Buy bank stocks w/8.5% dividend?

The risk that the potential further drop in stock price is not compensated by the high dividend. The risk the dividend will be cut in half.

If you knew precisely what WB's assets looked like, and whether their subprime portfolio was reflected in the current price or the current price is an over-reaction to the market panic, you could make a better decision. JOE

Why do you figure Wachovia (WB) will probably maintain its dividend for several years?

Repeat: Investors do not like uncertainty. Uncertainty with mortgages continues to affect the entire economy. The mortgage crisis (foreclosures and securities that are nothing more than re-packaging of high risk loans) is producing a shortage of dollars (personal and company) to stimulate the market. Driving down stocks... and round and round we go.

In view of these uncertainties, WB is priced "accurately."

OTOH, suppose WB does have enough writedowns that it has to slash its dividend. Figure on the order of 50%. Whence the yield will still be around 4%. Reinvest dividends, and in ten years you could be in fat city.

Google for {Wachovia dividend writedown} and note the dates of the article reports.

Regardless, do not buy any stock unless you are buying for the long term. Stay diversified. Bank stocks' P/E ratios historically are much lower than the S&P average of about 15 for a reason. Namely, banks are riskier. See the chart at

Well, they may have to cut the dividend to make up for losses on their loan portfolio. IMO, a lot of the decline in bank stocks is being driven by panic selling, but some of it is also being driven by more rational concerns about future earnings and profitability, as well as pricing in risk that some banks may not survive at all.

-Sandra the cynic

further price declines? Dividend cuts?