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You know that buying a stock makes you part owner of a company, theoretically with millions of other people. But, while ownership has its privileges (at minimum you get a neat stock certificate and an invitation to the annual meeting), being an owner doesn't necessarily pay. Sure, you make money if the stock goes up, but only if you sell, and you can, in theory, lose all the value of your investment if the stock tanks.
Enter the dividend. Here, you get money simply from holding the stock. Companies pay a yield, which is expressed in a percentage based on the stock's price. For example, if a stock trades at $10, and pays a 10% annual yield, your dividend payment would be a $1. (Usually, companies break out the payments quarterly, so, using our example, you¿d get, well, a quarter each quarter.)
Companies that pay dividends fall into a few categories. First, you've got your big, stable companies that generate enough cash that it makes sense to throw some back to shareholders. Next, there are businesses, like real estate investment trusts, that are in the business of sitting back and receiving cash, then distributing it to holders. And, then there are companies that need to dangle a high dividend yield like a carrot to ease investor fears. Cigarette-maker Altria has been doing this for years.
Simply because a company pays a dividend doesn't make it a good investment. After all, you may want to take a chance on a growth stock that can move higher in price than dividend payers are known to do. But, you can¿t beat the safety of knowing that, even if a stock doesn't move in a year, you¿re at least making something off your investment.
Home / Markets
Thursday, June 26, 2008
Analysis
Gas Tax Holiday Never Got Off the Ground
Dunstan Prial
FOXBusiness
New York--The epitaph for the so-called gas tax holiday might well be that politicians frequently underestimate the intelligence of the voters they hope to woo.
Raised in April by presidential hopefuls Sen. John McCain, R-Ariz., and Sen. Hillary Clinton, D-NY, as gas was surging toward $4 a gallon and higher, the proposal to eliminate the 18.4 cent per gallon federal tax from Memorial Day to Labor Day seemed an obvious winner.
After all, who couldn’t use a break when filling up at the gas station?
But the response, rather than the visceral, knee-jerk support the politicians undoubtedly hoped for, was muted
at best.
And after some loud initial debate on its merits, the proposal has gone nowhere.
“People aren’t as stupid as politicians think. Even the most unworldly person knows that the price of oil is the result of global markets, and that reducing the price a few cents a gallon via the gas tax is not going to change those dynamics,” said Anne Mathias, director of policy research at the Stanford Group, a brokerage firm.
More than one economist suggested that eliminating the 18.4 cents per gallon federal gas tax, even temporarily, could ultimately lead to higher prices by encouraging more people to drive. More driving would increase demand for gasoline and force the price upward.
And, following that line of reasoning, higher prices would ultimately benefit the oil companies, which would rake in the profits.
Mark Zandi, chief economist for MoodysEconomy.com and a supporter of the proposal, said that aspect of the debate likely played a significant role in killing the idea.
The proposal was designed to provide a short-term cash boost to hard pressed middle and low-income households, said Zandi, but it was misconstrued as a solution for the nation’s energy problems.
“It was very political, obviously,” he said.
Zandi said the proposal would have had a better chance at success had it been packaged by Congressional Democrats with a recently passed spending bill that extended unemployment benefits.
The gas tax raises about $30 billion a year, virtually all of it (99.5%) earmarked for infrastructure improvements and mass transit projects.
A three-month hiatus taken during the peak summer driving months would have shaved about $9 billion from the 2008 federal coffers, according to one Congressional analysis, and slashed 300,000 highway construction jobs.
Meanwhile, the average driver was projected to save around $30 over the duration of the holiday.
“I think that people simply did the math,” said Kevin Kerr, head of commodities brokerage Kerr International Trading.
Kerr, who described the proposal as “more of an insult than a solution,” added, “It's so sad that the candidates are wasting so much time with such stupid ideas when we basically have a national emergency happening.”
The presumptive Democratic nominee Sen. Barack Obama, D-Ill., has opposed the tax break from the start, calling it a “gimmick” that does nothing to allay long-term U.S. energy problems.
Given that energy costs have emerged as a primary concern among voters, it’s hardly surprising that the candidates would attempt to tap into this anxiety and use it to their advantage.
The proposal recalls Mitt Romney’s guarantees to Michigan voters ahead of the primary in that economically hard hit state that as president he would bring back thousands of jobs to the automotive industry.
McCain’s campaign called Romney’s promises pandering, and McCain got hammered for saying the jobs weren’t coming back.
Romney won the primary.
So if McCain and Clinton decided to take a page out of the Romney playbook, it backfired on them.
“I think most people saw this as politically expedient and I think it’s an example of unsuccessful pandering,” Stanford Group’s Mathias concluded.
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