Dividends pay, but how much do they cost?

A recent study on richSOB.com examined the impact on expected stock appreciation of a dividend requirement, suggesting the likelihood of a significant hit to potential capital gains, inviting a fresh rethinking of strategies to realizing investment goals.

Baltimore, Maryland (PRWEB) March 1, 2004 -- A recent study by richSOB.com examined the impact on expected stock appreciation of a dividend requirement, suggesting the likelihood of a significant hit to potential capital gains, inviting a rethinking of approaches toward achieving investment goals.

When a web-based stock selection tool, richSOB.com and richDOB.com, was used to examine the likely impact on potential capital appreciation of a portfolio of stocks as increasing dividend requirements were interposed, the opportunity cost in potentially lost capital appreciation was shown to be quite substantial and out of all proportion to projected income realized.

As soon as the most minimal dividend requirement was imposed on the selection process, the estimate of future capital gains dropped in half. As the minimum dividend requirement was gradually increased to 5%, the estimated anticipated capital gains gradually declined to about a third of the estimate generated when no dividend requirement was imposed.

These results, starting with an arbitrary basket of 333 stocks, about 38% in technology and 54% in services, make explicit the cost of an income requirement as opposed to realizing income through gains from capital appreciation.

However once a dividend requirement was imposed, the increase in dividend yield compared to reduced capital gains likelihood seemed to reach a maximum when a 5% yield was imposed. But such a yield was only possible with a much narrower list of dividend-paying stocks, increasing the risks of portfolio concentration.

This striking loss of likely capital gains in the face of a dividend requirement would no doubt be considerably muted in initial portfolios less attuned to capital gains, or in portfolios not as weighted toward the technology sector. Differences in methodology and study criteria would also influence conclusions.

Studies examining future outcomes of stocks are inevitably uncertain. No investment advise, suitability or appropriateness is implied. Use these comments as a starting point for additional research. Consult your investment advisor.

For additional information, contact chiefSOB@richSOB.com.

About richSOB.com and richDOB.com

These web sites were inaugurated following almost two decades of a major analytical development effort by David Turetsky in pursuit of a proprietary quantitative model to facilitate improved investment decision-making. Long before the headlines brought disquieting news about manipulated earnings, dubious research, and shady practices, Mr Turetsky set out to bring the discipline of quantitation decision-making and the power of modern computers to bear on the task of making

investment judgments in murky circumstances with imperfect and necessarily incomplete information. Mr Turetsky's background in the financial services industry goes back over 25 years. His pioneering work with computers reaches back to the mid-1960s. He has degrees in Computer Science and Quantitative decision-making.

CONTACT INFORMATION:

David Turetsky, chiefSOB
richSOB.com/richDOB.com
410-499-7614
http://www.richSOB.com "Power to the Investor"
http://www.richDOB.com "Smart women making smarter investment decisions"

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