Larry Swedroe: Slaughtering The High Dividend Sacred Cow

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Da5id
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

RAchip wrote: Wed Nov 08, 2017 8:35 am "the price of your shares falls by the amount of the dividends"

This is what I don't agree with.
The price of your shares falling by the amount of the dividends paid out is an obvious necessity. Are you saying that on the day a dividend is paid the stock price doesn't fall by the exact amount of the dividend?
RAchip
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by RAchip »

I don't know if it does or doesn't but to me what's important isn't the price on one day. If a company holds excess cash you don't know what will happen to that cash over time. It could be spent on a stupid acquisition. It could be paid out as silly bonuses to management. It could be wasted on pointless R&D. So retaining earnings rather than paying dividends does not automatically equal higher stock price.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Wakefield1 »

RAchip wrote: Wed Nov 08, 2017 9:20 am I don't know if it does or doesn't but to me what's important isn't the price on one day. If a company holds excess cash you don't know what will happen to that cash over time. It could be spent on a stupid acquisition. It could be paid out as silly bonuses to management. It could be wasted on pointless R&D. So retaining earnings rather than paying dividends does not automatically equal higher stock price.
That makes a lot of sense to me. At least in the long run.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr »

RAchip wrote: Wed Nov 08, 2017 9:20 am I don't know if it does or doesn't but to me what's important isn't the price on one day. If a company holds excess cash you don't know what will happen to that cash over time. It could be spent on a stupid acquisition. It could be paid out as silly bonuses to management. It could be wasted on pointless R&D. So retaining earnings rather than paying dividends does not automatically equal higher stock price.
If you don't think the management is running the company effectively, then why are you holding any stock in the company? Rather than save your 2% dividend from management that doesn't know what to do with a profit you should probably be extracting the other 98% as well. Warren Buffett has some instructive thoughts on dividends along these lines as well. It is true that the overall stock price depends on good management and that is where your attention should be focused if you are going to pick stocks.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

RAchip wrote: Wed Nov 08, 2017 9:20 am I don't know if it does or doesn't but to me what's important isn't the price on one day. If a company holds excess cash you don't know what will happen to that cash over time. It could be spent on a stupid acquisition. It could be paid out as silly bonuses to management. It could be wasted on pointless R&D. So retaining earnings rather than paying dividends does not automatically equal higher stock price.
What a stock does when ex-dividend is an obvious logical necessity. If you believe the stock price falls by less than the dividend paid, just:
1) buy the stock day before dividend
2) get dividend,
3) sell stock
4) profit
(not a recommended strategy, it doesn't work because the price does indeed fall by the amount of the dividend).

And the fair comparison to dividends isn't retaining earnings to invest in growth. That is done by both dividend and non-dividend paying companies. The fair comparison for dividends is share buybacks as they are the non-dividend way to return earnings to shareholders.

But as these threads remind me when I get involved, https://xkcd.com/386/
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr »

Da5id wrote: Wed Nov 08, 2017 9:29 am
RAchip wrote: Wed Nov 08, 2017 9:20 am I don't know if it does or doesn't but to me what's important isn't the price on one day. If a company holds excess cash you don't know what will happen to that cash over time. It could be spent on a stupid acquisition. It could be paid out as silly bonuses to management. It could be wasted on pointless R&D. So retaining earnings rather than paying dividends does not automatically equal higher stock price.
What a stock does when ex-dividend is an obvious logical necessity. If you believe the stock price falls by less than the dividend paid, just:
1) buy the stock day before dividend
2) get dividend,
3) sell stock
4) profit
(not a recommended strategy, it doesn't work because the price does indeed fall by the amount of the dividend).

And the fair comparison to dividends isn't retaining earnings to invest in growth. That is done by both dividend and non-dividend paying companies. The fair comparison for dividends is share buybacks as they are the non-dividend way to return earnings to shareholders.

