About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Survey of the Best CD Rates for September 30, 2011


Survey of the Best CD Rates for September 30, 2011

I was hoping to add a new credit union to my survey of the best nationally available CD rates, but the rates didn't last. On Monday I reported on the high CD rates at US Senate Federal Credit Union. In the previous week, a reader found an easy way that anyone could qualify. The credit union was offering rates as high as 3.33% APY for a 5-year term. I had warned on Monday that these rates may fall in October. Unfortunately, that is what happened. The credit union just posted lower rates late this afternoon. The top 5-year CD APY is now only 2.43%. That's still a competitive rate, but there are several all-access credit unions with higher rates. Hopefully, those rates will hold up next week as credit unions post their new October rates.

Several banks and credit unions didn't wait for October to cut rates. CNB Bank Direct and Connexus Credit Union made big cuts. Ally Bank cut its 11-month No-Penalty CD APY from 1.02% to 1.00%. However, Ally's 5-year CD rate held at 2.04% APY.

The 1-year CD is often the most popular term for savers. However, with the rates so low, you have to wonder if there's any reason to open a 1-year CD instead of just leaving your money in a savings account. The best nationally avaialable 1-year CD rate at a bank is now just 1.15% APY at Doral Bank Direct, and the best at an all-access credit union is 1.30% APY ($25K minimum) at Alliant Credit Union. The savings account rates may fall over the next year, but even if they do, the difference in interest won't be much. For example, if the Alliant savings account APY falls from 1.15% to 0.65% over the next year, the average APY for the year would be about 0.90%. That's 40 basis points under the 1-year APY. If you deposit $25,000, the total interest difference would be about $100.

If you want a higher interest rate, you'll need to go for a longer term. Unfortunately, 5-year CD rates are falling. The highest nationally available 5-year CD rate at a bank is now only 2.25% APY at AmTrust Direct. There are still several all-access credit unions with much higher rates, but I have a feeling some of these rates are likely to fall in October.

Even though there are some risks that an institution may increase the early withdrawal penalty, long-term CDs can be a reasonable strategy in today's awful interest rate environment. If rates shoot up in the next few years, you can make an early withdrawal. If the penalty is reasonable, you will still come out better than if you had chosen a short-term CD. In the lists below, I've included a few long-term CDs in the short-term CD lists. These long-term CDs have small early withdrawal penalties, and due to these small penalties, the effective yields after the penalty are often higher than the shorter-term CD yields

Note About the CD Survey

As I described in my rate table overview, you can use our CD rate tables to find the best rates for both nationally available CDs and local CDs. The Friday blog posts are intended to highlight nationwide CD deals that may not be apparent in the tables. For example, I'll include the post-penalty yields of a few long-term CDs.

The Friday blog posts are also intended to highlight the local CD deals that are available in large metro areas. There are many high CD rates, but many of these are at small banks in rural areas or at small credit unions with very narrow fields of membership. In these local CD surveys, my focus is on local CD deals that are in big cities or that are available in large areas of a state.

Yields Accurate as of Sep 30, 2011

Under 1-Year CD Rates

  • Noteworthy Local Deals

1-Year CD Rates

  • Noteworthy Local Deals

18-month CD Rates

  • Noteworthy Local Deals
  • Alaska USA Federal Credit Union - 1.60% ($100K) 1.40% ($10K) 18-month CD (San Bernardino County, CA; parts of WA & AK)
  • First Choice Bank - 1.50% ($50K) 1.45% ($2.5K) 541-day CD (Los Angeles & Orange County, CA)
  • Department of Commerce FCU - 1.45% 18-month CD (Washington DC)
  • Focus Bank - 1.31% 19-month CD (online application for MO, AR, KY, TN & parts of IL)
  • Industrial Credit Union - 1.25% 18-month CD (Boston metro area)
  • Peoples Federal Savings Bank - 1.25% 18-month CD (online application for MA only)

2-Year CD Rates

  • Noteworthy Local Deals

3-Year CD Rates

  • Noteworthy Local Deals

4-Year CD Rates

  • Noteworthy Local Deals

5-Year CD Rates

  • Noteworthy Local Deals

Over 5-Year CD Rates

  • Noteworthy Local Deals

Note: All rates listed above are Annual Percentage Yields (APY) which factor in compounding.

