Soo... Am I understanding this about the stock market correctly?

[Cats Cats Cats]

Typically, companies that offer dividends are mature companies.  They value stability and want long-haul investors.  It makes a great deal of sense to offer dividends.  I've bought and sold Apple about a dozen times going back to the mid 90s.  I will continue to purchase and sell Apple.  Apple can always be assured that investors will buy low and sell high.

Kraft has taken some of the same jumps and dips over the years.  I continue to acquire more, and as they pay my dividend I purchase more shares of the stock.  They can always be assured that they will sell more stock across the price spectrum over time.

Rabbit or the tortoise in many ways.  Sure the rabbit is fast, but the tortoise is always moving forward and lives a hundred years longer.  

I just think its dumb to pay you to buy stock when they have debt.  To clarify, they have debt that they do not seem to have the cash to get rid of anytime soon.  Obviously as a part owner of the business you should be entitled to some profit from the company (we are looking at you Apple).  But they should pay out a dividend that will allow them to pay off their debt say in 10 years (I'm No Dave Ramsey).  Kraft is giving all their money away.

Also, companies who make their money on capital investment (power company, etc) obviously debt isn't treated quite the same.

[AquaMan]

Not necessarily.  A well-balanced portfolio would have a Kraft and an Apple in it as well as other stocks for different market sectors as well as different growth and income strategies.

Well of course not necessarily. Those who balance their portfolios seldom feel much pain when the market fluctuates. Keep in mind that to even have this conversation puts us all in a fairly small population. A lot of the owners of stock do so because their company offers it as part of the compensation package or its part of a mutual fund. They have no clue that they can or should balance out different types of stocks and investments.

Investors who are exclusively looking for a history of dividends would not consider Apple. Charlie, dividends have historically been one of the measures of how well run a company is. Some investors simply don't like the kind of risk that Apple's high/low cycle demonstrates. That cycle may not offer them the flexibility to sell when they want to, not just when its peaking. Dividends are their "buy" signal.

[AquaMan]

Charlie, let me ask you this.

If you had the choice between investing with Kraft with no dividends and no debt vs Kraft with reasonable dividends and acceptable debt (by analyst standards), which would you choose?

[Gaspar]

I just think its dumb to pay you to buy stock when they have debt.  To clarify, they have debt that they do not seem to have the cash to get rid of anytime soon.  Obviously as a part owner of the business you should be entitled to some profit from the company (we are looking at you Apple).  But they should pay out a dividend that will allow them to pay off their debt say in 10 years (I'm No Dave Ramsey).  Kraft is giving all their money away.

The amount of debt is not as important as how the company responsibly services that debt.  In many cases it's wise for a public company to carry high levels of debt and pay high dividends.  It's basically a set of responsibilities to creditors and shareholders.  Creditors love companies like Kraft who are willing to borrow large sums of money and take significant time paying those balances off.  This also gives Kraft the ability to expand far beyond their capitalization without much risk.

Your credit card company loves it when you send them a minimum payment.  Kraft's creditors love it when they reliably pay down debt over decades.  The industries feed each other.

[Cats Cats Cats]

Charlie, let me ask you this.

If you had the choice between investing with Kraft with no dividends and no debt vs Kraft with reasonable dividends and acceptable debt (by analyst standards), which would you choose?

That is a very tough choice.  The no debt Kraft should definitely be making more money than the acceptable debt Kraft.  Assuming they can invest their earnings into growth the company profits should increase.  Its kind of a hypothetical and 0 debt Kraft is in the future (and should start to pay a dividend).  I would obviously choose which ever netted me more money.  Dividends are somewhat of a known quantity vs Kraft deciding to make crystal clear gravy or something.  

[Cats Cats Cats]

The amount of debt is not as important as how the company responsibly services that debt.  In many cases it's wise for a public company to carry high levels of debt and pay high dividends.  

You heard to from Gaspar debt doesn't matter!  Debt Ceiling raises for everybody!!

[AquaMan]

Dang it Gaspar. You didn't let him learn!

You choose the Kraft that understands it must incur debt in order to compete with new products, new outlets, improved products etc. It takes money to do that. If they show a capacity to do that AND pay a dividend (share of profits) to their owners then you have a pretty good company.

Choose the Kraft that hordes its profits and prefers to stay static in the marketplace and you lose.

[Cats Cats Cats]

Dang it Gaspar. You didn't let him learn!

You choose the Kraft that understands it must incur debt in order to compete with new products, new outlets, improved products etc. It takes money to do that. If they show a capacity to do that AND pay a dividend (share of profits) to their owners then you have a pretty good company.

Choose the Kraft that hordes its profits and prefers to stay static in the marketplace and you lose.

I said that a company should pay out some dividends but the plan should be to always be in debt.  Any dividend they do pay isn't being invested back in the company either.  So to say that an eventual debt free kraft is more static than a dividend Kraft isn't a proper comparison.  Without the dividends they might not need to have debt to make the expansions on the business they want to.  If you make more money with debt than without then you take on the debt. 

[AquaMan]

I said that a company should pay out some dividends but the plan should be to always be in debt.  Any dividend they do pay isn't being invested back in the company either.  So to say that an eventual debt free kraft is more static than a dividend Kraft isn't a proper comparison.  Without the dividends they might not need to have debt to make the expansions on the business they want to.  If you make more money with debt than without then you take on the debt. 

Well, you gotta' do what's right for you.

As for me, when I invest in a company I like it when they understand that I am one of the owners and pay me a dividend rather than expect me to sell their stock in order to profit. Those companies historically weather pretty well. I think your original concern was that the market had too much debt. The market rewards those companies who prudently handle their debt and punish those who don't....unless you have friends in Washington who cover your bad bets.

[Gaspar]

I said that a company should pay out some dividends but the plan should be to always be in debt.  Any dividend they do pay isn't being invested back in the company either.  

Dividend paid makes sure the stock is stable.  In the long run, that IS investment in the company.

[Conan71]

Dividend paid makes sure the stock is stable.  In the long run, that IS investment in the company.

My mother is almost exclusively in dividend-paying funds rather than growth funds since she's retired.

[Cats Cats Cats]

Dividend paid makes sure the stock is stable.  In the long run, that IS investment in the company.

If you need to borrow money or issue new shares to raise capital.  It would be interesting to see a company that made a profit and stopped dividends about 20 or 30 years ago to see where the stock price is today.  Now that Kraft has a history of dividends if they did stop it would obviously hit the stock hard.  I wonder what it would be at if it never offered a dividend.

[Gaspar]

If you need to borrow money or issue new shares to raise capital.  It would be interesting to see a company that made a profit and stopped dividends about 20 or 30 years ago to see where the stock price is today.  Now that Kraft has a history of dividends if they did stop it would obviously hit the stock hard.  I wonder what it would be at if it never offered a dividend.

They would most likely be out of business.  Dividends are a strategic move, not entered into lightly.  Kraft has merged several times over the years with other companies.  Dividends are in many cases "promises" to investors so that a company can expand without threat of losing stock value.

Kraft would very likely be a very small company or purchased by a larger company ages ago.  Their IPO was in 1924 I believe.

[Breadburner]

Buy low sell high...Thats all you need to know....

[Cats Cats Cats]

They would most likely be out of business.  Dividends are a strategic move, not entered into lightly.  Kraft has merged several times over the years with other companies.  Dividends are in many cases "promises" to investors so that a company can expand without threat of losing stock value.

Kraft would very likely be a very small company or purchased by a larger company ages ago.  Their IPO was in 1924 I believe.

A third reason would be to use their stock to purchase other companies.