Income bad, working for income until 65 then garage selling assets to live good.
OpinionIdentity investing is ridiculous.
Use a strategy that fits your goals. Done.
Exactly! For some, just that they are able to invest is a huge step. Why discourage and disparage just because they might not be using your strategy…
Nope, it's all about are you investing with any actual reason or are you investing because of a logical fallacy.
There's a difference between investing in a good company vs. investing in a company just because they pay out a big dividend.
Dividend should not matter in your choice here because dividend does not increase your net worth when it's paid out.
Net worth is just a number on a spreadsheet. It can be cut in half in and instance and You still have to sell to eat. Dividends are like owning your own business. It feeds you.
Dividends may be one of multiple selection criteria. Although it’s true (and well documented) that dividends don’t increase your net worth upon pay out, it’s untrue that dividends and total return are mutually exclusive. Despite this, many people behave as though they are mutually exclusive, or speak to dividend investors as though no other criteria for selection is being used.
Why not both? Why not have a portion, even majority in dividend funds if you like them and keep 30-40% in a global market fund. Best of both worlds, stability/predictability and growth if the markets rip
Dividends go up and down too, both in value and % dividen given. It’s not safer, it’s just automated sale of your stock value (company value dips by the amount of money it just gave away)
I don’t understand the dividend vs. growth debate. They have different purposes.
What a 22 y/o with stable and rising income should be doing and what a retiree should be doing are different.
They're also not mutually exclusive.
What you do with your 401k might be different from what you do with a Roth IRA you might start in the side or a taxable brokerage account you just like to play around with.
What should the 22yo do my friend
The 22 yr old should be investing more for growth than income. When they are nearing retirement, then they can reinvest those assets into income generating stocks once the incone itself is more relevant.
Because Steve Jobs reincarnated makes Apple and Microsoft obsolete?
Growth is better when you get it right. But it is by no means guaranteed.
Thats whats so great about investing in broadly diversified index funds, it removes the need to "get it right" on any particular company and allows you to target the specific risk / return profiles attributable to each factor, whether that be growth / value / income etc.
By your same logic, dividend investing is also great "when you get it right". Income is by no means guaranteed, and dividends can be cut if unsustainable.
Except along the way, I have collected dividends.
Where the obsolete company just crashes.
Yeah…folks don’t seem to get that companies either do dividends or buybacks and between the two dividends are much better for the long term buy and hold investor who wont sell for a decade or two…
The only way this makes sense is if you have collected enough in dividends to offset the total loss of that equity going bust. And most likely, you haven't.
Even the 'best' dividend paying stocks take some 15 years to repay your investment off of straight dividends. Now add in taxes if that's applicable in your situation and also the loss of value to inflation. What you're suggesting at first glance sounds sensible, and this is probably why it's so seductive, but it's, in fact, entirely illusory.
If you're young and have a long time horizon, you really don't need income generation. Pick a broad based ETF and make regular contributions over a long period of time. If you have some risk tolerance, put some small amount of that portfolio (no more than 15%) into individual stocks that you have researched well and see a strong business case for.
Dividend investing, unless it's a small portion of your portfolio, really doesn't make much sense until you're approaching retirement and need a stable income stream with which to budget.
Like long term?
Can you argue dividend CAGR being an income and growth focused perspective. I want a consistent dividend and I want the dividend rate to increase. A difference in US taxes between ordinary and qualified dividends also exists. Just look at differences between dividends paid out across different sectors.
Tldr; strategies are endless.
There are many good strategies but few are good for everyone.
Because Income only becomes relevant in your 60’s and onward right lol.
Total return is the most relevant benchmark for risk tolerant, long term investors. Dividend investing strategies have demonstrated lower long term total return than simply investing in the S&P500, at the benefit of lower volatility. Income investing is fine if you are a young person who has inherited assets that you would like to use to subsidize your current lifestyle at the expense of their future asset size heading into retirement, but a bad idea for someone with higher risk tolerance looking to grow wealth for the long term.
If all you are doing is reinvesting the income, then its stupid to fetishize its generation in the first place vs higher total return. If you need the income to spemd and can tolerate lower income in future in return, then dividend investing is for you. The older you are, the more likely you fall into the second category, but atypical for 22 year old.
Tax is different, risk levels are different
You are clueless
Your source of income when you're younger is your job. The money you invest is income left over after paying expenses.
If you require income from investments, you could alternatively just invest less of your income from work.
Diversify your investments. Some income, some growth, some international.
You get a decent amount of income off VTI…not r/dividends level but decent.
I have PM and VZ, but I also have APPL and MSFT. Why employ certain strategies based on age when you can have the best of both worlds? Both will compound, but at different rates.
Because of the expected return
Because of a little thing called opportunity cost
Yes, just do both.
This right here kings and queens. I have my long term growth and dividends set.
Because you can't invest the same $1 in both, at the same time
Because over long spans growth do better.
