Thursday, February 27, 2003

Just a word on dividends... well, a few words. Stocks which offer dividend payments to shareholders are generally viewed as solid, and with President Bush's recent offer to cut the double taxation on dividends - essentially proposing to have dividend income taxed as ordinary income instead of as a capital gain - many people are looking at stocks which offer dividends.

Recently, however, we've been seeing a rash of dividend reductions by these companies - most of them large and aging. This trend will probably continue as these same companies have huge pension costs to deal with, so they must find a source for additional capital and the easiest place to find extra cash is to cut the dividend payment.

Bear in mind that as a stock's share price decline the dividend yield increases, so if you see a company offering a dividend yield of more than 4%, it's likely that the share price will decline or the company will cut the dividend. It's not a pretty picture in equities.

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