In mid July Vitaliy Katsenelson of Investment Management Associates in Denver recently wrote an article that when you buy a stock even high quality dividend stocks you must remember there are two parts of a stock. The Price/Earnings Ratio and the Dividend, when the PE Ratio rises the stock price rises and that is a good thing, however at some point investors have to look back and think is this a growth stock or a dividend stock. Mr. Katsenelson used the example of Coca-Cola and you may have drunk some of its beverages this summer. The stock pays a 3% dividend but similar to many stocks the PE Ratio has risen to 23 times earnings. Should you buy it for the dividend? Mr. Katsenelson says while the stock is a secure one with a global franchise, it will likely decline in price to reflect its growth prospects to a PE Ratio of 13 to 15 times earnings. At that range, because the stock is mature and will continue to be profitable, you are not paying for growth but collecting the dividend. For Mr. Katesnelson this is a stock is to be bought when the price moves downwards and at the present ratio can be partially sold and other alternatives bought.

Linking to dividend paying stocks, all dividend stocks have a dual role – growth and dividends and it is up to you to choose which is the better role. If you pay a high price, at some point the price should fall perhaps with a market correction. If you are going to hold the stock for a long period of time, the PE Ratio becomes the less important for eventually the street will pay more for profitable companies.

There are more questions than answers, till the next time – to raising questions.