Wall Street is not in the habit of handing out free money. And yet market returns can average 10.5% annualized. Why? Because you get paid for putting up with the market's cyclical volatility; that crap where it can be up 24% one year and down 18% the next. But again; if you have the time, volatility means nothing to you.
If you have the time (decades) don't squander it and go with growth. You'll be able to buy more dividend stocks later.
Recently growth has beaten value stocks but historically value stocks have beaten growth stocks. Will growth continue to win like it has recently? It might with AI and other tech but no one really knows for sure.
That's the nice thing about the S&P500, you get both.
Ages ago I stopped loosing money when I finally stopped chasing Alpha and simply dumped everything on the S&P500. That guarantees you that other than the minuscule expense ratio (0.03%), you'll never underperform the market.
Nowadays I'm moving from growth and into revenue. I don't expect dividends to outperform growth but that's not what I'm after, what I'll need in a few years is a reliable income stream that doesn't go up 20% one year and 20% down the next.
I agree. Recency bias has everyone thinking growth is the only thing to invest in. Sure, maybe that is the new norm… but maybe not. You just don’t know. Outperformance of one asset class over another looks incredibly different based on what period you look at. Thats why I do both. Sure there’s some opportunity cost. But both strategies should do well enough for my goals despite one outperforming the other
But these are not mutually exclusive things either.
I don't think anybody is making that argument.
Bottom line; your money, your choice. From a historical perspective, you can take better advantage of long horizons with straight market returns. On the other hand a focus on dividends is not the worst you could do and it can be a very close second.
It's called age and ratios. If you're 95% in Apple and MFST that makes little sense at 65.
If you're 10% in Apple and MSFT at 22, that makes little sense either.
It’s about risk tolerances. If you want dividend to compete with growth you will need to reinvest the dividends coming out.
In my mind though dividend is great to have for two reasons. Tech and AI have everyone’s loves right now so consumer products companies that pay dividends were down because only so much money to go around and they were struggling anyway so let’s beat them down. Well I’m young and know they will recover so for example I bought 5k more of Hershey the other month when I saw them at $180.
Hershey is now at $207. That’s not even as high as I think it’s going and if I listened to my peers or fellow Redditors i would have missed out on this buying opportunity because “it’s a dividend stock for chocolate not growth or anything AI related”
Growth + dividend. It’s my compromise to meet my risk tolerance
Did they say they were gonna put AI into the chocolate? If they didn't they should drop that news and watch the stock hit new record highs!
They talked about using AI to drive efficient marketing advertisements but i see that as more of a “let’s use AI in our call to create buzz” rather than actual massive cost savings utilizing AI to replace people’s jobs.
People are talking shit here, acting like every dollar they have needs to be min maxed as investment. Are probably still bag holding gme at $375 a share.
Paraphrasing Buffett a bit, who is more efficient at re-investing cash, you or the company?
This isn't a rhetorical question, sometimes cash is better used in theory by the company, assuming you're alright with that. Or sometimes large companies become terribly inefficient and give their managers big pay packets. Small rapidly growing companies need all the cash they can get.
Edit: Example, I could spend $25000 on a new forklift, but I probably wouldn't use it. It would sit in my garden gathering rust. But if a warehousing company spent $25000 on a forklift it would actually get some utility out of that.
Who is more efficient at re-investing cash, me or the executives of GM and Enron?
Yeah…me...
I’d rather have a dividend than a buyback as a long term buy and hold investor.
Why would invest in businesses you think are managed by morons in the first place?
I invest in a broad index fund with both winners and losers.
In any case, dividends are better than buybacks because the value of the buyback 20 years from now is ephemeral whereas dividends are available for use.
Buyback is the exact opposite of ephemeral, they are permanent.
Like AAPL bought back approx half of its shares. That means profits now are divided between half of shares vs then. So anyone who held all that time now as twice the share of APPL’s profit.
Buybacks boost EPS…and if you sell now then the E remains unchanged so you generally get a boost in share value.
But 20 years from now you have no idea what earnings will be for AAPL…so the smaller number of shares is far less important than whether AAPL can maintain earnings to what the share price will be in 2044.
In the case of GM the share price went to $0…BUT it paid out $64B in dividends to shareholders…
Well if they had $64B cash on hand instead of having give it away, share price wouldn’t have got down to 0. Company would have been worth at least $64B.
What’s the point in investing in the stock market if you don’t believe companies make a good use of cash to grow businesses? Companies issue shares to raise money to invest in their businesses and investors give them the money in exchange of part ownership of the business.
If you want businesses to pay you money but don’t want them to reinvest to grow that business, buy corporate bonds or preferred shares, no?
The point is that the dollar value of buybacks was $0 for long term buy and hold investors…like those of us that hold VTI/VTSAX for 20 years.
JCP, Lehman, GM, Sears, etc stock values went to zero BUT shareholders still got the value of the billions in dividends but none from the billions spent on buybacks.
For VTI/VTSAX holders that DRIP’d back into VTSAX they got shares of the entire market from those dividends.
