petersen@ucbvax.ARPA (David A. Petersen) (06/03/85)
Keywords:stocks corporations borrowing Question 1: Is it true that a higher rate of return can be expected for high-growth/low-dividend stocks than zero-growth/high-dividend stocks? Question 2: Why do corporations pay dividends AND go into debt at the same time? Couldn't stockholder gains be maximized by withholding dividends and not borrowing the same amount? Question 3: In picking stocks, is it important to find a company with about the same rate (high in both cases) for growth in earnings and growth in equity? Question 4: Why do stocks often split at such low prices? Is this to stimulate buying by the small investor and buoy stock prices? It seems like saving the additional commission would be worth more to most stockholders. Question 5: How much did the value of AT&T stock increase because the stock was split into the parent and baby bells? Question 6: Has anyone had any dealings with Stock Cross brokers? They charge $25 + $.08/share for any transaction. Limit orders $10 extra. Anyone know of anyone cheaper? Any answers will be appreciated. Paul Bradley
brett@ucla-cs.UUCP (06/07/85)
> Keywords:stocks corporations borrowing > > > Question 1: Is it true that a higher rate of return can be expected for > high-growth/low-dividend stocks than zero-growth/high-dividend > stocks? It depends on the stocks involved. Sometimes a company on a high road finds itself in bankruptcy - what rate of return can you expect then? For the most part, the answer is yes I would think. A growth stock is more volatile in principle, so the rate of return is never a guarantee I'd think. Compare some utility stocks with some OTC issues and see if I'm right. Compare a preferred stock with a common stock of the same company. The high-dividend zero growth stock would be more susceptible to interest rate changes. So, if interests rates were 14% and a stock was paying 17% (a utility for example), and interest rates declined to say 5% and the stock appreciated, (whereas the common stock didnt) you maybe doing better off than sticking with the common. These are just some thoughts, but I have no hard and fast answer for you. > > Question 2: Why do corporations pay dividends AND go into debt at the same > time? Couldn't stockholder gains be maximized by withholding > dividends and not borrowing the same amount? > Good question. For the most part a company has equity to cover the debt so there is no problem maintaining the debt. Sometimes the debt is is in the form of notes issued by the company. In that case, they may only pay interest on the debt to the noteholder. Paying the debt off may be more difficult. Making the stock attractive is important. For the most part the dividend is paid out of current revenues, whereas debt is usually a long term matter that could not be paid out of current quarter revenues. So keeping the dividend is not as worthwile as increasing the attractiveness of the company's earnings and dividends record. > > Question 3: In picking stocks, is it important to find a company with about > the same rate (high in both cases) for growth in earnings and > growth in equity? One should follow the other. Concentrate on earnings in making a comparative choice first, then look at whether the price is attractive. What you are looking at, by the way, is a stock's "fundamentals" versus "chartism". Indeed a stocks fundamentals may be out of line with its chart action. There are many theories about this. Chartists are called "elves": Nurock and Zweig do charting. Zweig is intersting because he combines fundamentalism with charting to arrive at choices. You should investigate (stock) fundamentalism and chartism as part of your investment strategy. > Question 4: Why do stocks often split at such low prices? Is this to > stimulate buying by the small investor and buoy stock prices? This is the theory. It was shown in a recent report that when a stock splits to abouut 18.00 per share, it has the greatest chance of appreciating to around 21-25. It's hard to believe. > It seems like saving the additional commission would be worth > more to most stockholders. Eh? Depends on your broker. > Question 5: How much did the value of AT&T stock increase because the > stock was split into the parent and baby bells? Sorry. I cant help you on this one. > Question 6: Has anyone had any dealings with Stock Cross brokers? > They charge $25 + $.08/share for any transaction. > Limit orders $10 extra. Anyone know of anyone cheaper? Yes. The two outfits I know of are cheap: Ovest Securities (see Barrons they have an ad each week) and a place called Olde Discount (based in Michagin). Olde has something called a round trip. It saves you money if you do trading. > Any answers will be appreciated. > Paul Bradley *** REPLACE THIS LINE WITH YOUR MESSAGE *** -- Brett Fleisch University of California Los Angeles 3804 Boelter Hall Los Angeles, CA 90024 Phone: (213) 825-2756, (213) 474-5317 brett@ucla-cs.ARPA or ...!{cepu, ihnp4, trwspp, ucbvax}!ucla-cs!brett -------------------------------------------------------------------------