Mmmmm.... Money Granola

What exactly does money granola taste like? From the looks of the newest post from the worst named blogger ever, probably like ass.This week's crap is titled Money Granola: Dividends as a mutation: and it talks about how dividends are bad.

A couple of things before I get started. Yes, I know I've been critical of dividend growth investors in the past. And yes, it's more than a little bit hypocritical to defend them. My whole beef wasn't with dividends per se, it was more about those investors caring about nothing but dividends. I like dividends too, I just don't rub one off thinking about them.

The blog I'm going to be making fun of is called Money Granola. Money fucking Granola. Seriously. What a doucher.

Dividends, I learned, do not matter to the small time investor like me. I repeat—they don’t matter, they’re irrelevant, and should not affect your purchasing decisions.

Once you read those two sentences, you realize why I have to make fun of this dipshit. I like how he's so sure of his conclusion that he feels the need to repeat himself. He's cementing his stupidity.

Say you have 10 stocks for corporation X valued at $50 each, for a total value of $500.Consider the following thought exercises:

Thinking? I can't do that!

Are you thrilled by a stock swap? If the company declares a 2-1 swap, you have 5 stocks valued at $250 each, for a value of $500.

Thrilled is an understatement! I'm so fucking hard right now! Megan Fox, you've got competition!

There are two things wrong with that sentence:

1) That is not a stock swap. It's called either a share consolidation or a reverse split

2) That has absolutely nothing to do with dividends

Are you thrilled if a company offers you stock dividends, wherein every stockholder receives an extra, say 10% share? In this case, you’d have 11 stocks—but because the your overall company ownership percentage remains the same, as both the denominator and numerator become larger.

Maybe thrilled isn't the best choice of a word here, no? I mean I'm pretty fucking excited, but I don't think everyone else is sharing your enthusiasm. This does give me a good excuse to link to a picture of Jessica Alba, so I'll take advantage of that.

If Money Granola (with raisins!) had bothered to research the topic, he'd find that almost no companies do this, pretty much for the reason he explained. It's kind of a pointless exercise, which is why nobody does it in the fucking real world.

Are you thrilled if the company offers a mandatory buyback 10% of your shares?

Seriously. I'm not fucking thrilled. Neither is anyone else. Fuck off with that word.

Also, generally investors aren't going to the "thrilled" with that. Mandatory share buybacks are stupid, which, again, is why nobody does it in the real world.

This whole argument is just so fucking stupid. It's like, say, arguing about why we put fluoride in our drinking water, which is literally the first thing that popped into my head. So instead of listing real reasons for your argument, you base your whole defense on the fact that fluoride kills boogymen and strengthens unicorns at the SAME TIME.

When a corporation issues a dividend, the value of the corporation’s total assets decreases. (Incidentally, the day that a company declares a dividend, it’s said be going x-dividend. On the day the stock goes x-dividend, there’s an “x” by its price on the NYSE to indicate to investors why the price decreased.)

On the one hand, he's kinda right. Yes, if a company pays out $100 in dividends, then the value of the assets of that company does go down by $100. That money is gone. But the market isn't that simple. A stock doesn't just go down because they've paid a dividend. The way the market performs that day has more of an impact than the dividend going x-dividend. The market realizes that a company pays dividends and prices it accordingly.

What does that giant paragraph mean? It means that if we look at 5 companies at random, on the day they went x-dividend, their share price should have decreased by at least the value of their quarterly dividend. (perhaps more if the market was down that day) Do they? Let's check.

1. AT&T- Most recent x-dividend: July 8th
Down 79 cents (3%)
Market (S&P 500) down marginally
*AT&T pays a 41 cent quarterly dividend

2. Coke- Most recent x-dividend: June 11th
Up 17 cents (0.33%)
Market (S&P 500) up about 0.5%
*Coke pays a 41 cent quarterly dividend

3. Hewlett Packard- Most recent x-dividend: June 8th
Down 57 cents (almost 2 percent)
Market (S&P 500) down marginally
*HPQ pays an 8 cent quarterly dividend

4. McDonalds- Most recent x-dividend: June 4th
Down 75 cents (about 1.5%)
Market: Up over 1%
*McDonalds pays a 50 cent quarterly dividend

5. Walmart- Most recent x-dividend: May 13th
Down 87 cents (about 1.5%)
Market: Down almost 3%
*Walmart's quarterly dividend is 27.3 cents

Let's look at our findings, shall we:

1) AT&T- Went down by almost double what the dividend was on a pretty flat day. So that one is plausible

2) Coke- Performed slightly under the market, up a third of a percent while the market was closer to half a percent. Doesn't take into affect the almost 1% of share price dividend at all. Fail.

3. HP- Went down way more than the dividend on a flat day. Obviously more here than the dividend Fail.

4. McDonalds- Went down on a generally up day, and the percentages look pretty close. I'll give you that one.

5. Walmart- Outperformed the market and went x-dividend on the same day? Pretty epic fail.

So out of 5 stocks, you get one yes and one maybe.

Paying dividends to shareholders, in other words, is the functionally the exact thing as a mandatory buyback of shares.

No it isn't. For several reasons:

1) Shares don't always go up. A mandatory share buyback could mean being forced to sell at a loss.

2) It's MUCH more simple to pay out dividends as it is to do a mandatory share buyback.

3) Wouldn't a mandatory share buyback eventually make all of someone's shares go away?

4) You're named after granola. Nice call on that one. We've all had some shitty calls in our day, but that one takes the cake.

With the dividend reinvestment, I lose no value in my investment, nor do I lose value.

Actually, if all things stay the same (which over time, it will) then you stand to make money from dividends. Because the market puts a value on dividends that it wouldn't on stupid shit like mandatory share buybacks.

Ever heard the expression "cash is king?"

With my $25 in capital gains, I will be taxed at 15%--in addition to the normal tax I will be charged when I sell my “free” stocks at a future date.

I'm actually legitimately confused with this statement. So when he has capital gains now he has to pay 15%, but later in the future when he has capital gains he'll have to pay more?

Money Granola (extra fruity!) is either crazy or crazy like a fox. I'm guessing he's the first.

If a company reinvested its earnings, like Warren Buffett’s Berkshire Hathaway does, I would not have to pay those taxes.

Oh Money Granola... (without nuts!) Thank you so much for being so stupid. Really, I owe you one.

Okay, if you hold an investment for a long period of time, you don't NOT pay taxes. You just defer them for a long period. Granted, there is value in this, but it's hardly the same as not having to pay taxes.

Another thing. For every Berkshire Hathaway success stories, there are thousands of companies that failed more miserably than that time I tried to hit on the big titted waitress at my favorite restaurant. And I fail pretty bad, mostly cause I still live in my mom's basement.

Is titted a word? Comments people!

If dividends are such a tax nuisance, why do corporations issue them and spend so much time on them?

Plain and simply because investors put a value on cash. Isn't that the whole fucking point of investing?

Bottom line: I'm not going all dividend growth investor on everyone. Dividends aren't everything when it comes to investing. But saying they're pretty worthless is pretty fucking stupid.

The worst part is that he doesn't allow comments. Maybe he saw me coming.