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Author: Packers101 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3862  
Subject: Re: Groupon Inc Date: 9/2/2012 12:16 PM
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The hitch there is twofold, but your idea works under a 3rd set of conditions.

First, the return you are getting, based on the investment you initially made, will continually give you a yield of that percent. If the dividend rises, then your yield goes up with the rise. If the stock price rises, your yield remains unchanged. Conversely, if the stock price drops, your yield stil remains unchanged.

Second, if you are in search of a higher dollar return, which, I believe, would be the primary reason to get out of the initial investment, (the other reason being that the initial investment stock is no longer looking like a going concern), and you sell the initial purchase at a substantial gain, you will incur the dreaded capital gains tax, which will reduce your overall profit by whatever percentage the tax happens to be at the time of sale.

Third - That being said, if you were making 10% on a $5 stock (let's assume 100 shares for the sake of easy math), then you were pulling in $50 annually. If the stock moves to $8 and you reinvest the money in an $8 stock paying 8%, you're now pulling in $64 annually. But you still have to pay that cap gains tax on the sale as well.

So, it may come down to higher rate of return vs. higher amount of return.

Paul
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