Dividend Income: Is It So Certain?
February 19, 2009
I was reading the words of a nationally-syndicated columnist recently who was recommending several stocks. This was interesting stuff, I thought, including the suggestion that now is the time to buy shares in long established companies that pay good dividends.
But, actually, as I looked at the author's list I saw several companies that are indeed well-established and surely pay good dividends. They are also companies that have received money from the federal government in recent months, and there-in lies the rub.
I'm not a stockbroker or financial adviser, I have no idea what anyone should buy or not buy in terms of stocks and bonds. But I can read. And when I read the newly-minted "Financial Stability Plan" being offered by Treasury Secretary Geithner I saw something which should concern potential investors: The idea of relying on past dividends is no longer so sure, not only for economic reasons but also because the government wants to limit dividends in those cases where it has loaned money to banks and companies.
According to the Treasury's fact sheet: "Banks that receive exceptional assistance can only pay $0.01 quarterly. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives."
So if you're thinking that now is the time to buy stock because dividends and yields look good relative to prices -- and relative to CDs, IRAs and money market accounts -- then ask your stockbroker for more information, especially about the impact of any federal bailout loans.
Financial Stability Plan, Feb 10, 2009