The tax 40 disadvantage of dividends has clearly been

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Unformatted text preview: w dividends. In the early part of 2003, technology firms like Microsoft and Oracle, which had never been paid dividends, announced that they would start paying dividends again. Lessons for Investors Consider the lessons of this chapter. Stocks that pay high dividends have historically delivered higher returns than stocks than the rest of the market, and stocks that increase dividends see their stock prices go up. On the other hand, stocks that pay high dividends grow earnings far more slowly (thus delivering less in price appreciation) and are often unable to sustain dividends in the long term. The last section demonstrates the attrition in a high dividend portfolio once you begin to ask questions about the sustainability of dividends and expected growth rates. You began with a sample of the 100 companies that had the highest dividend yields but 79 of these firms were eliminated either because they had negative earnings or because their dividend payout ratios exceeded 80%. Of the remaining 21 firms, eight firms were eliminated because they had negative free cashflows to equity or because their dividends exceeded their free cashflows to equity. Of the 13 firms left, only...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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