Choosing Risk Over Dividends

One last piece of not-so-anecdotal evidence:  We have previously mentioned the relative outperformance of low quality stocks. What happens if we divide the perceived higher quality stocks (i.e., SPX) into dividend payers versus non-dividend payers?

In Q1, 2006, share prices for the 113 companies in the Standard & Poor’s 500-stock index that don’t provide dividends rose 8.58%.

And for the 387 that do? The quarterly gains were 5.45% — some 36% lower.

The WSJ adds:

"The figures indicate that, despite concerns like rising interest rates, slowing profit growth and high oil prices, investors are still bullish about the stock market and willing to accept greater potential volatility — rather than sticking with the tried-and-true dividend-paying shares — in the belief they will receive higher returns, analysts say."

That sanguinity in the face of significant concerns may be a sign of complacency.

Over the past few months, I have gotten into a debate with a variety of people — Rev Shark, Cody, Jim Cramer — as to whether or not there is anecdotal evidence of too much bullishness or bearishness. The example above copuld be interpreted as a sign of technology leadership, i.e., tech stocks typically don’t pay dividends.

The conclusion is that those with a bullish bend see too much bearishness, and those with a bearish perspective see too much bullishness.  That’s the nature of anecdotal evidence versus actual data points.

As mentioned last week, its a battle between two crowds: the “Wall
of Worry,”
and the “What, Me Worry?”

>
Source:

Stock Investors Choose Risk Over Dividends
KAREN TALLEY
WSJ, April 15, 2006; Page B3
http://online.wsj.com/article/SB114504798492326381.html

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Are future retirees overly optimistic?

Yes.

That’s the conclusion of a study by the  Employee Benefit Research Institute. EBRI determined that more than half of workers saving for retirement have less than $50,000 put away; Other employees are counting on employer-provided benefits in retirement that are increasingly unavailable.

Here’s the WSJ’s overview:

"Despite recent moves by large companies to freeze pensions and
chip away at retiree-health benefits, Americans remain confident — if
dangerously naïve — about their retirement prospects, according to new
research.

Many workers are counting on traditional pension plans to pay
their bills in retirement, even though such plans are fast disappearing. Only
40% of working couples currently are covered by pension plans, but nearly
two-thirds of surveyed workers — 61% — expect to get income from such a plan
in retirement, according to the Retirement Confidence Survey, scheduled for
release today by the Employee Benefit Research Institute, a Washington
nonprofit, and others.

The responses in the survey, conducted annually for the past 16
years, reflect few worries about the spreading curtailment of pension plans.
Twenty-four percent of the survey’s participants said that they are very
confident that they will have enough money to live comfortably in retirement –
virtually the same number as last year — and 44% of those surveyed said they
are somewhat confident about their financial prospects in later life, an
increase of four percentage points from last year."

See table below for more details . . .

Source:
Workers’ Views On Retirement May Be Too Rosy
KELLY GREENE
WSJ, April 4, 2006; Page D2
http://online.wsj.com/article/SB114411194874516024.html

Read More

Category: Economy