But as these threads remind me when I get involved, https://xkcd.com/386/
Me too. Maybe the moderators should save us from ourselves by locking any further discussion of dividends.
RAchip
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by RAchip »

What would the market value of JNJ be today if it had never paid dividends? Trillions?
Da5id
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

RAchip wrote: Wed Nov 08, 2017 10:14 am What would the market value of JNJ be today if it had never paid dividends? Trillions?
If the money was used to buy back shares, I'd assert the market value would about the same as it is now. If the money was used to invest in R&D, no way to know. The distinction between the two is important. But there are so many straw men to slay, and so little time.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by DaufuskieNate »

RAchip wrote: Wed Nov 08, 2017 10:14 am What would the market value of JNJ be today if it had never paid dividends? Trillions?
There are at least a couple of ways to look at this hypothetical question. Assuming that JNJ had never paid dividends or bought back shares:

1) If the cash was invested in expanding the business through R&D, building capacity, acquisitions, etc., it is highly likely that the laws of diminishing returns would have kicked in by now.

2) If the cash were allowed to build up on the balance sheet, JNJ would look more like a money market fund than an equity today.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Da5id wrote: Wed Nov 08, 2017 8:20 am
hoops777 wrote: Tue Nov 07, 2017 6:14 pm Liking seeing those dividends invested in your bank account without having to sell anything is also quite understandable and not some psychological deficiency.I like seeing $1400 deposited in my bank account every 6 months from a GO muni bond I own.I like seeing the interest paid on my many CD’s.I think that is a normal human reaction.
The distinction between getting a dividend (where the price of your shares falls by the amount of the dividends) and a scheduled interest payment on a fixed income investment is pretty stark, but they are often conflated. Would you likewise be pleased if your CD returned some capital to you as a "bank account deposit" but had the cash value fall as a result?
I do not see why you cannot understand the comparison of being happy to see money deposited in your account.It had nothing to do with technical correctness.
K.I.S.S........so easy to say so difficult to do.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop »

hoops777 wrote: Wed Nov 08, 2017 11:07 am
Da5id wrote: Wed Nov 08, 2017 8:20 am
hoops777 wrote: Tue Nov 07, 2017 6:14 pm Liking seeing those dividends invested in your bank account without having to sell anything is also quite understandable and not some psychological deficiency.I like seeing $1400 deposited in my bank account every 6 months from a GO muni bond I own.I like seeing the interest paid on my many CD’s.I think that is a normal human reaction.
The distinction between getting a dividend (where the price of your shares falls by the amount of the dividends) and a scheduled interest payment on a fixed income investment is pretty stark, but they are often conflated. Would you likewise be pleased if your CD returned some capital to you as a "bank account deposit" but had the cash value fall as a result?
I do not see why you cannot understand the comparison of being happy to see money deposited in your account.It had nothing to do with technical correctness.
You are describing a behavorial error, then, right? Investing is not about being happy.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

DBR and DaSid,you guys are really smart and very astute investors.I have been simply trying to explain the reasons why many average investors like dividends.I am not disputing your technical correctness about dividends,blah blah blah.Most investors do not look at investing from a rigid academic,technical viewpoint like yourselves.THEY DO NOT CARE about the technical correctness or minutiae.They own JNJ,PG,MCD,KO and the like for many years and have made a lot If money investing in good stocks,period.They like their dividends so if that makes them inferior,uneducated investors in the eyes of some,great.They go about happily collecting their dividends and making a lot of money even though they have no idea what they are doing and how little knowledge they have.
K.I.S.S........so easy to say so difficult to do.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

triceratop wrote: Wed Nov 08, 2017 11:14 am
hoops777 wrote: Wed Nov 08, 2017 11:07 am
Da5id wrote: Wed Nov 08, 2017 8:20 am
hoops777 wrote: Tue Nov 07, 2017 6:14 pm Liking seeing those dividends invested in your bank account without having to sell anything is also quite understandable and not some psychological deficiency.I like seeing $1400 deposited in my bank account every 6 months from a GO muni bond I own.I like seeing the interest paid on my many CD’s.I think that is a normal human reaction.
The distinction between getting a dividend (where the price of your shares falls by the amount of the dividends) and a scheduled interest payment on a fixed income investment is pretty stark, but they are often conflated. Would you likewise be pleased if your CD returned some capital to you as a "bank account deposit" but had the cash value fall as a result?
I do not see why you cannot understand the comparison of being happy to see money deposited in your account.It had nothing to do with technical correctness.
You are describing a behavorial error, then, right? Investing is not about being happy.
Yes sir that is what I am describing,behavorial error.So many people are happy to be so incorrect.I would say many people do want to feel happy about their investments.
K.I.S.S........so easy to say so difficult to do.
Afty
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Afty »