Even for stocks that do well, we almost always see buybacks happen when earnings are good and share prices high vs buybacks when the shares are a good value. Why on earth would you want to do a buyback at current valuations?
Because folks compensated in stocks want to periodically sell and buybacks juice EPS and share prices while earnings are high.
Buyback vs dripping dividends for these companies would have ended up with the same result long term.
Keeping dividends vs the company doing buybacks and selling shares to the equivalent of dividends amount would have ended up with the same result.
And about the VTI argument: dripping in a etf means they’ll buy more shares from these companies too. Sure your GM dividends are reinvested into total market. But all dividends from other companies dripped will get reinvested in part into GM.
Also buybacks do not juice share price. The company is valued $100M with 100M shares. Company uses $10M to buyback 10M shares. Company is now valued $90M with 90M shares.
It will have a positive impact over time on share price if buying back share is a better return than investing that money into the business.
And yeah it’s kinda stupid to buyback shares when valuation is very high.
If you think you're better at getting the most out of the $$$, why put money in the company in the first place?
Absolutely, if you're better than anything out there you should probably be running your own business. 5%/year isn't too hard to beat.
Point here is that it's not whether you're better at re-investing the cash, it's that whether the company is worth investing your money in in the first place.
Dividend should not matter.
A mature company can make a good return on its current capital, but not have opportunities to reinvest that capital at similar returns. In that case the company is worth investing in, but it should also return its free cash to shareholders.
Time
dividends vs growth doesnt matter. only important thing is total return.
there are dummies here that think selling shares is bad because one day you're gonna "run out" lol.
You'd think this, but there are literally 30 year olds on this sub with JEPI + JEPQ + SCHD portfolios posting a year of dividends and not realizing where they actually stand.
Posting a yield on cost below their yield too, this is an insane sub.
I am a 28 year old who plans to retire at 40 or maybe earlier. So I focus mostly on dividend. Although my portfolio is around 35% VOO.
Same I’m hoping to retire as early as possible that’s why I do dividends, I think that’s why most people in this sub do it, it makes it way easier to predict what your income will be.
Yup it can help early retirement. Especially when living abroad. I live in Thailand. I need 10k a year to not work.
Let's say you are an Elon Musk. He would think twice before giving away dividends from TSLA, as he is in a very high tax bracket. Main purpose of higher taxation of dividends is to keep money in companies.
Yet somehow the majority of this sub doesn’t understand that.
I don’t understand the dividend vs. growth debate. They have different purposes.
Do they?
The share price drops by the amount of the dividend on the ex-date. Therefore you, as a dividend investor require share price appreciation as well to make any headway. When a dividend is paid out, you’re basically devaluing your company by the amount of the dividend in order to pull cash out of that company and into your account. Essentially a dividend is a forced sell of a stock and is hardly different than selling shares.
In the end, the only thing that matters is total portfolio growth, which should be the only thing an investor is concerned about regardless if they choose to prioritize dividend income or share price appreciation.
Personally, I think dividends are irrelevant. I’m here for the memes and to help educate lost investors before they loose too much money chasing yields.
I agree but not entirely. Optimising the returns and securing them should be the 2 main priorities for both. Fixed income like dividends is just much more practical for retirees
I've never understood this, the us versus them mentality. You're most likely going to do well if you pick a strategy and stick to it.
It's part of our own bias and narcissism that we like to believe we are smarter than others but in reality we ain't
Spend 5 minutes on a bogleheads forum. You will then grasp the us v them mentality. They bathe in it.
So does this sub, it’s not that different
Sounds kinda like you’re bathing in it too.
Except the other way around.
Go to a bogleheads forum…. Read the dogma and the one-sided, binary advice and attitudes. You’ll see
So are you saying that they aren’t like us?
Not sure who “us” is
Well you’re warning us about them and their them vs us mentality. I figure you have it figured.
"They bathe in it" - says the guy bathing in it
There is nothing wrong with living off dividends in retirement and there's also nothing wrong with selling shares in retirement. Just beware that companies can cut their dividend and beware that selling shares during a recession could exhaust your portfolio earlier than you expected.
There is nothing wrong with living off dividends in retirement
Problem is majority of this sub aren't near retirement age. You see daily posts of 20 / 30 year olds congratulating themselves with their dividend income while underperforming the market in total returns.
I think a greater problem is more ppl not understanding how divs actually work and that they’re capital isn’t actually increasing when they get paid a div
90% of this sub does not understand the fact that the stock price drops by the dividend amount.
It's like this sub specifically filters out for the people who cannot do math or understand simple investment concepts.
Prior to the ex-dividend date, share purchases tend to increase, but that price change isn't precisely reflected by the dividend amount. Yet, the price does not necessarily increase to that of an announced dividend.
This is especially true for low percentage dividends, which fall within a standard margin or error. There's no way to know if a 2% swing downward on a 2% payout is the result of normal trading, news related to a company, or something else.