Related Pages: CD rates
Anonymous   |     |   Comment #1
Doesn't that Dept of Commerce c.u. now stand alone near the top for 5 years??
Pablo Savin
Pablo Savin   |     |   Comment #2
Got my cd funded with the us senate federal credit union at 3:45 today. Got the rate and they were great to work with. Great rate, lucky to get it
cactus   |     |   Comment #5
Sorry - I misread it as the savings rate rather than 12mo CD rate.
sulu   |     |   Comment #6
at some point in time people will have to take some risk and move away from cds no  really  5 years for 2.68  come on
jacob   |     |   Comment #7
its not just the 2.68 pct, but its the insurance as well, when you factor that in, its not such a bad deal. How much do you believe the insurance iw worth I guess is the question, 50bp, 100bp, more, there is no place you can get it other then the banks or directly in treasuries themselves as you know. 
scottj   |     |   Comment #8
At some point principal protection because a huge factor. Look at what people are getting for safe 5 year Treasury rates, 1%. So if I can stay fully insured and get 2.68% I will live with it.
jacob   |     |   Comment #9
My question is in this environment, how much in basis points does anyone think its worth to have the principal protection which can not be purchased anywhere reliabiy?
Brett CPA
Brett CPA   |     |   Comment #10
One can get 5%-6% on some "safe" stocks such as utilities or blue chip, well-known companies.  But, for example, if a $20 stock goes down just $1, it wipes out the dividend and you have a "0" yield.  If it goes to $19 or $18, then what?  Honestly, a 2%-3% FDIC-insured CD looks good in this volatile environment.   CD's have outperformed stocks and mutual funds over the last 5-10 years, especially the last 3 yrs.  I'd like to see 5%-6% CDs again, but the risks of stocks are not worth it rt. now.
jacob   |     |   Comment #11
how do you get 5% on a safe stock??? When a stock pays a dividend, the stock drops by the amount of that dividend the day it gets recorded, so how exactly do you make anything from a dividend? If a stock is 20 and it pays a 5% dividend say all at once, the stock closes one day at 20 and the next day after the dividend it opens at 19 and moves up and down from that point so again how do you get the 5%??
Brett CPA
Brett CPA   |     |   Comment #12
Jacob #11