hoops777 wrote: Tue Nov 07, 2017 6:14 pm All I am trying to get across is that many normal everyday investors who like dividend stocks,buy them because they pay a dividend and most are household names with long histories of good returns.They do not think about factors or technically correct reasons for their returns.
Normal everyday investors are often wrong. They try to time the market. They buy insurance instead of investments. They invest in expensive, actively managed funds. They pay commissioned "financial advisors" who create unnecessarily complicated portfolios of load funds. And on and on.

The whole point of this site is to promote the "technically correct" Boglehead strategy over the incorrect "everyday investor" strategy. Explaining how dividends work is part of that.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Hyperborea »

DaufuskieNate wrote: Wed Nov 08, 2017 10:45 am
RAchip wrote: Wed Nov 08, 2017 10:14 am What would the market value of JNJ be today if it had never paid dividends? Trillions?
There are at least a couple of ways to look at this hypothetical question. Assuming that JNJ had never paid dividends or bought back shares:

1) If the cash was invested in expanding the business through R&D, building capacity, acquisitions, etc., it is highly likely that the laws of diminishing returns would have kicked in by now.
Which is why most of the S&P500 and all of the DJIA stocks pay a dividend. They've run out of good things to do with the money. At some point 5, 10, maybe 20 years from now so will Google (ok, Alphabet), Facebook, Amazon, etc. Apple's already decided that they can't think of enough good things to do with the money and have started paying dividends.
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Afty wrote: Wed Nov 08, 2017 11:28 am
hoops777 wrote: Tue Nov 07, 2017 6:14 pm All I am trying to get across is that many normal everyday investors who like dividend stocks,buy them because they pay a dividend and most are household names with long histories of good returns.They do not think about factors or technically correct reasons for their returns.
Normal everyday investors are often wrong. They try to time the market. They buy insurance instead of investments. They invest in expensive, actively managed funds. They pay commissioned "financial advisors" who create unnecessarily complicated portfolios of load funds. And on and on.

The whole point of this site is to promote the "technically correct" Boglehead strategy over the incorrect "everyday investor" strategy. Explaining how dividends work is part of that.
What is kind of funny about this whole argument is it started with Swedroe’s article.In his own article he had a chart showing how dividend stocks soundly outperformed the SP500 from 1975 to 2015.The SP 500 is often used instead of the bogleheads preferred total market,but their returns are very close.
Now it has been shown the “real “ reason for the outperformance is that they are value proxies and not because of the dividends.That is all fine and dandy.The point I was making is that most investors could care less about that fact because it doesn’t matter!They care about the return.The second point was about dividend investors liking being paid dividends,which of course is behavioral error.They don’t care!They like receiving payments for whatever personal reasons they have.Get out the tar and feathers!
Last point,if Joe had invested 100,000 in a tax deferred account in the dividend 100 Swedroe listed and Bob invested 100,000 in the total market,Joe would have a lot more money than Bob.Do you think Joe cares that according to many academics,it was not because of the dividends?This is never ending and all I can say is feel proud about your technical correctness but maybe try to see the other side from a different perspective.The irony here for me is that I do not even own any dividend stocks,except for a little Wellesley in my IRA :D
Last edited by hoops777 on Wed Nov 08, 2017 12:32 pm, edited 1 time in total.
K.I.S.S........so easy to say so difficult to do.
Da5id
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

Hyperborea wrote: Wed Nov 08, 2017 12:04 pm Which is why most of the S&P500 and all of the DJIA stocks pay a dividend. They've run out of good things to do with the money. At some point 5, 10, maybe 20 years from now so will Google (ok, Alphabet), Facebook, Amazon, etc. Apple's already decided that they can't think of enough good things to do with the money and have started paying dividends.
You do realize that for S&P stocks the dollar amount of stock buybacks is greater than the amount of dividends paid, right? see e.g. https://www.yardeni.com/pub/buybackdiv.pdf. Or the first table here: https://www.bloomberg.com/view/articles ... -you-think.