Stocks do not always drop by the dividend amount paiid out and similarly do not increase by the exact dividend announcement.
Stocks do not always drop by the dividend amount paiid out
It literally has to drop by the dividend amount, there's even a FINRA rule ( Rule 5330 (a) (1)) that literally says brokers have to adjust any open orders by the dividend amount at the ex-dividend date.
(1) Cash Dividends: Unless marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation.
https://www.finra.org/rules-guidance/rulebooks/finra-rules/5330
Like literally how do you keep denying reality.
Money moves out of the company. So company is worth that much less.
If share price wouldn’t move down from dividends then why wouldn’t company all pay huge dividends. Free money!
And how would you explain some old companies had pay more dividends cumulatively than their current share price? How is that possible if share price doesn’t go down after a dividend is paid?
They literally have to. There is no free lunch. A company paying 3% would otherwise rise by 3% if not paying the dividend, therefore, they are essentially selling off that 3%.
Correct, if they take their dividends and run. What if they DRIP? Dollar cost averaging combined with the natural long-term growth of the market could have some potential.
If they drip-that makes no difference. A dividend is the same as selling the share just for a tiny amount. If I sell a share then instantly put the money back in you wont see any difference. DCA and long term investing has nothing to do with dividends, you can do that for any other investment and obviously you will make money as long as the company is growing
A dividend is the same as selling the share just for a tiny amount.
Please expand on this concept because you lost me on this one…
Dividends, at least to my knowledge, are distributed from the free cash flow of the company, not a sale of any shares that are held by an individual investor.
The way I see it, dividends are kind of like a pay me now in cash, or pay me later in growth. If you DRIP, then you can take that cash and grow your portfolio in quantity of shares, in addition to the growth in value over time.
Below is the math for the differences. The person holds the same amount of shares but the value of those owned shares are lowered. Obviously the companies value will go up or down after the div but that is unrelated to the dividend itself and more based on value of the company going up or down, just like any other company. The difference is negligible for most. The most important thing overall would be how successful the company is but it’s still important to understand how divs actually work and what they are getting into.
DIVIDENDS VS SELLING SHARE
Company A- div
Share:$5, 20 shares, 3% div. 20X5=$100
Div makes price drop 3%=$4.85
20X$4.85=$97, $3 to spend
Next day stock rises by 20%
Stock=$5.82
20X$5.82=$116.4
Company B- no div
Share:$5, 20 shares, sell 3%. 20X5=$100
Sell 3%, price stays same=$5.
19.4X$5=$97, $3 to spend
Next day stock rises by 20%
Stock=$6
19.4X$6=$116.4
In both situations you end up with the same capital.
Woa woa woa. You’re saying there’s risks and challenges either way? Shut the front door!
What is this bullshit?
Exactly that lol
Seems like a good number of folks don’t like dividend investing while following a dividend sub 🤔🤔🤔
It’s less about not liking dividends, it’s more about criticizing those that turn away when the math is presented to them. This sub is filled with people in their 20s worrying about their annual dividend yield while underperforming the market as a whole. Different strategies are better for different age brackets, and there is no free lunch with dividend yield. When a company releases a dividend, that company is essentially lowering its valuation by that amount which is something that a lot of young dividends investors do not understand. I follow this sub because I enjoy hearing different perspectives, but there is an insane amount of misinformation going around here, much more than other “serious” investing subs in my opinion.
And I can respect that but age shouldn’t have anything to do with it you can fall for the exact same traps regardless of age I said it on another post dividend kings are a thing it’s people that are living off them as we speak that offers growth as well
Age absolutely matters because it changes your time horizon. Playing it safe when you have 40 years of investing ahead of you will cost you hundreds of thousands if not millions. Seeking dividends makes a lot more sense for a 60 year old than a 20 year old. It would be foolish to tell a 20 year old to go all in on Coca Cola, O, Walmart, dividend ETFs etc over just the S&P and QQQ but that would be good advice for someone who is getting close to living off of their investments.
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During the last real financial crisis in 2008, dividends were also cut. I wrote a program to graph dividend payouts over time and you can clearly see the financial crisis. They came back at about the same time as the stock prices. If you were barely making it on dividends … you would needed to sell stocks to make ends meet.
Or go back to the Lost Decade of 2000 to 2009. With dividend reinvestment, the total return for the decade (SPY) was minus 11%. If you were retired and withdrawing 4% a year, by 2010, your investment would be worth 35% less.
Now suppose the market hadn't recovered it's 50% loss. That would be a much worse picture.
The cruel jokes about dividend portfolios
There's some nuances that you haven't mentioned. VTI dividends declined by 14.68% between 2008 - 2009 whilst its share price declined by ~40% over the same period. If we looked at something like VIG, dividends only went down by 4.58%.
This isn't surprising as price is dictated by market sentiment. If efficient market hypothesis was true instead of a hypothesis, we'll never have irrational exuberance nor crashes and personally I'd rather have distributions based on strong financials rather than what the market is feeling or fearing in a particular day.