You misunderstand the concept of "ex-dividend."  The stock price is only temporarily adjusted for the dividend payment.  The 5% dividend, for example, is real.  The $20 share price is not diminished by the dividend other than for a short term basis.  However, my comments earlier are valid:  many stocks pay 4% to 6%-plus dividends, but they are subject to the roller coaster risk of the markets.  A 5% dividend "yield" is not very good if the stock itself went from $20 to $15 per share over a few months.  You still get the $1 per share dividend, but your principal is now worth 25% less.  At least with CD's (or govt. bonds/savings bonds), the principal is safe. The other very real issue is that some companies have reduced or even eliminated their dividends due to hard times.  Good example: bank stocks.  Hope that is clearer.
jacob   |     |   Comment #13
I have to disagree, I think that if you truly got 5% that would be a substantial enough advantage to warrant the risk of the stock moving which can go for or against you of course. I am not sure what you mean by the notion that the  stock price is only "temporarily adjusted and for a short term basis", if that was the case, everyone would buy the stock the day before the ex date and sell it after the "temporary" adjustment period, seems like easy money if that were the case. Of course the market can move up or down during that temporary period, but that can again go for you or against so if you do it enough times the averages should even out and you should win easily. 
Brett CPA
Brett CPA   |     |   Comment #14
Hard to see the reward for risking principal to get a 5% dividend when you can get 2%-3% with no risk.  One bad day with the stock market (which is common now) can wipe out your advantage and more. You are incorrect re: the ex-dividend, however.  Ask any stock broker. 
jacob   |     |   Comment #15
During periods of extreme volatility I agree with you, but there are years when volatility is extremely low and that dividend advantage if true,  would be very compelling. I think most stock brokers agree with you and have the same explanation that the stock price is adjusted down for the dividend after it goes ex dividend (which I agree )with and its somehow only temporary and somehow rises back up ,( which I dont agree with), but no one can really explain the "somehow" part, how does that exactly happen where it rises back up? In addition, there are of course people short dividend stocks irrespective of the size of the dividend so is it your belief that these people have such conviction they are essentially willing to take in this example a 5% loss for the right to short a 5% dividend yielding stock, that seems like quite a hefty tax to make such a bet. I think these same stock brokers compare dividend yield to fixed income yield and you seem to disagree with that representation as you rightfully point out that with a stock, you can lose principal whereas that is not the case with the vast majority of fixed income that this term "yield" is compared to. 
Brett CPA
Brett CPA   |     |   Comment #16
Thing is, we are now in a period of high volatility and stock dividends are shaky.  I had lots of clients who owned bank stocks which paid 5-7% dividends.  Alegedly, these were "safe" and boring stocks.  They just paid their dividends year after year, no big deal.  Then in 2009,2010 they cut and eventually eliminated their dividends.  That also caused their stock prices to collapse. Now, the vast majority of my clients are out or getting out of the stock market, I would say 70-80%.  Not on my advice, that's just what they are doing.  Instead of for example, $100,000 in stocks with an avg. dividend yield of 4-6%, they would rather have that $100,000 in a CD getting 2-3%.  At least the $100,000 is safe, they tell me.  In stocks, they would be getting $4000-$6000 in dividends, but the principal could or may likely drop to $90,000-$95,000 or less if we have a bad stock market and another recession.  I see their point.
jacob   |     |   Comment #17
I stil dont understand why anyone compares dividend yield and fixed income yield, I think this is arguably  the greatest misunderstood concept when it comes to innvesting, the two have nothing at all to do with eachother. I know i am in the minority, but in todays world where nearly all companies that pay dividends have substantial amounts of debt it makes no sense for companies to pay out dividends to shareholders when it would be better business for them to pay down their debt with those funds. The fact is that dividends are like bond ratings in that they attempt to speak to the soundness of a given company, but like ratings, they provide no economic benefit. The reason the companies had to cut their dividends is because they know that they cant justify paying dividends when their are no profits because people think the 2 are related. Companies like general motors didnt make money for years if not an entire decade and had huge debt and still paid a hefty dividend, how does that make any sense? 

Until someone can explain to me how after the stock price is adjusted down for the dividend on ex dividend day how it "goes up by the amount of that dividend", I will continue to maintain the very unpopular and minority view that dividends provide no economic benefit to the investor. 
Elaine   |     |   Comment #18
I think you need to talk to a stockbroker or take out a book from the library on stocks.  Sorry. You are misinformed. Dividends are real and represent real payments to an investor, although of course the stock can go up or down.  Ken, can you help this person and explain more?
jacob   |     |   Comment #19
I have an open mind, I would love to see anything written that explains how the stock price recovers by the amount of the dividend, if there is a link to a book or article online that explains it, please post it, I would be very interested to read it. I am not disagreeing that stocks go up and down, this discussion only speaks to the stock price movement as it relates to dividends. We seem to all be in agreement that the stock "gets adjusted" by the amount of the dividend on ex dividend day, so the question is how does the stock price recover by that amount. I am fully aware that the vast majority of stock brokers think I am wrong and if I am , I would love to know it, I have an open mind and dont claim to be an expert on the subject, but its simple math at play in my opinion so I would love any specific language that explains how the dividend is indeed a "bonus" to an investor for holding a company that they receive the dividend from. 
Anonymous   |     |   Comment #20

