Word: dividenders
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...seven foundations that, along with another, smaller, fund, now own 25 million shares (30%) of the company's nonvoting stock. They supply money directly to a few elite New York City institutions, including the Sloan-Kettering Cancer Center and the Metropolitan Museum of Art. When the company slashed its dividend in July, these institutions were confronted by a drop in their yearly payouts from $58.7 million to $29.4 million. The funds, for instance, provided $8.2 million, or 11%, of the $75 million operating budget of the Wildlife Conservation Society, the New York Times reported. The dividend cut could cost...
...rare in the sub-prime industry and enables Green Tree to recover a relatively high proportion of losses when customers default on their payments. And despite problems such as the downgrading of much of Green Tree's debt by rating agencies, the company just declared its 46th straight quarterly dividend and expects to expand its loan portfolio to $32 billion this year...
Buffett's silver spree caught almost everyone off guard. After all, the man made his personal billions--$25 billion at last count--by buying and holding undervalued stocks. But silver doesn't even pay a dividend and, worse, costs money to store. So why on earth did Buffett use Berkshire to acquire 4,000 tons of silver--a cache weighing more than 10 Boeing 747s--at a cost of $650 million between July 25 and Jan. 12? Until then, Buffett hadn't owned an ounce in 30 years...
Look for some blue-chip companies to step up next. Who might make the bold move? Among the giants, companies like Wal-Mart, Disney and Home Depot are good candidates. They are fast growing and pay woefully small dividends anyway. Disney, for example, has the lowest dividend yield of the 30 companies in the Dow, at 0.55%. You couldn't feed a mouse on that...
Certainly, some investors who live off dividends would cut and run. But there are powerful pro-investor arguments for dumping the dividend. One is that many investors reinvest dividends anyway and incur transaction costs to do so. But the main argument is that dividends are taxed as ordinary income, a marginal rate of up to 39.6%, while long-term stock gains are taxed as capital gains, a much lower rate of 20%. So it makes sense for companies to use their cash to buy back stock. Yes, a bear market could devour this strategy. But as long...