8 banks: Fat yields and looking safe

As an addendum, I would like to avow that banks
are–perhaps–retiring longer-term,higher-coupon debt for cheaper-coupon debt, but I’ve also noticed that
most are adding more of this debt than they are retiring. Perhaps the smaller coupon payments allow for this, thus equalling the overall debt burden, but I can’t see the advantages if what I’ve described heretofore
does come true. Oh, well, wait and see??

This is where the “statement of cash flows” comes in handy. Just look at the quarterly nugget of information, particularly the subsection on “financing activities”. Most of the banks in the past quarter have loaded up on debt to balance out their cash flows. Remember,they are sacrificing credibility to ensure non-dilution of their stock. Ironically, it will probably result in the collapse, or bankruptcy, of their companies,which already presents a risk to the stock anyway. The only hope these banks will have is the prudent payment practices of their customers: i.e., income!!! Judging by the previous practices of many of these customers, and a snowball effect in the slowing economy, I simply hope their CFO’s know what the hell they’re doing.

Dividends have historically accounted for 40% of US total stock market returns each year on average according to this site:

http://dividendgrowth.blogspot.com/2008/03/case-for-dividend-investing-in.html

Thus I believe that dividends are a very important part of ones investment strategy, since they let investors compound their returns over time.

To answer your question; dividends are and should be very important to owners, as they were long before the bull market beginning in ‘81 came to an end in 2001. When investors get back to basics and quit believing that trees (i.e. stocks) don’t grow to the sky, they will demand some proof of profitability i.e. dividends so the bosses don’t just speculate to fatten their own bonus and golden parachute packages.

During the last 25 years of my investment life, I have never owned bank stocks in any significant amount. A bank is a blind pool of assets, pure and simple, and as Forrest Gump said, “you never know what your going to get.” The first bank I ever worked for went “belly up” just as the banks are doing today. I do buy a lot of dividend stocks and, to me, dividends are extremely important – but again, no bank stocks ever.

Dividends do not adequately reward investors for buying financial stocks. The risk of more blow-ups is just too high as the economy continues to slow and asset prices deflate back to normal levels. A better place to put money to work is in TIPS: they are safer and the yield is much higher. Don’t buy financial stocks until after they have finished raising more capital (share dilution) and the wreckage has been cleared. Remember: they will not all survive.