That is a good point. I’m surprised of the dividend disparity.
I’m guessing that it’s due to the vanilla index fund capturing all sorts of companies from amazing to unprofitable whereas an ETF with better screening criteria could reduce such risks.
What a load of BS, funny how morons like you have the nerve to spread fake news in the age of Google and a quick 5 min researches can easily expose your lies:
Ok now you are arguing with math. Do your own damn research before believing what you read on the internet.
It simple. Look at the annual payout for SPY or any dividend focused ETF what was around before 2008. Compare the years 2006-2011. You will clearly see a dip.
Edit: I read your linked post. Even your link says dividends fell in 2008. It’s literally confirming what I said. Did you actually read your own “proof” before you posted?
that guy is mod a sub that is quite literally insane. The dude got a trust fund and is dumb as absolute bricks or on hell drugs
Thanks for the insight. Yes sounds like it.
hey, what about letting people choose their preferred strategy? there is a reason why there are different options between distrubution and accumulation
remember that in some countries dividends are taxed while capital gains are not, or are taxed less anyway, so for some the accumulating option could be waaay more advantageous than just settling for the passive income
I mean. Divident investing is good. It’s great. But also I see 20 year olds here dividend investing and their dividends are getting taxed as income. They could be holding their investments in something like vti which wouldn’t be taxed until sold for capital gains. Although vti does have a small dividend.
Income = wealth preservation
Growth = trying to beat out inflation
Do both. Cuz when market falls, the income (dividends and bonds) can hopefully cushion the blow.
I mean, isn’t this why you invest in a dividend growth etf? Something that does both? Like DGRO?
Each person is different with different financial goals and different means to achieve those goals. General it is preferred for younger crowd to grow their portfolio instead of making it income based because SPY grown by 29% in 1 year, 5 years 15% 10 years 13%. Most dividend companies offer 10% or less and you gotta watch out for those with 10% dividends cuz they usually lose value over time or stay flat. So you tell me what’s more lucrative to hold while you are able bodied person.
I'm 28 years old, I've been investing in dividends for several years. Currently, my dividend yield is 10.5%, but my capital isn't growing. Basically, I'm at breakeven because I have stocks like VFC, PARA, SWK, INTC, etc., that have plummeted. This makes me regret not investing all my capital in QQQ or even some leveraged ETFs like FNGU, SOXL, and NAIL. I would currently have a return of over 300% 😥.
Lol. Buy a good business and stick with it.
You shouldn’t be too far one way when investing. Don’t throw everything into growth, don’t throw everything into dividends, don’t go into one sector, etc. Diversification (within reason) is the greatest thing you can do for your portfolio.
I think a lot of people misunderstand the dividend vs growth thing, especially when people say dividends are irrelevant. They aren’t irrelevant in the sense that you are getting income or that they are part of total returns, because they are. They are irrelevant in the sense that there is no empirical data showing a company that pays a dividend will outperform a company that does not pay a dividend. When selecting companies that pay dividends only, you are taking on additional risk that is uncompensated, meaning there is nothing specific about that dividend stock that says it will outperform, and you are ignoring the rest of the market and known risk factors such as size, value, and profitability.
I always tell people that it's better to own a piece of the bank than to put your money into it.
What is this? Why is reddit so opposed to the working young also have dividend bearing investments? I work, I pay taxes on the income. I have dividends in my taxable account, I pay taxes on the income. Provided that the divvy income doesn't bump me into the next tax bracket for income, it's like the dividends are working a second job for me. I spend time on the dividend companies doing research instead of spending time on doing door dash. Let people have their enjoyment of their side gig and hope they don't hurt themselves too much. And let's just face it, we all made dumb mistakes with money and jobs and things when we were young.
I do both cuz why not? Have shit ton in growth stocks about 85% then rest in dividend stocks im just waiting for the snowball to kick in.
Buybacks are very similar to dividends.
Buybacks are better than dividends IMO. They are just another way of returning capital to shareholders, except you only have to pay tax on it if you want to sell and receive the benefit of it (as opposed to dividends that you generally need to pay tax on no matter what).
I disagree. If not for the favorable taxing of capital gains then dividends would be just as good if the capital gains were taxed as ordinary income. At least with dividends I get money I can use as income. With buybacks however you'd have to sell the shares to truly take advantage otherwise there's no guarantee that the stock will be worth as much in the future.
Why do I want to be the richest guy in the grave yard? I won’t be a quad billionaire when I am sixty five, I am looking for more of a stable income from now until then. And if I don’t need that income, reinvest it until I do need that income.
Dividends are not income though.
It is for me. A regular monthly or trip monthly income. Who cares if I have to pay taxes on it. When things get tight, a few extra hundred bucks goes a long ways.
It isn't though. It is a conversion of equity from stock to cash. Your stock value goes down by the amount of the dividend paid. Think of it like this: you have $10 in your right pocket. You move $1 from your right to your left pocket.