In this case, I don't think Ken will be able to explain much more than already been explained. Nice thought though.
lou   |     |   Comment #21
Hi Jacob,

I think your confusing stock mutual funds and individual stock securities. When a stock mutual fund pays a dividend or a realized capital gain, it generaly is paid as additional shares. Because the fund now has more outstanding shares, the price per share goes down correspondingly, therefore leaving the net asset value of the total shares unchanged. I don't believe individual stocks, when the company pays a dividend, adjust in the manner I described for mutual funds. The only way the price of the stock will change is due to market conditions and supply/demand among investors for the stock.
John   |     |   Comment #22
Lou is 100% correct, as is Mr. Brett.  I worked for Charles Schwab for 22 years and Merrill for 11.   Jacob, read his post and Mr. Brett's. 
jacob   |     |   Comment #23
Lou/John: That is not correct, its not in question whether a stock price adjusts for the amount of the dividend. If stocks didnt adjust for the amount of the dividend, you would just have to purchase the stock at the closing price before the ex dividend date and sell it at the open the next day. Sure the market can move up or down , but you can hedge that if you wanted plus I know the markets are volatile now, but the vast majority of the time, the market is not all that volatile from day to day. Additionally, please read below and John, can you tell me if you simply disagree with this logic and wikipedia?

This is from wikidpedia

"After the close on the day before the ex-dividend date and before the market opens on the ex-dividend date, all open good-until-canceled limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except for orders that the customer indicated "Do Not Reduce." This is done because the dividend payout will decrease the value of the company, as it comes directly from the company's reserves. At the market opening on the ex-dividend date, the stock will trade on an ex-distribution basis, adjusted for the amount of the dividend paid."
lou   |     |   Comment #24

This quote comes from the Seeking Alpha website:

"Share prices do not adjust downward to reflect the dividend being paid out. To believe that is to make the fundamental error of confusing book value with stock price.

If companies recomputed book value minute-by-minute, it is true that the book value would drop by the amount of cash paid out in dividends at the moment the cash went out the door. It is also true that the company’s book value would rise by some amount every time it sold a product. Book value is constantly changing by miniscule amounts every minute of every day. Companies report it once per quarter.

The share price, on the other hand, is not determined by book value, it is determined by the market. Over long periods of time, it is true that share prices roughly correlate with book value per share. But the correlation is inconsistent and subject to thousands of other factors that go into the “price discovery” that takes place every day that the markets are open."

This explanation is not inconsistent with the wikipedia excerpt. In theory, what you said should be the case, but in practice stock prices are determined by market forces and do not reflect the book value of the company. Many times you will hear an analyst recommend a stock because the book value is significantly higher than the market value (purchase price of the stock). If you are familiar with closed-end funds (a fund with a portfolio of stocks), they will generally trade at premium or discount from the net asset value. So do individual stocks, but most  investors are totally unaware of the book value of a company. The payment of the dividend affects the book value of the company, and only indirectly the purchase price of the stock.
jacob   |     |   Comment #25
lou: as for mutual funds, I think its at the investor option whether they want to receive a cash distribution or re-invest the proceeds in additional shares, the same is true for stock dividends with some brokers as well. Mutual funds and stocks have the same dividend process and both are adjusted by the entire amount of the dividend or again their would be that arbitrage free money opportunity. By the way, Brett agrees the stock drops by the amount of the dividend, but his belief is that the drop is only "temporary" and my question is how exactly does it rise back to mitigate the effect of the dividend on the stock price. I would be very truly appreciative to read anything that explains how the stock makes back the dividend. I also point that every stock has a fair amount of short interest so I really dont think investors would pay what would amount to a tax (which would be the amount of the dividend because they would have to pay it) for the right to be short a dividend paying stock which tend to be more sleepy stocks at that which wouldnt warrant any premium to be able to short it. It seems short sellers believe that the stock price drop compensates them 100% for the amount of the dividend they have to pay out and is therefore a wash to them with no economic impact. Does this not sound logical?
jacob   |     |   Comment #26
lou: thanks for taking the time , this is the link to the article he cites:



