Thursday, May 1, 2008

Shareholder Benefits from Higher Fuel Prices

Okay, I'm not among those who would like the government to start mucking around with market forces to deal with higher fuel costs. But, I must respond to the ridiculous notion put forth by many pundits that consumers actually benefit from higher prices and profits because 41% of Exxon stock, for example, is held by 401k's.

Let's do some math.

Suppose you own a fund in your 401K that has 10% of its value in oil stocks. Exxon was able to raise its dividend by 17% (about 24 cents/share) annually. 24 cents times 10% = 2.4 cents/mutual fund share. Now, lets suppose you own 1,000 shares of this fund. The increase in dividends amounts to $24 annually. The price of gas is up well over $1/gallon, not to mention other energy costs. How long will it take you to totally obliterate the dividend increase in higher fuel expenses? Two weeks?

High energy costs are a net negative for consumers by a long shot. Again, I'd like to see the market take care of it as opposed to the government, but don't let those extra few nickels in your mutual fund stop you from seeking alternatives to petrol.

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