Did you make money? Is this "income"? No.
That's what a dividend is.
You are going to get blue in the face trying to get those who don't understand the mechanics of the dividend.
A dividend does not increase the value of your account. Though true, to most here, that is a heretical statement.
I know but i still have to try. Guess its in my nature lol
I'd add that if the dividend is received in a non-sheltered account, then you have to pay taxes for the privilege of moving the dollar from your right to your left pocket.
I'm not a dividend hater. I collect five figures a year and it pays for a lot. This discussion is about financial literacy not ignorant dogma.
Yes. I am not either. I have many dividend stocks. But people need to know what they are investing in. If they think dividends are free money or income they make decisions that cost them money in the long run (such as spending them)
Stock prices have an often large speculative component…and stocks generally aren’t bought based on book value.
The reduction in stock price because of dividends is an artificial adjustment made by exchanges to prevent folks from buying shares at the close the day before the ex-dividend date and selling the next morning at the opening.
The pricing change happens after hours.
So often what happens is the speculative component pushes the stock back up because dividends don’t impact EPS and PE gets a little better.
Apple declaring dividends has zero impact on its capex potential or future earnings…it was sitting on $73B at the end of 2023…and I’d rather get dividends than Apple doing something stupid like buying Ford for $50B to rescue Project Titan.
It is not an "artificial adjustment" and if you believe this fallacious statement you are going to be making poor investment decisions that will cost you dearly over time.
I recommend you watch this. https://www.youtube.com/watch?v=6YzGOq42zLk
This scientific paper also describes the 'free dividend fallacy' and explains that stock prices directly go down by the amount of the dividend because they mathematically have to. It's not an "adjustment"
Where does that paper say that “stock prices directly go down by the amount of the dividend because it mathematically has to”?
It describes that this happens but not because “it mathematically has to”.
This is like arguing that when Apple gave away $400M in donations Apple’s market cap has to mathematically drop by $400M (less any tax benefits).
It's literally repeated time and time again.
Each dividend payment decreases the price of the share by roughly the amount of the dividend, so if total returns are similar, some fraction of the position is being effectively removed with each dividend.
Many individual investors, mutual funds and institutions trade as if dividends and capital gains are disconnected attributes, not fully appreciating that dividends result in price decreases.
Because of this, academic finance typically assumes that an investor in a frictionless world will be indifferent between receiving $1 worth of dividends (with the price declining by $1) and selling $1 worth of that position.
However, some positions are at a gain when dividends are included, but at a loss when excluded. How do investors treat such positions when deciding whether to sell the position? This is equivalent to asking whether investors adjust for the mechanical decrease in share price that results from dividend payments.
Because part of our tests involve the question of whether investors perceive dividends as resulting in price decreases (as opposed to being free income), we examine summary statistics about how apparent this tradeoff might be.
If analysts suffer from the free dividend fallacy, they would be unlikely to forecast the price decrease that results from recurring dividend payment
But if he puts money into a stock with a dividend yield of 4% instead of 2%, in general he does not receive more money, because higher dividends lead to offsetting price decreases.
This assumption would clearly not hold for a rational investor who understood that, all else equal, more dividends should not directly make him better or worse off. To an investor suffering from the free dividends fallacy and focusing on dividend income, more dividends would be a good thing.
Additionally, if you watched that video, the author of this paper is the one in the video who is describing dividends as moving money from one pocket to the other. Of course if you move $1 from your right pocket to your left pocket, the amount of money in your right pocket goes down by $1.
It's obvious you didn't watch this nor read the paper.
None of this says it’s mathematically required, just that it happens.
It happens because the exchanges make this adjustment.
If I have $10 in my right pocket and I move $1 to my left pocket is it mathematically required that my right pocket now has $9?
That's what you're arguing...
The ex-dividend date is set by NYSE Rule 235; Nasdaq Rule 11140(b)(1); Finra Rule 11140(b)(1) to be a business day before the record date.
The requirement to announce dividends 10 days before the record date is covered by NYSE Rule 204.12; Nasdaq Rule 5250(e)(6).
The share price adjustment happens after hours before the open on the ex-dividend day by the exchange.
Note that for special dividends the ex-dividend date can be after the record date. Nasdaq Rule 11140(b)(2) and Finra Rule 11140(b)(2) sets the ex-date to be the first business day after the payable date or possible something else.
This generally happens when someone tries something fancy like Calissio Resources Group, Inc in 2015 issuing new stock after the record date. Finra said no bueno and forced the ex-date to the day after the new issuance. This can also happen if a company messes up announcing the record date.
In any case the price adjustment is made by the exchange after hours before open on the ex-date.
Hence…artificial. This exists to preclude folks from playing stupid games around the record date. The ex-date is set to make sure all the orders are settled by the time the record date hits so there’s no cheating and you can’t actually generate free money by buying just before close on the record date and selling at the open.
If you could that’s essentially the only trades you would ever need to do because the market itself isn’t going to adjust fast enough to preclude gaming the system this way.
