I'm generally an index investor, but have also have an interest in dividend stocks for their perceived stability (i.e. PG, SO, KO, etc). I feel like it's a wash when you reinvest the dividends since your account value stays the same as you have slightly more shares trading at a slightly lower share price. You also get a taxable event in a taxable account, which is phantom income. Sometimes I read about investors buying before the ex-dividend date to get the dividend. I don't see the value of that since the share price gets reduced by the dividend amount anyways. Thoughts on value of dividends? Is the whole dividend investing angle overrated or am I missing something?
I stay away from dividend stocks for 2 reasons: -Dividends get taxed the year you get them whereas capital appreciation won't get taxed until you sell (many years down the road possibly) or never (if you die holding the stock and your heirs get it with stepped-up basis) -I invest my money in a company because I expect them to be better than me at multiplying it, so I see no point in them handing it back to me.
Dividend stocks make sense only for people who have a huge amount of cash to invest. What is the average yield across a basket...2 percent? It is laughable. How the dividend income is taxed is the most important factor when you consider the other options. Not to mention that value of the stocks you are in paying those yields and want to get out later. T is the most perfect example in my "high-yield" portfolio. I hate T. They pay a great yield, but the position is down 40% since entering. So whoopie do. When I exit the thing I'll take a capital gains loss, which will more than offset the dividend income gains. But that is not what I want. I want to exit a company with a high-equity/div ratio, so I made some divs and made money selling my stake as well! If you bought into high-div stocks at the pandemic low, and they were fixed divs and not variable, yer prolly high on the hog now. Selling them would be a golden goose. I guess what I am trying to say is dividend stocks are those you sock away for a long-term portfolio, like retirement. 30 years+ Get it while yer young. Or, if you have hundreds of millions to dump into a few and collect annual yields for a few years.
There’s no free lunch and ultimately you should expect returns to converge around the long term average total return figure for equities, dividend or not. I would look to analyze the time varying nature of dividend stock returns to know when to invest in them and when not to.
The grass is always greener on the other side. Growth vs Dividend stocks go in cyclic fads over time, with every new person into investing trying to feel like a GENIUS guru. At the current moment in time, there is a big trend of millennials thinking dividend stocks is some superior way to generating growth and it creates a money-making self-perpetual machine. No one seems to talk about the extra tax issues, (that doesn't fit the narrative). You'll have to wait for the trend to switch again before the next set of youtube Gurus begin to talk about THAT.
S&P 500 Dividend Aristocrats: The Importance of Stable Dividend Income. Dividends play an important role in generating equity total return. Since 1926, dividends have contributed approximately 32% of total return for the S&P 500, while capital appreciations have contributed 68%.
Dividends add to more paperwork you need to attend to, besides, where companies employ dividend reinvestment plans, this creates ongoing share dilution for other investors.
I like dividends because it forces discipline on management and makes it harder to cover up balance sheet problems. People like to think they're better off if the company retains the cash but: 1) There's no guarantee that it will eventually be paid to you. They could lose it all in a lawsuit. (Among other possibilities) 2) It's easier to cover up a failing company where you have years or earnings in the bank. Look at how wirecard had 2 billion dollars disappear off the audited financial statement. For another example, management can spend money and the invent an asset to make it look like it's still there.
I go for the dividends...But then I don't pay taxes. My wife and I created assets over the years...House paid for, lot, rental, 3 vehicles. About $700,000. in the market (trust accounts). About 1/3 of our assets are in Roth IRAs (in the market)...Saved over 30 years. We have about $900,000. in CDs...It's blood money (we can't afford to lose). With our trust accounts and IRA's we will look for value and growth. But, I'll be turning 67 in September (two heart attacks). I do NOT want to leave a complicated estate for my wife and kids. Just me... PS The dividend monies in our Roth IRAs, do not have to be touched till 10 years after my wife or I die!! Talk about compounding tax free...
1) I've been telling people for years that The Apple ear piece causes cancer, (and Apple has know about it). But nobody listens to me...