The Fallacy of Dividends 2

By Al Thomas

One of the recommendations by brokers and financial planners is to buy stocks that have consistent dividends, especially going back for 10 years or more.

First let’s understand that 10 years history does not mean as much as investors are led to believe. The normal cycle for markets is about 16 to 18 years. Even the worst stock picker can have a winning record from 1982 to 2000. The old story about monkeys with a dart board was very true during that time. When the first phase of the bear market began in 2000 with the NASDAQ destruction many experts lost their “expert” rating.

It is a shame today that so many funds are managed by children who have never seen a bear market and have no idea how to protect clients’ money. When I say children I mean any monkey less than 50 years of age. None of them have seen bad times until recently and they have no idea what to do. Their lack of knowledge has been translated into disappearance of customer funds.

The current rage for Wall Street stock pickers is to recommend “good stocks that pay a good dividend”.If history tells us anything we are 9 years into the usual 16 to 18 year bear cycle. And if that is true the market has another 8 or 9 years of going down or at best not going anywhere. Let’s hope for the latter.

There is little argument among market mavens that we are in a period of deleveraging. That means current assets are becoming worth less and less. It is very obvious in the housing market that is still shrinking in value. Many areas have seen home prices drop by 30% to 50%. The experts say this is the ‘bottom’, but that has yet to be proven.

Commercial real estate consortiums have been paying excellent dividends so far. Commercial RE analysts are predicting commensurate drops in this type of property to that of home price defaults. Hundreds of shopping malls that are now in default are about to go into foreclosure. Those real estate trusts will be cutting or possibly eliminating their dividends.

If the investor continues to receive his dividends he needs to ask is it really a dividend? When any stock company issues a dividend the investor can see the next day the stock is priced at less then the amount of the “dividend”.

There are many reasons to buy a stock, but just because it has been paying a good long term dividend(?) is not one of them.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved.

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