Dividend Stock Behavior and the Comatose Investor

Dividend-paying stocks have a reputation of being slow, dull, and stodgy stocks, not particularly exciting prey for the active investor. After all, these are the stocks you just sit back and watch, collecting your check in the mail, right? No reason to buy and sell them at all, just buy and hold forever? Not necessarily. There is a lot of opportunity in dividend stocks to pursue returns, perhaps more than you might realize. I have worked with these stocks a lot, and have often thought to myself, "Someday I'm going to write all this down...". So, beginning today is a series of short articles discussing what I've learned about dividend stocks, how they REALLY work, and an examination of the basic strategies, of which "buy and hold" is only one - and sometimes, the LEAST profitable. Let's start by quickly running through the basics. A "dividend" or "distribution" (the terms are effectively interchangeable, though they have differing accounting origins) is a bonus sent to the stockholder "of record" (the name of the person owning the account holding the stock) by the board of directors of a company. Note first that I said "bonus" - it is generally one or more of the following 4 things: it can be cash, or more of the same stock as the stockholder already owns, or some stock of a 2nd company (owned by the first company, usually), or rights to do something now or in the future. I'm going to draw a line in the sand and declare the non-cash dividends to be off-topic for the time being. This is not a handicap, since non-cash dividends are often a sign the company is running low on cash, and is looking around for a substitute. You probably would want to stay away from such a company, and let the specialists take over arbitraging these kinds of assets.... Read more