The Motley Fool Discussion Boards

Previous Page

Retirement Discussions / Retired Fools


Subject:  Fool Newspaper Feature Sample Date:  1/6/1999  1:35 PM
Author:  TMFSelena Number:  391 of 20035

(If we're not running in your local paper, ask the business editor to carry us.)

Ask the Fool

Q. I've heard that you can save some money by combining student loans. Is this true? -- H. H.., Austin, Tex.

A. You heard right. The Department of Education has unveiled an exciting new opportunity for Fools (okay, and other people) who are saddled with sizable federal student loans. It's basically a chance to refinance debts at a low rate (7.46 percent this year). Multiple loans can also be consolidated into one, reducing monthly payment hassles. The savings for the typical borrower are estimated to be around $50 for each $1,000 borrowed. That adds up quickly; someone who owes $15,000 over a ten-year period can save about $750.

Act soon, though! You only have until January 31st, 1999 to get your application in to the Department of Education's Direct Loan Program. (Some private lenders may also offer the new low rate, but they're not required to.) Get more information on these Direct Consolidation Loans by calling 800-557-7392 or by visiting

Q. Please explain how companies are affected by the rise or fall of their stock prices. A company issuing stock gets its money upon issue. After that, when its shares are sold, the money goes from the buyer to the seller, not to the company, right? -- Marie Gookin, Vero Beach, Fla.

A. Yup. The stock price still matters, though. Executives and employees holding stock or options benefit when the stock rises. If the company wants to issue more stock, it will want to do so when the price is higher rather than lower, to generate more capital for fewer shares. If the company is buying another company with its stock, the higher the price, the more bang it gets for each share.

Meanwhile a company's falling stock price may make it more attractive to companies thinking of buying it. Stock is a form of capital and companies often hold a chunk of their own stock.


The Fool School

The Power of Dividend Growth

You may think of venerable blue chip companies such as Ford, Bell Atlantic, J. P. Morgan, and Chevron as stodgy and old-fangled, but think again. They pay generous dividends.

If you bought Ford when its dividend yield (annual dividend divided by share price) was 3.6 percent, you're very likely to get that 3.6 percent payout every year, regardless of what happens to the stock price. (Struggling companies may decrease or eliminate their dividends, but they try like heck not to, because it looks really bad.) Couple stock appreciation with dividends, and you've got an appealing combination.

Here's something investors rarely consider. Let's say you bought 10 shares of Stained Glass Windshield Co. (ticker: STAIN) for $100 each and they pay a respectable 2.5 percent dividend. With a $1,000 investment, that amounts to an annual payout of $25. Not bad.

Better still, dividends aren't static and permanent. Companies raise them regularly. A few years down the line, perhaps STAIN is trading at $220 per share. If the yield is 3 percent, it's paying out $6.60 per share. Note: $6.60 is a 3 percent yield for anyone buying the stock at $220, but since you bought it at $100, to you it's a 6.6 percent yield.

Decades pass. Your initial 10 shares have split into 80 shares, each currently priced at $120. Your initial $1,000 investment is now valued at $9,600. The yield is still 3 percent, offering $3.60 per share. With 80 shares, you receive a whopping $288 per year. Think about this. You're earning $288 on a $1,000 investment. That's 29 percent per year (and growing) -- without even counting any stock price appreciation. The yield for you has gone from 2.5 percent to 29 percent all because you just hung on to those shares of a growing company. That's security, Fool! Even if the stock pri