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Bernie Madoff Proves the Value of Dividend Stocks

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January 8, 2014 2:04 pm
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Bernie Madoff Proves the Value of Dividend Stocks

Back in the news again, convicted swindler Bernie Madoff is costing more investors even more billions. This time it is the shareholders of JP Morgan (NYSE: JPM), which was the prime bank for Madoff for two decades. JP Morgan is having to pay a $2 billion fine for falling far short in its role as a fiduciary. Some of the fine will go to pay back the victims of Madoff, who ran a $65 billion Ponzi scheme.

While it was an expensive lesson for his victims, Madoff proved, yet again, the value of the dividend component of stocks such as Wells Fargo (NYSE: WFC), ConocoPhillips (NYSE: COP), and Consolidated Edison (NYSE: ED).

A previous article on Benzinga, "The Enduring Appeal of Dividends," detailed the importance of this income stream for investors. For purposes of due diligence, the payment of a dividend is very important. Jesper Madigan, a fund manager, pointed out that of the many Chinese publicly traded stocks that were found to be frauds, not a single one paid a dividend. A dividend check in the mail cannot be faked.

What is also real about the payment of the dividend is the respect it shows for all of the owners of a publicly traded company. A dividend payment evinces that the management of a firm wants to share the wealth with all of the owners. Even if only a single share is held, a dividend check is still received.

Related: Fiat Positioning Itself For A Promising Market Share In China

In addition to a show of respect, paying a dividend is also a sign of strength for a publicly traded company.

When the management of ConocoPhillips, Wells Fargo, Consolidated Edison, and others declare a dividend, that decision shows that the cash can be spared. Even with paying the dividend, the business can still operate profitably and grow for the future. Should the dividend have a history of being increased, that is even more of a bullish indicator.

More than 80 percent of the stocks that are members of the S&P’s 500 Index now pay dividends.

Some, such as the 12.52 percent yield of Windstream (NYSE: WIN), are in the double digits. All of those dividend payments had to be approved by the board of the publicly traded company. With Bernie Madoff back in the news, the big headline for investors is to value the role of the dividend when considering a stock.


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