Whats fallacious is the assertion that the market itself always naturally exactly changes share price based on dividends because the book value dropped. Book value changes for a variety of reasons but dividends are the only thing that magically immediately impacts share prices on the ex-dividend date but not when the company acquires other liabilities impacting book value?
Mkay.
Its' pretty clear you didn't read or watch either of the sources I just linked you. It's not artificial. It's how stocks work.
You are basically saying "when you sell a stock, the number of shares you have going down is an artificial implementation"
No. It's literally mathematical mechanics.
Yep. I read it. Where in that paper does it say what you said it says?
That paper is on investor perceptions of dividends and cap gains being mentally put into separate categories.
Not that changes in book values magically instantly changes share prices.
The you tube link took me to Gotye performing "Somebody That I Used To Know" Live on KCRW…which, no I didn’t watch all the way LOL.
Yeah I don't know why it linked to a music video...
Here's the video: https://youtu.be/9Q-9wJirhSw?si=oaaJGB0ys4osYDbD
Uncle Sam says otherwise
The ironic thing about dividends is that they are not true income unless you have growth in share price.
Growth is achieved when a company reinvents your income back into the company. They make the decision for you. People forget you own a part of the company when you buy shares.
Company growth and share price growth are mutually exclusive.
Or at least stability
All my dividends are in my IRA last the snowball roll!
Lol divs are the same as selling assets
It’s not selling assets at all it’s returning capital to the investors. After getting a div you still own the same amount of the company.
Growth and income aren't even mutually exclusive. I'm focused primarily on good companies and if I like one with a high yield so be it. My capital is mostly in a growth fund anyway, and I'll be working a few more decades.
Do everything you can to avoid making money so you don’t have to pay taxes
Be fair, many of them are very consistent on the income bad idea. To the point of including working for it.
I don't think there's any mental gymnastics going on.
I always find target date funds important, because it automatically rebalance from aggressive growth to moderate dividends income.
In my retirement accounts, 33% is target date funds, the other 67% are growth and value.
I do bucket investing and tune each bucket for my goals. Low risk money market, t-bills, and HYSA for emergency funds. div funds are great for me to save goals that I have in 3+ years. Growth stocks are great for pre-retirement long term investing. 401k and Roth great for retirement.
I personally love the tax treatment of qualified dividends as a way to augment my current income, but I’m not pretending div stocks will appreciate 10% annually.
This is such a dumb photo. Whether you invest in growth or dividends largely depends on your age, life stage, retirement age, etc.
It's not one or another. It's not mutually exclusive. You should own both.
Microsoft and Apple for example are both high growth and dividend. You'll start to see more tech doing this, such as Google and Meta.
If you only buy dividend stock, you'll limit your total returns even factoring in dividend growth and DRIP.
“The capital appreciation means my account looks larger until the market dips” - Actually, your account IS larger.
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What if you need the income to buy the growth so you can get the income
Investing for growth vs investing for Income both have their benefits and drawbacks. Whatever your goal is use a strategy that fits it, it’s honestly a personal preference.
If you have time on your side recession means nothing but a sale on buying the index. It always goes back up, in the long run
Dividends is how I pay for everything and been retired 7 years and in spite of all the money pulled out every year to live on, totaling about $630,000, over the 7 years the portfolio is roughly the same now as it was when I started retirement in June of 2017 due to my husband’s death. I keep my social security in a separate bank account and use for household expenses. The brokerage portfolio suffering the 90,000 withdrawal pays for income, & property tax, repairs for two homes ( no mortgage on either), car insurance, upkeep on car plus home insurance and emergencies of any kind.
Index funds like SCHB and SCHG, and a variety of dividends that pay monthly and SCHD as a great dividend index plus JEPQ and many other new option based ETFs. Variety is diversity and works well for me.
😅This is so true , I don't see what the problem is. What's the difference in building the income stream now vs. getting income from rentals. You pay taxes regardless. Pay them know pay them later you pay them either way. You might as well have a little income stream on the side. Look how many people got laid off and didn't see it coming .
Dividends are not income
income is not income
The difference between dividends and rental income is that a dividend does not increase the value of your account whereas rent is new money in your pocket.
Dividends have multiple benefits, but total return on the ex-dividend date is not one of them. With dividend reinvestment and share price appreciation, you achieve compounding. Without share price appreciation, you have squat.
Dividends have multiple benefits
I would argue dividends have no benefit at all. Worse, dividend provides negative benefit because of taxes (especially unqualified dividend with all the REITs that this sub loves).
I would much rather the company keep the cash or do buyback than ever giving out a dividend.
Yes,, dividends result in negative total return if received in a non sheltered account. And I'd prefer a buy back as well.
On the other side of the coin is that if you reinvest and company raises the dividend, share price appreciation provides compounding. If you don't reinvest, the dividend lowers your cash at risk.
