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Unformatted text preview: 13 CHAPTER 2
HIGH DIVIDEND STOCKS: BONDS WITH PRICE APPRECIATION?
Sam’s Lost Dividends
Once upon a time, there lived a happy and carefree retiree named Sam. Sam was in
good health and thoroughly enjoyed having nothing to do. His only regret was that his
hard-earned money was invested in treasury bonds, earning a measly rate of 3% a year. One
day, Sam’s friend, Joe, who liked to offer unsolicited investment advice, suggested that Sam
take his money out of bonds and invest in stocks. When Sam demurred, saying that he did
not like to take risk and that he needed the cash income from his bonds, Joe gave him a list
of 10 companies that paid high dividends. “Buy these stocks”, he said, “and you will get
the best of both worlds – the income of a bond and the upside potential of stocks”. Sam did
so and was rewarded for a while with a portfolio of stocks that delivered a dividend yield of
5%, leaving him a happy person.
Barely a year later, troubles started when Sam did not receive the dividend check
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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.
- Spring '11