The alternate to dividends is not reinvesting in growth. It is buybacks. A company that believes it can favorably reinvest in growth certainly should do so. If a company chooses (or wants by policy) to return money to shareholders, it can choose buybacks, dividends, or some combination of the two.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

One additional interesting read is here: https://www.investopedia.com/articles/a ... better.asp. In particular the section titled "Dividends vs. Buybacks: Which Stocks Perform Better?".
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Hyperborea
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Hyperborea »

Da5id wrote: Wed Nov 08, 2017 12:32 pm
Hyperborea wrote: Wed Nov 08, 2017 12:04 pm Which is why most of the S&P500 and all of the DJIA stocks pay a dividend. They've run out of good things to do with the money. At some point 5, 10, maybe 20 years from now so will Google (ok, Alphabet), Facebook, Amazon, etc. Apple's already decided that they can't think of enough good things to do with the money and have started paying dividends.
You do realize that for S&P stocks the dollar amount of stock buybacks is greater than the amount of dividends paid, right? see e.g. https://www.yardeni.com/pub/buybackdiv.pdf. Or the first table here: https://www.bloomberg.com/view/articles ... -you-think.

The alternate to dividends is not reinvesting in growth. It is buybacks. A company that believes it can favorably reinvest in growth certainly should do so. If a company chooses (or wants by policy) to return money to shareholders, it can choose buybacks, dividends, or some combination of the two.
Sure, buybacks are a way of stealth dividends with better tax consequences for investors in the US. I was just pointing out that pretty much all successful companies sooner or later run out of productive ways to spend the cash. Stock in all companies if they survive will sooner or later turn into dividend paying stock whether by traditional dividends or buyback (depending on tax laws).
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Da5id wrote: Wed Nov 08, 2017 12:35 pm One additional interesting read is here: https://www.investopedia.com/articles/a ... better.asp. In particular the section titled "Dividends vs. Buybacks: Which Stocks Perform Better?".
So I read the article.From 2000 to 2015 returns were equal.2009 -2015 buybacks 26.3 to dividends 24.4.
2007 to 2009 dividend stocks lost 10 pct less than buybacks.
So in the very short period of time from 2009 to 2015 buybacks did slightly better after coming off 2007-2009 where they lost 10 pct more than dividend stocks.Not very compelling,especially in a time when I believe tech stocks have gone nuts.
K.I.S.S........so easy to say so difficult to do.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

Hyperborea wrote: Wed Nov 08, 2017 12:36 pm Sure, buybacks are a way of stealth dividends with better tax consequences for investors in the US. I was just pointing out that pretty much all successful companies sooner or later run out of productive ways to spend the cash. Stock in all companies if they survive will sooner or later turn into dividend paying stock whether by traditional dividends or buyback (depending on tax laws).
In the context of the thread, there are many posters who seem to consider them entirely different. Dividends make cash appear in their accounts without having to sell shares and that makes them happy is the argument I'm hearing for that. But perhaps I'm unfairly characterizing their position?
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

hoops777 wrote: Wed Nov 08, 2017 12:55 pm
Da5id wrote: Wed Nov 08, 2017 12:35 pm One additional interesting read is here: https://www.investopedia.com/articles/a ... better.asp. In particular the section titled "Dividends vs. Buybacks: Which Stocks Perform Better?".
So I read the article.From 2000 to 2015 returns were equal.2009 -2015 buybacks 26.3 to dividends 24.4.
2007 to 2009 dividend stocks lost 10 pct less than buybacks.
So in the very short period of time from 2009 to 2015 buybacks did slightly better after coming off 2007-2009 where they lost 10 pct more than dividend stocks.Not very compelling,especially in a time when I believe tech stocks have gone nuts.
We all see what we choose I guess. I'm not arguing buybacks are better than dividends other than tax consequences (nor does the article as far as I can tell). Not at all. I'm saying that in my taxable account I'd rather have shares do buybacks because of tax considerations alone. In my tax free/tax deferred accounts, could care less which they do. Which I think is the thrust of the article.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by magneto »

Can we have some balance here?
Moderate dividends with growth suits fine.