Poor way to think about investing. Like anything, deferring taxation is a benefit. Why else would you invest in an ira or 401k? It’s for the compounding you receive by not paying taxes in the interim. Not to mention, rental income and dividend income (depending on holding period) is taxed based on your tax bracket. Selling off a stock for a capital gain is taxed at 15% (typically lower than your bracket) or its taxed at 0% if you fall within a certain income threshold (think selling off for gains while in a lower bracket in retirement).
Good luck compounding your way to wealth with 5% yields while sp500 does 13+% annually over a 10 year period. I fell for that trap as well.
Yeah, because every dividend stock's price stays stagnant right?
Dividends are not income though
The money going into my bank account every month disagrees
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876373
That money is equity from your stocks being converted to cash.
If you have $10 in your right pocket and move $1 to your left pocket, did you make income?
Dividends are a mechanism for conversion of equity from one type to another. Read the paper i just linked and you will see you are falling victim to the 'free dividend fallacy'
Yet my index funds, which I’m using to produce enough div cash flow for daily expenses still appreciate in line with the S&P500.
So looking through your post history I found that you say your portfolio is VOO, SCHD, VXUS, and BND.
So your dividend fund is SCHD.
Therefore, what you just said is not accurate.
If we use Portfolio Visualizer back testing found here: https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults
You can see that if we do NOT reinvest the dividends of SCHD (after all you said you use them for daily expenses)
Since 2014, SCHD increased by 93.2% (7.31% CAGR). $10k invested in 2014 would be worth $19,320 now.
THE S&P500 has increased by 144.22% (10.07% CAGR.) $10k invested in 2014 would be worth $24,492 now.
So your dividend index fund is not appreciating in line with the S&P500.
Edit: It should also be noted that it STILL lags behind even with dividends reinvested.
With divi's reinvested $10k in SCHD in 2014 is worth $25,986 now (10.77% CAGR). $10k in VOO in 2014 is worth $28,872 now (12.03% CAGR).
What about the rest of the portfolio?
Your portfolio is really solid honestly. Its very boglehead-esque which is great. I am just saying what you said about schd isnt true.
As long as you drip your schd dividends you should be in a great spot.
Then why do dividends even exist they would have no reason to be distributed and would not quantify on any total return on investment. If the asset you purchase never disappears and distributes funds on a quarterly basis for life such as schd that’s income cut and dry. The point is capital appreciation countered the distribution and you gain monetary value. I’m convinced the “dividend is not income” fallacy is inorganically promoted to enrich the richest people in this country and keep the working class working lol.
Ex-dividend is a zero sum event. If received in a non-sheltered account, then the result is negative total return. In order for the dividend to be true income, aka total return, share price must increase after the dividend.
Lol. Out of all things, how is the dividend not being looked at as income is enriching the rich and working class working? Could you elaborate?
Dividends gained popularity among older and retiree investors years ago when it was harder to sell your stocks to live off of. Before Robinhood, you used to have to physically call your broker and place your sell orders on the phone. This took time. Brokers also used to be fee based so it would also cost you a fee to sell any of your stocks.
Dividends got around these problems because you were able to convert your stock's equity into cash without a brokerage fee (since it came directly from the company) and without having to waste your time on the phone because you were "paid" directly.
This example some Dr. Sam Hartzmark should help you understand.
You have $10 in your right pocket. You move $1 from your right pocket to your left pocket. Did you make anything? Is that income?
That's what a dividend is. You just moved money from one pocket to the other. It's NOT an additional investment return or additional money.
Please read the paper I just linked to you previously. It's fine to be a dividend investor (I invest in dividend stocks as well) but you need to understand what it is you're investing in and from your comments here, you don't. Dividends are not income.
I bought a 10 dollar asset. It appreciates 1 dollar and distributes 50 cents to me per quarter and continues this for life. That’s income.
So what is owning a $10 asset that appreciates $1.50 and you sell $0.50? To be clear, I'm not advocating one over the other.
What actually happened is that it appreciated 1.50, and then gave you 50 cents as cash. So yes, you are receiving money, but it's important to understand that this isn't just free money they are paying you, the price of each share drops by the amount of the dividend.
You buy a $10 asset. It appreciates $1 and pays you $0.50. It is now worth $10.50 and you have $0.50 cash for a total of $11.
You buy a $10 asset. It appreciates $1 and doesn't pay you a dividend. It is now worth $11. You have $11.
So how is the $0.50 income when you haven't made anything? It is a conversion of equity to cash. That's not income.
I get what ur saying. They are income, they just don’t increase ur capital or networth sadly
it’s about the proportion
Wierd seeing posts like this. The facts are mathematical and not opinions, when talking about a lifetime of savings and investing.
Your ENTIRE portfolio is like a custom fund, as you get older and as your savings and investments.grow, there will be times to rebalance and shift if appropriate.
It's doing nothing or only one thing forever that is stupid, just like this comic. Poorly drawn and poorly thought out.
If you sell a stock for less than you paid for it then you do not have any capital gains taxes.
Cringe post.
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