Forum Archive Index - June 2000

["Oliver Shapleski" <oliver.shapleski@vuw.ac.nz>]

> Any reasonable investment must pay a dividend at least equal to the cost
of
> the money buying the shares.

Absolute fallacy I'm afraid, Jeremy.

> That is directly dependant on interest rates.
> 8% sounds like about the average cost of money at the moment.  If you
choose
> a lower return then I suggest you are speculating rather than investing.

Again, totally incorrect.

> Also, In the climate that is coming, with increasing interest rates, high
> dividend, soundly based companies will naturally become more valuable.

Again, false assumption.  Jeremy, you are basing your comments solely on
what you have seen in New Zealand shares in the past 20 years.  Hint: bad
place to look for good shares.  Any payment of a dividend withdraws assets
from the company.  If a company does not pay dividends, then it retains
capital and grows, either by paying off debt or reinvesting in the industry.
So, pay a dividend and reduce the share price, or don't pay and maintain or
increase the share price?  The fact that the growth is capital rather than
income is of no use in determining whether the investment is sound or
speculative.  In fact, many New Zealand small investors should prefer
capital growth as no tax is paid on it unless the investor is a trader.
Historically NZ, Aus and to a lesser extent UK shares pay high dividend
yields.  The US, Japan and Germany pay lower dividend yields.  Does that
make investments in US, Germany or Japan any less sound?  Any more
speculative?  Of course not.

You should read some material on dividend policy, dividend reinvesting and
dividend stripping - but you also need to understand some elementary
financial mathematics.  If you have any more questions I will try and reply
sometime this week, although I'm sure some others on sharechat will be just
as happy to oblige.

Oliver


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