If the retiree can live within those moderate dividends without being forced to sell stock any time at distressed prices that surely is a plus ?
I.E. to be able to live within the natural yield of the portfolio, without bending it to HY.

If the retiree cannot live within the natural yield, then Frank Armstong's advice in 'The Informed Investor' chapt 18, is worth a re-read to avoid selling stocks at distressed prices.

When stocks are distressed, yields are higher. Would the dividend averse then walk away only to wait for higher stock prices to offer lower yields before buying ? :!:

Very high yields can indeed be a warning sign that tricks may be being played with leverage, paying uncovered dividends out of increasing debt. So care needed there and in fact a worthwhile check for any stock!

So it doesn't have to be High Yield or No Yield, there is a middle course!
'There is a tide in the affairs of men ...', Brutus (Market Timer)
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Da5id wrote: Wed Nov 08, 2017 12:57 pm
Hyperborea wrote: Wed Nov 08, 2017 12:36 pm Sure, buybacks are a way of stealth dividends with better tax consequences for investors in the US. I was just pointing out that pretty much all successful companies sooner or later run out of productive ways to spend the cash. Stock in all companies if they survive will sooner or later turn into dividend paying stock whether by traditional dividends or buyback (depending on tax laws).
In the context of the thread, there are many posters who seem to consider them entirely different. Dividends make cash appear in their accounts without having to sell shares and that makes them happy is the argument I'm hearing for that. But perhaps I'm unfairly characterizing their position?
Yes many “happy” dividend investors who enjoy the cash in their accounts while being technically incorrect and not knowing they should really just be invested in the total market and selling shares every month instead!I sometimes worry about these investors and if they will survive the egregious errors of their ways!So far the millions and millions of such investors seem to be staying above water,somehow. :D
K.I.S.S........so easy to say so difficult to do.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

magneto wrote: Wed Nov 08, 2017 1:01 pm Can we have some balance here?
Moderate dividends with growth suits fine.

If the retiree can live within those moderate dividends without being forced to sell stock any time at distressed prices that surely is a plus ?
I.E. to be able to live within the natural yield of the portfolio, without bending it to HY.

If the retiree cannot live within the natural yield, then Frank Armstong's advice in 'The Informed Investor' chapt 18, is worth a re-read to avoid selling stocks at distressed prices.

When stocks are distressed, yields are higher. Would the dividend averse then walk away only to wait for higher stock prices to offer lower yields before buying ? :!:

Very high yields can indeed be a warning sign that tricks may be being played with leverage, paying uncovered dividends out of increasing debt. So care needed there and in fact a worthwhile check for any stock!

So it doesn't have to be High Yield or No Yield, there is a middle course!
Magneto,I have been referencing investors who only buy blue chip companies.There is a different group that go after very risky high yielding stocks and that is a different ball game.
K.I.S.S........so easy to say so difficult to do.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by pkcrafter »

hoops777 wrote: Wed Nov 08, 2017 11:24 am DBR and DaSid,you guys are really smart and very astute investors.I have been simply trying to explain the reasons why many average investors like dividends.I am not disputing your technical correctness about dividends,blah blah blah.Most investors do not look at investing from a rigid academic,technical viewpoint like yourselves.THEY DO NOT CARE about the technical correctness or minutiae.They own JNJ,PG,MCD,KO and the like for many years and have made a lot If money investing in good stocks,period.They like their dividends so if that makes them inferior,uneducated investors in the eyes of some,great.They go about happily collecting their dividends and making a lot of money even though they have no idea what they are doing and how little knowledge they have.
Hoops, I understand your point, and it that's what you prefer, it's fine. My only problem with dividends is losing some control on when and from where to make withdrawals. I don't want any equity withdrawals when the market is down.

In the old days, taking dividends was a very good idea. Back then dividends would produce a 4-5% withdrawal, so they covered most of a person's needed retirement income. Also, in those days, brokerage costs were high. Perhaps the idea of dividends are great was passed down from those generations.

Being happy with dividends is like being happy because you set up an automatic RMD withdrawal and received a check. In both cases you are simply getting some of your own money back.

