google, IBM, SAP, etc.  Retail margins are razor thin, and while Amazon is able to grow sales at the expense of physical retail by maintaining ultra-low margins, should Amazon eventually choose to value profit over sales growth, one of their main competitive advantages disappears.

As far as your statement "At some point in the distant future they may decide that returning cash to shareholders would be better than expanding their empire in all these ways, but that time is not now" goes, why on earth would you buy an equity stake in a company that has no real path to profitability? 

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5133
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: Itching for a dividend play
« Reply #30 on: May 20, 2016, 12:34:45 PM »
I don't own any Amazon stock beyond what my index funds buy for me. As to your question of why would someone invest in Amazon at its current valuation, it's what I already said. They are a growing business that could decide to be more profitable at any time Bezos felt like profit was more important than growth.

As to the rental property comparison, you can own some rental property and take the profit for your living expenses, or you can use the cash to fund purchase of more property, which will generate even more cash that you can use to buy more property even faster. Amazon's strategy is more toward the latter.
« Last Edit: May 20, 2016, 12:37:39 PM by seattlecyclone »

Tester

  • Stubble
  • **
  • Posts: 231
Re: Itching for a dividend play
« Reply #31 on: May 20, 2016, 02:49:27 PM »
I still think that comparing with a rental property is not the best way, because a rental property will remain a rental property while Amazon is changing.

About why people pay so much for Amazon stock:
I don't know exactly, but it might be because they think Amazon will be very profitable at some point.
I think people buy it because of the growth?

I I said I have Walmart stock (if one share counts :D).
I am "invested" in Amazon in another way, with much more impact on my life :).
That does not mean I am blinded and start saying Amazon is the best company in the world, I have my own things I don't like in Amazon.
But the ones I like are enough to make me continue staying "invested" in Amazon. If it will turn out to be a "scam" I hope I will get enough back to be able to retire early until then :).

bearkat

  • Stubble
  • **
  • Posts: 122
  • Age: 30
  • Location: California
Re: Itching for a dividend play
« Reply #32 on: May 20, 2016, 11:34:32 PM »
It's a small quantity, but there's something exciting about getting that dividend.

Invest like a Vulcan. If you execute investment decisions because it's "exciting" or provides any other emotional response whatsoever, you're almost certainly doing it wrong.

Pretty sure that's an exact quote from Four Pillars of Investing.

maizeman

  • Magnum Stache
  • ******
  • Posts: 4035
Re: Itching for a dividend play
« Reply #33 on: May 20, 2016, 11:46:21 PM »
It's quite possible to think amazon's success is a good reason not to being disproportionately investing in brick and mortar retailers, without thinking it makes sense to invest in amazon either.

If Bezos/Amazon really never does decide it's time to start earning a profit that actually makes it MORE likely they can just keep eating more and more retailer's lunches since those businesses do need to make a profit to stay open.

dilinger

  • Bristles
  • ***
  • Posts: 457
Re: Itching for a dividend play
« Reply #34 on: May 21, 2016, 12:14:46 AM »
I basically own Amazon stock by owning a house in Seattle. If Amazon tanks, the price of my house will follow suit.