"W. Wells" <otf70@[EMAIL PROTECTED]
> writes:
> WB cut their dividend to $1.50 but with todays price it still yields
5.9%. I
> think I will invest some cash. That is still better that a CD, T-Bill or
> savings account.
True enough (that it's a better yield than a CD) - but there's
a *lot* more potential downside. I just read an estimate
that said that if they cut the dividend again - which
is entirely possible if they dilute to raise more capital
and earnings don't come back as fast as hoped - not only
would the stock price drop (probably a lot - another 10%
or more) but so, too would your effective yield (ie. the
dividend divided by your buy-in price) because of the new
lowered dividend.
Dividend yields are *not* reasonably compared to CD,
T-Bill or savings account yields. The latter three all
have minimal (pretty much zero) risk of principal. They
are ultra-low volatility vehicles. They have little
upside - that's the price one pays for such stability.
But comparing WB to T-bills because of yields is completely
an apples-to-oranges comparison and subbing one for the
other makes no sense whatsoever - unless it's part of
adjusting your planned asset allocation.
Even so - if you want to take some risk in the (presumably)
cheap banking sector and get yourself some nice fat
dividend yields in the process, be careful and diversify.
Morningstar, for example, recently called the KBW Bank ETF
"undervalued". Of course, they said that back in Oct, too
(when it was the most "undervalued" ETF they tracked).
Since then, it's gotten even *more* undervalued while
both "fair value" and price have dropped a lot. It's
yielding about 6.5% right now - about the same as WB's
new yield - but perhaps a bit safer due to the (relatively)
greater diversification. It's still a very risk very
focussed sector play, though, and in no way comparable
to the ultralow-risk fixed-income/cash alteratives you
mentioned above. As you've seen - dividends can and
do sometimes get cut - and sometimes get cut again.
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