As for buybacks, they are often abused, with the buyback going directly to CEO compensation/retirement and bonuses to other board members.



Paul
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

hoops777 wrote: Wed Nov 08, 2017 1:13 pm Yes many “happy” dividend investors who enjoy the cash in their accounts while being technically incorrect and not knowing they should really just be invested in the total market and selling shares every month instead!I sometimes worry about these investors and if they will survive the egregious errors of their ways!So far the millions and millions of such investors seem to be staying above water,somehow. :D
Millions of happy investors are investing at Edward Jones and buying Whole Life policies and Equity Indexed annuities from their best friend, the "adviser" as well. Lots of people do it isn't a rational argument. I'm a fan of rational arguments, do you have any to offer? I think a strong point of bogleheads (or should be) an attempt to present something like a logical case backed by something other than feelings. I've done that I think. Is above the distillation of your entire case? If so, regrettable IMHO.

FYI, I don't think dividends are evil. Or even bad. Or an egregious error. I personally invest in total market in both taxable and non-taxable, I don't distort my investing to avoid dividends even though I'd prefer they be buybacks in my taxable account.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by oneleaf »

I believe Larry is on point regarding this matter. On the other hand, as a retail investor, I've learned to accept "flawed" dividend products when it suits my needs. Wisdomtree's DLS and DGS provide access to International Small Value and Emerging Small Value asset classes. Yes, I would prefer that they be more DFA-like in construction. On the other hand, DLS and DGS have some of the best factor loadings in their respective categories. And the dividend-aspect has made them popular, even if for flawed reasoning. This popularity has given them the AUM and liquidity necessary to make them good choices for retail investors interested in these asset classes. Larry is right, yes. But some of these dividend focused products have given us pretty good proxies for these asset classes.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid »

RAchip wrote: Wed Nov 08, 2017 10:14 am What would the market value of JNJ be today if it had never paid dividends? Trillions?
No, JNJ would likely have made a bunch of unprofitable acquisitions and then spun them off again. Instead of dividends, you would likely have shares of spin-offs. If the acquisitions were just sold for cash, you would have had impairment in what would otherwise been the value of JNJ. In other words, the loss of value would be in the stock price.

The thing is, companies don't grow to the sky. Management can run only so many lines of business effectively, you get to a point where a company gets to be so complex that it cannot be managed effectively. You can't focus on 35 things at the same time. So companies at some point will realize they can't be everything to everybody and focus upon what they do best. When you get too big, it is harder to move fast enough to keep up with changes in the marketplace. If you aren't nimble enough, you will be outmaneuvered by competitors who will beat on quality or price or perhaps both.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid »

hoops777 wrote: Wed Nov 08, 2017 11:24 am DBR and DaSid, you guys are really smart and very astute investors. I have been simply trying to explain the reasons why many average investors like dividends. I am not disputing your technical correctness about dividends,blah blah blah. Most investors do not look at investing from a rigid academic,technical viewpoint like yourselves. THEY DO NOT CARE about the technical correctness or minutiae. They own JNJ,PG,MCD,KO and the like for many years and have made a lot If money investing in good stocks, period. They like their dividends so if that makes them inferior,uneducated investors in the eyes of some, great. They go about happily collecting their dividends and making a lot of money even though they have no idea what they are doing and how little knowledge they have.
I think what Larry Swedroe wants to do is to help investors invest as efficiently as possible. He wants people to know the sources of return in their portfolios. Dividends are an element of return but not a cause of returns. Adjusted for factors, dividend and non-dividend paying stocks have identical returns. The reason that dividend strategies seem to work is not the dividends themselves but the underlying factors. High Dividend is associated with Value and Dividend Growth is associated with Profitability/Quality. There is also a lot of overlap with High Dividend and Low Volatility.

So like Forrest Gump who thought Apple was a fruit company and made money on the stock anyways, investors who have bought dividend paying blue chips and held on made money even though they didn't quite understand why. If they did it right, they looked for quality companies with excellent track records, bought the stock at reasonable prices, and wanted their dividend. Pretty much, the underlying businesses did well and so did their investors.

A dividend strategy will fail if you just buy for dividends and ignore the quality of the business and ignore valuation. You will likely make money but trail the market averages. But most dividend investors will at least buy stocks with some sort of due diligence.