The problem is that there is no effect on the stock price on the day the dividend is paid out, it comes on the ex dividend date, if you read the comments of the article, this is mentioned by more then 1 person. This article also doesnt show the effect of the market on the day the stock prices were determined. I also dont think that 9 examples which could easily have been cherry picked is convincing in the least when it flies in the face of simple logic. All that said, I would love to read something more academic then one person's opinion on the matter. I fully concede that the vast majority believe the stock price is not effected by the dividend and you somehow earn  a "yield" that should be comparable to a fixed income yield. 

Please read this article for a more academic clarification of the dividend/stock price relationship and comment on whether you believe it is accuate. 



Dividends lead to a drop in share price[/H3] What many investors don’t grasp is the direct relationship between share prices and cash dividends. If a company’s stock is trading at $20 and it pays a $1 dividend, its share price will fall to $19 on the ex-dividend date. This price drop may not be penny for penny, because it will be combined with normal fluctuations in the daily markets. But there is always a trade-off. The failure to understand this point is the reason so many investors think of dividends as “free money.”



lou   |     |   Comment #27

The share price adjustment for ex-dividends for mutual funds and stocks are different. For mutual funds, the mutual fund manager mechanically adjusts the share price pro-rata with the payment of the dividend; whereas for stocks, it happens as a result of market forces, which can result in a lower price to take into account the drop of book value or may not because market value and book value don't always coincide, even though in an ideal world it should. I see what you are saying that dividends should not enhance the value of the stock due to the lower book value, but in reality it doesn't always work out that way.
Anonymous   |     |   Comment #28
As of Oct. 4, Alma Bank (NY) continues its 1.35% 12-mo. liquid CD and Doral Bank is advertising 1.30% for 12-mo., 1.60% for 36-mo., but Signature Bank has eliminated its 1.51% 12-mo. offer.
jacob   |     |   Comment #29
lou: you are correct, the dividend adjust for mutual funds is absolute whereas the adjust for stocks is subject to market forces and there is no official pricing mechanism to drop the price by the amount of the dividend. So to clarify, market efficiency which is driven by both valuation forces and arbitrage forces produce a drop in stock prices equal to the amount of the dividend on average. Maybe that is a better way to put it, so I thank you for that clarification. The reason this discussion started was because its become common practice for wallstreet to compare dividend yields in fixed income vs equities and my point and I am hoping you agree is that the 2 really have nothing to do with eachother and while the vast majority of brokers, media and other market partipants believe you benefit the same from receiving a dividend from a stock as you would a fixed income investment, I am curious if you to agree with that view or do you have a minority view on what the economic benefit of receiving a stock cash dividend actually is. 
Anonymous   |     |   Comment #30
I must have wandered into the wrong blog by mistake.  I thought this was deposit accounts, not stocks 101.
lou   |     |   Comment #31
Hey jacob,

I do think there is some economic benefit for receiving a stock dividend, but I understand your view that its payment should reflect the book value of the company, thereby adding no real value to the stock. In the real world, I think dividends do act as shock absorbers in volatile markets and help to maintain the stock price in a bear market. So, all thing being equal, I rather own a profitable, multi-national company with a proven record of paying increasing dividends over a long period of time. However, I would not be comfortable with dividend paying stocks today because I do not trust the macroeconomic environment, and until I see huge policy changes to deal with the myriad of problems plaguing the US, I will be staying away from all stocks. The old adage "return of capital" being far more important than "return on capital" has never been more true than during these trying times.
jacob   |     |   Comment #32
lou: I am by no means an expert, but dividends were really intended to cash people out of their investments rather then having to sell off small portions of their holdings as transaction costs used to be enormous. This is why dividends were and are favored and is the only true economic benefit to the investor as they again eliminate the need to incur transactions costs. Dividend stocks by their nature are more conservative then other stocks so when everyone says dividend stocks outperform the market during bad periods, of course that is true as they are the more established companies like utilties, consumer stocks, etc. You are right, conceptually, people are so misinformed that they attribute a premium to dividend stocks as well and companies know it and foster that premium as best they can by always raising dividends to further gratfiy investors who think that is a sign of strength. 

