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Saturday, April 05, 2014 12:08:36 PM
In my view, there is no better news, other than perhaps a company buyout at a premium, than a positive dividend forecast. Chances are good that the share price is moving higher.
It would be highly unlikely for a company to announce it expects a higher share price next year. Indeed, the company would purposely stay away from such language as it might set itself up as a target for a shareholder lawsuit in the event the share price did not increase. However, companies often announce their expectations for the amount of dividends to be paid. Whereas a company will not, for the reason mentioned above, forecast an actual dividend dollar amount, it may forecast a generalized increase relative to the existing dividend, such as by saying "we expect to grow our dividend (or in the case of a partnership, distribution) by 5%".
What is management saying? They are saying, in a language that keeps them out of the judicial system, that they expect to earn more cash than they are earning right now. And, they intend to send that additonal cash to you, in the form of a higher dividend. How can they make such an assumption? Because the managers have successfully grown the company. Maybe they've opened a new factory, or developed a new base of customers. Whatever the case, more money is flowing in than before, and there is more money to distribute to you, the shareholder.
So why is a forecast of an increasing dividend a positive event? Because it implies two events: the cash paid to you will be higher. And, the share price will, in all likelihood, be higher. Why would the share price be higher? Because new and existing investors will bid up the price per share in order to buy the security and lock in the yield. It is the combined effect of a rising dividend, plus a rising share price, which equates to what is known as a "total return", and in the end, that's what matters most: the total return on your investment. "
http://loanlane.com/divcalculator2.php
"Better to Remain Silent and Be Thought a Fool than to Speak and Remove All Doubt" -Mark Twain
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