I checked the performance of my individual stocks in my retirement accounts and found that they barely beat the US Total Stock Market over the last 15 years. Sometimes I beat a bit or sometimes I trail a bit. Not surprising as pretty much I have "sampled" the US Total Stock Market with 18 names, most of which are very well known. 17 of 18 of the stocks pay dividends. Morningstar says that my stocks are mostly Large Value. So I have loaded on Value and probably some on Profitability/Quality. Not out to buy terrible companies, no matter how cheap they are.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by saltycaper »

hoops777 wrote: Wed Nov 08, 2017 12:31 pm
Last point,if Joe had invested 100,000 in a tax deferred account in the dividend 100 Swedroe listed and Bob invested 100,000 in the total market,Joe would have a lot more money than Bob.Do you think Joe cares that according to many academics,it was not because of the dividends?This is never ending and all I can say is feel proud about your technical correctness but maybe try to see the other side from a different perspective.
If the merits of the argument for Joe's perspective are boiled down to, "It has worked out okay for him,", then the merits of the two perspectives aren't equivalent. Maybe it would be helpful to see things from Joe's perspective is if you want to help Joe understand why he's wrong, but there is no value in his perspective in the context of assessing the drivers of stock returns, which is what discussion usually centers around in Boglehead-land.

His perspective may offer value elsewhere, such as for a mutual fund company that is considering offering a dividend-focused fund to investors like Joe, or a niche website that pushes dividend investing and wants to attract more pages views and clicks-throughs to generate more advertising revenue.

It's true that lots of folks do fine in all sorts of endeavors while conjuring up all kinds of erroneous thoughts. That they make out alright doesn't ipso facto validate their thoughts.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by saltycaper »

magneto wrote: Wed Nov 08, 2017 1:01 pm
Can we have some balance here?

...

So it doesn't have to be High Yield or No Yield, there is a middle course!
At first I was going to say, "Oh, no! Not another instance where people disagree, so it is therefore assumed that the truth must lie in the middle."

But, then I saw you set the two sides as high yield versus no yield, which typically isn't the case. I think the sides would better be described as "dividend-focused investors" and "dividend-agnostic investors."
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Da5id wrote: Wed Nov 08, 2017 1:28 pm
hoops777 wrote: Wed Nov 08, 2017 1:13 pm Yes many “happy” dividend investors who enjoy the cash in their accounts while being technically incorrect and not knowing they should really just be invested in the total market and selling shares every month instead!I sometimes worry about these investors and if they will survive the egregious errors of their ways!So far the millions and millions of such investors seem to be staying above water,somehow. :D
Millions of happy investors are investing at Edward Jones and buying Whole Life policies and Equity Indexed annuities from their best friend, the "adviser" as well. Lots of people do it isn't a rational argument. I'm a fan of rational arguments, do you have any to offer? I think a strong point of bogleheads (or should be) an attempt to present something like a logical case backed by something other than feelings. I've done that I think. Is above the distillation of your entire case? If so, regrettable IMHO.

FYI, I don't think dividends are evil. Or even bad. Or an egregious error. I personally invest in total market in both taxable and non-taxable, I don't distort my investing to avoid dividends even though I'd prefer they be buybacks in my taxable account.
Well,I would say the fact that dividend stocks soundly beat the SP 500 is meaningful.I would say the opinion that you have saying people are foolish to enjoy seeing dividends deposited in their accounts is an opinion,not a fact.You believe what you want to believe based on research that you agree with.I would say someone investing in quality dividend paying companies is not in any way, shape,or form equivalent to people using expensive advisors or buying equity indexed annuities,any more than buying the market is.
If you cannot see beyond your rigid technical analysis and see I was simply making some points on why people like dividend stocks,than so be it.I never said you were incorrect in the technical analysis regarding dividend stocks really being a proxy for value, which is the main reason for their performance.I simply said most people do not care.THEY DO NOT CARE.
Did you think that just maybe,just maybe,this is hoops analysis only,that a big reason dividends stocks do well,is because so many people buy them because of the dividend?JNJ,KO,PG,etc.....I wonder how many millions of shares have been bought by these irrational investors and how that has changed the value of the company?Just sayin.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