Again, the whole reason for this discussion (and this is for the post before you as well) was that this entire blog is  about yield and the fact as I have stated now many times its borderline insane how brokers, media, etc speak about dividend yields in the same sentence as fixed income yields and I am sure you have heard the term a zillion times that holding a dividend stock is "getting paid to wait" for the stock price to rise. I hope now you will agree that is total nonsense and maybe others within this thread will see it the same well as well now that they might have had a chance to reflect on it. But again, I am no expert so if someone has tangible evidence that I am mistaken, I continue to have an open mind. thanks again lou for repsonding though and I think you were involved with that senate cd find as well which was amazing. 
jacob   |     |   Comment #33
I am not sure if people are still following this thread, but I wanted to point this out from stockcharts.com. As you can see they adjust their charts for the dividend so that should put to bed the notion that the stocks dont drop by the amounts of the dividends. It also cites an investopedia article which should be read by those that believe you are actually receiving "yield" when it comes to dividend payments


Historical Price Data is Adjusted for Splits, Dividends and Distributions

StockCharts Support Jan-27 2009

We adjust our historical price data to remove the effects of stock splits, dividends and distributions.

When something "artificial" changes the price that a stock appears to trade at, we adjust all of that stock's historical data so that it "matches" the new prices. 

For example, if a stock splits 2-for-1, the price is suddenly half of what it used to be.  That creates a huge break in the chart. If you didn't know about the split, you might think that something really bad happened to the underlying company.  What's worse, all of the technical indicators will suddenly give "Sell" signals because of the big "drop" in prices.  To counter this effect, we divide all of the historical prices by 2 (and multiply all of the volume by 2) so that things "match up" smoothly on the charts.

While this is a HUGE benefit for people that do technical analysis, it causes problems for people that are trying to determine the price that they bought or sold a stock at on a certain date in the past.  Do not use our historical data for determining actual buy or sell prices in the past.

For more information on why we do this for Dividends and Distributions, please see this article in Investopedia.

We apply this same philosophy to all of our data - stocks and mutual funds - regardless of how big or small the adjustment is.  We post all of our data adjustment activity on our Data Adjustments page.
Anonymous   |     |   Comment #34
Jacob - good deal, you were spot on all along and the lou person was all talk, ego and no show, as usual. I admire your tenacity, knowledge and willingness to share, and without trying to be a hollow prude about it. So, keep on keepin' on if you will....I , and others, learned a lot.
Anonymous   |     |   Comment #35
I appreciate that comment, I think lou may have turned around, I would be curious if after a couple of days of thinking about it whether he truly has a different opinion on stock cash dividends and how so many people can have such a lack of understanding for what is essentially simple logic. Maybe even the other active participant on this thread , brett cpa,  may have a new perspective as well and if not, can share some tangible evidence to refute the few links I have posted.....
lou   |     |   Comment #36
Hi Jacob,

