Taylor Muckerman of The Motley Fool Canada wrote an article called "Dividends - Is There Anything They Can't Do?" Below is the main part of this article. You can sign up for Motley Fool's free emails here.
Taylor Muckerman starts off by telling a story about a man asking for a discount at a coffee shop. Of course he was refused. However, Taylor Muckerman goes on to say:
"As an investor, though, it wasn't the fact that he stepped outside of his "zone" that caught my ear. It was that he was told "no." After all, there are many places where this same type of question need not even be asked because there are more than a few companies out there that will give you a "discount."
In this case, however, the discount happens to be even more important...because it is a discount on an actual share of ownership in a living breathing company - not just some latte you'll likely be purchasing again tomorrow. And, just like what you are buying is different, the nomenclature differs, as well. Rather than a "sale," this percentage off is referred to as "yield."
When thinking about dividends, some people might not associate its yield with a percentage off of their sales price, but that is exactly what it is. You see, there are two ways to look at a dividend payment. It can either be looked at as income on top of share price appreciation. OR, it can be used to effectively reduce your purchase price, or your cost basis (to be clear, for tax purposes, dividends are taxed as dividends and are not deducted from your cost basis).
Now, while I have personally yet to hear of someone holding onto a dividend payer for long enough, it is wholly possible to lower your theoretical cost basis to $0.00 once your stream of dividend payments has reached your buying price. That's right. You could eventually become a partial business owner, essentially, for free."
I have decided to look at my portfolio and see what of my stocks I might have gotten for free or at a good discount. I will explore this more next week.
On my other blog I am today writing about Calloway Real Estate Investment Trust (TSX-CWT.UN, OTC-CWYUF) ... continue...
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