OK, let's put it this way: the post-earnings rallies in a lot of stocks have not been in any way justified by the earnings reported and guidance given. It seems like how a stock reacts after earnings has more to do with how fund managers and the robots are positioned and inclined to trade each stock, rather than what's in the report itself. It's like "wow, that was a terrible number and guide-down, but the stock isn't pulling back and giving me a chance to get flat to my benchmark...oh no, here come the headline scraping robots buying on the Street Sweep algorithm, I need to buy buy buy!!"

My view on 3% dividend yields vs. 0.5% bank account rates - I'd rather make 0.5% in the bank than buy a stock with a 3% yield when you can lose that entire year's dividend in a single day (as often happens). It's just not enough margin of safety in my opinion (unless you have a lot of conviction in the stock outside of its dividend yield, of course).

That said, I'm balls long at the moment, because Mario Draghi told me to be so. I hate that this is what investing and trading has been reduced to in this era of bailout capitalism (an oxymoron if there ever was one).

In the secular bear market you're a large proponent of, it's absolutely not common that value stocks with 3%+ dividends see their dividends wiped out in a single day (3%+ drop in price) while non-dividend paying stocks outperformed. Maybe in a bull market where growth is getting a ton of attention.

That just isn't in-line with how reality has been over the past decade, at least not on average.

I didn't say that non-dividend paying stocks would outperform - not sure where you're getting that from. I also didn't mean to imply that dividend paying stocks tank 3% daily on a regular basis, just that it happens often enough where it's really not much of a margin of safety. For example, CSCO, which Hamlet is a fan of, pays a 2% dividend (32 cents/year), and yet the stock tanked 95 cents they day they reported earnings last week. 3 years of dividends wiped out in one day, and it's not like that was even a major move in this market environment. COH pays a 2.4% yield now ($1.20/year) and that stock is down more than $10 today. I own CVC - it pays almost a 4% yield, but that stock has traded between $10 and $25 during the past year - that 4% yield isn't much comfort to someone who bought at $20 or $25 (it's $15 now - thankfully I bought lower than that, but it did trade well below my cost basis for a while).

I didn't say that non-dividend paying stocks would outperform - not sure where you're getting that from. I also didn't mean to imply that dividend paying stocks tank 3% daily on a regular basis, just that it happens often enough where it's really not much of a margin of safety. For example, CSCO, which Hamlet is a fan of, pays a 2% dividend (32 cents/year), and yet the stock tanked 95 cents they day they reported earnings last week. 3 years of dividends wiped out in one day, and it's not like that was even a major move in this market environment. COH pays a 2.4% yield now ($1.20/year) and that stock is down more than $10 today. I own CVC - it pays almost a 4% yield, but that stock has traded between $10 and $25 during the past year - that 4% yield isn't much comfort to someone who bought at $20 or $25 (it's $15 now - thankfully I bought lower than that, but it did trade well below my cost basis for a while).

One correction--

CSCO didn't tank because they reported earnings. They tanked because VMWare bought some little networking start-up and everyone decided that they were suddenly going to become a major player in "virtual networking".

CSCO reports earnings on 8/15 (which will probably be lack-luster given Europe's issues and the currency headwinds).

Hey Hamlet,

What is your background? No worries if you prefer anonymity. I am just curious because you invest in the same areas that I am interested in.

http://news.goldseek.com/GoldSeek/1325689200.php

Jives with my thoughts

If you're worried about dividend paying stocks being "wiped out" in a single day, then, from an opportunity cost perspective, you must have a better alternative. Any stock that doesn't pay a dividend & performs similarly to the dividend paying stocks would, in the end, still be worse, no? As you'll still be getting a 3% dividend.

So, from an investment perspective, if you're worried that dividend paying stocks can be wiped in a single day (due to price movement) you must have stocks that outperform the stock - presumably growth stocks?

Pointing to 2 or 3 examples doesn't really matter as in a bear market value outperforms and dividend paying stocks, particularly low payout ratio equities, outperform growth-oriented strategies, again on average. I did my thesis on the matter and worked as an analyst for a hedge fund that followed this strategy but I can point you to a Credit Suisse study that shows it pretty conclusively between 1990-2006. Their thesis held from 2007-present, too, based on my backtesting work using their methodology.

But, in reality, it makes sense. People flee to steady revenue (utilities, consumer staples with dividends) and low payout ratio means potential for dividend growth.