I guess the anonymous poster is not a fan of mine. You are partially right, but not completely correct. The investopedia article is true as far as it goes, but doesn't really explains what happens. The exhange on the ex-dividend date will adjust the bid/ask quote, but the the actual trading in the stock is whatever the market participants bid for the stock. So, investors can bid whatever they want even though the bid/ask quote is set by the exchange. Usually, dividends are small, so any adjustment in the bid/ask quote can be overwhelmed by subsequent trading. Ultimately, the market decides what the price of a stock will be. However, you are right that the dividends do reduce the book value of the company and theoretically that should be reflected in the market price of the stock. The market is an imperfect mechanism and most stocks do not trade at their book price. Look at the prices of closed-end funds to see what I am talking about. An attractive dividend paying company may trade at a price in excess of its book value, OTOH, it may also trade for less than book value. So one company may trade at a price fully reflecting the adjustment for its dividend and another company may not. It all depends on the particular company and how attractive the stock is to investors.
CPA Also
CPA Also   |     |   Comment #37
Sorry to interrupt, but the last I heard of the Brett CPA guy was that he was last seen babbling and hiding under his desk, so don't count on anything meaningful from him. He obviously dared to tread in an area that was not covered by the CPA exam, or otherwise that he knew anything about, and he full well should have  known it at the time. 
Anonymous   |     |   Comment #38
lou - being a fan or not is not the point, so don't try to deflect. The simple fact is, YOU ARE FLAT WRONG AND JACOB IS SPOT ON! In words that you may, or may not, be able to understand, Jacob is  mainly right and you are wrong. Simple enough? Whew!
jacob   |     |   Comment #39
Lou: I am new to the community so I dont have any opinions on anyone which I guess is a good thing. As for your response let me say this. When it comes down the stock market is a numbers game, I am sure you have read much about quantitative trading. I presume you have been to a casino and while you know the odds are against you at a specific casino game, you can still win at the casino game , but not over time if you continue to play, you know that.

Sure the price movement of the stock can go either "up or down", but on average, the stock price is lower by the amount of the dividend. I also used the example of short sellers, they wouldnt short stocks if they knew they would have a disadvantage because of dividend and plenty of people are short both high and low dividend paying stocks, you can check that online if need be.

Again, stocks can go up or down on ex dividend date and you can win at blackjack or craps from time to time, but in the end, the math is the math and logic is logic and there is simply no economic benefit from receiving the dividend other then it saves you the time from selling off small pieces of your holdings if you need that money for other purposes. Of course many people just re-invest the dividends and for them there is truly no economic benefit and its actually a big negative because they have to pay taxes on the dividend amount so unless they end up with a winning investment, they end up paying partial  taxes on a loser and simply have the loss carryforward to hopefully use in the future. 

Again, all that said, I do realize that companies that pay dividends are given a premium valuation because of the belief there is a signficant economic benefit. This micsonception comes from decades ago when dividend payouts saved people the transaction cost and hassle of selling off small pieces of their investments to live on. Because transaction costs and spreads are virtually negligable, that benefit no longer is material, but similar to bond ratings, the investing culture still values this legacy procedure of paying dividends and as long as its confused with yield and comparable to fixed income investing, for the time being its a process for which companies have to continue to employ to keep their investors happy. 
lou   |     |   Comment #40
Okay Jacob, i hear what you are saying. All I am trying to say is that any stock can trade above book value, so it is conceivable for an investor to receive a dividend and not have it reflected in the price of the stock. In effect, have your cake and eat it too.

Unfortunately, these day we get anonymous posters trolling here and leaving comments that don't benefit anyone. In the old days, when the site wasn't as well known, only posters who had something to contribute participated in these forums. I wish Ken had an ignore function for these posters, but the problem is that they are mostly anonymous.
jacob   |     |   Comment #41
lou:  You are tough, but I know this is such a shock to many who have been almost brainwashed to believe you receive dividends in the same way you receive interest on fixed income investments, meaning it has no effect on your principal investment. Whether a stock goes up or down on a day to day basis whether its on  ex dividend day, when its raining out or anyday, simply has nothing to do with the investor benefiting from the dividend. What I will say that if it ever comes out in the media that dividends are nearly irrelevant from an economic perspective you will see the premium in these stocks implode similar to how the ratings agency influence on the stock market has been severly damaged as people falslely relied on them for years. Mind you the ratings agency prior to the last decade were useful, the same way dividends were useful 2 decades ago and prior, but things change and the concept of dividend and dividend yield will eventually be "ratted" out for lack of a better term, but like all bubbles, there is no way to predict the timing of that. 

In any event lou, I hope you realize you can not have your cake and eat it too when in comes to benefiting from dividends.