pkcrafter wrote: Wed Nov 08, 2017 1:25 pm
hoops777 wrote: Wed Nov 08, 2017 11:24 am DBR and DaSid,you guys are really smart and very astute investors.I have been simply trying to explain the reasons why many average investors like dividends.I am not disputing your technical correctness about dividends,blah blah blah.Most investors do not look at investing from a rigid academic,technical viewpoint like yourselves.THEY DO NOT CARE about the technical correctness or minutiae.They own JNJ,PG,MCD,KO and the like for many years and have made a lot If money investing in good stocks,period.They like their dividends so if that makes them inferior,uneducated investors in the eyes of some,great.They go about happily collecting their dividends and making a lot of money even though they have no idea what they are doing and how little knowledge they have.
Hoops, I understand your point, and it that's what you prefer, it's fine. My only problem with dividends is losing some control on when and from where to make withdrawals. I don't want any equity withdrawals when the market is down.

In the old days, taking dividends was a very good idea. Back then dividends would produce a 4-5% withdrawal, so they covered most of a person's needed retirement income. Also, in those days, brokerage costs were high. Perhaps the idea of dividends are great was passed down from those generations.

Being happy with dividends is like being happy because you set up an automatic RMD withdrawal and received a check. In both cases you are simply getting some of your own money back.

As for buybacks, they are often abused, with the buyback going directly to CEO compensation/retirement and bonuses to other board members

Paul
Thank you for a very thoughtful and reasonable,fair response :happy
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by GibsonL6s »

I get the argument that only focusing on dividend paying stocks hurts you because you loose diversification and growth stocks in your mix

but

"the price of your shares falls by the amount of the dividends" makes no sense to me. I own MO which today trades for $64.50 and has paid out $126 in dividends per share since 1970. So it is more accurate to say a stock may "temporarily" fall by the dividend in the short run. The issue is what is happening to the cash management is retaining.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop »

GibsonL6s wrote: Wed Nov 08, 2017 4:58 pm I get the argument that only focusing on dividend paying stocks hurts you because you loose diversification and growth stocks in your mix

but

"the price of your shares falls by the amount of the dividends" makes no sense to me. I own MO which today trades for $64.50 and has paid out $126 in dividends per share since 1970. So it is more accurate to say a stock may "temporarily" fall by the dividend in the short run. The issue is what is happening to the cash management is retaining.
Your restatement is accurate, but it is also what is meant by the original phrasing.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

hoops777 wrote: Wed Nov 08, 2017 4:48 pm
Da5id wrote: Wed Nov 08, 2017 1:28 pm
hoops777 wrote: Wed Nov 08, 2017 1:13 pm Yes many “happy” dividend investors who enjoy the cash in their accounts while being technically incorrect and not knowing they should really just be invested in the total market and selling shares every month instead!I sometimes worry about these investors and if they will survive the egregious errors of their ways!So far the millions and millions of such investors seem to be staying above water,somehow. :D
Millions of happy investors are investing at Edward Jones and buying Whole Life policies and Equity Indexed annuities from their best friend, the "adviser" as well. Lots of people do it isn't a rational argument. I'm a fan of rational arguments, do you have any to offer? I think a strong point of bogleheads (or should be) an attempt to present something like a logical case backed by something other than feelings. I've done that I think. Is above the distillation of your entire case? If so, regrettable IMHO.

FYI, I don't think dividends are evil. Or even bad. Or an egregious error. I personally invest in total market in both taxable and non-taxable, I don't distort my investing to avoid dividends even though I'd prefer they be buybacks in my taxable account.
Well,I would say the fact that dividend stocks soundly beat the SP 500 is meaningful.I would say the opinion that you have saying people are foolish to enjoy seeing dividends deposited in their accounts is an opinion,not a fact.You believe what you want to believe based on research that you agree with.I would say someone investing in quality dividend paying companies is not in any way, shape,or form equivalent to people using expensive advisors or buying equity indexed annuities,any more than buying the market is.
If you cannot see beyond your rigid technical analysis and see I was simply making some points on why people like dividend stocks,than so be it.I never said you were incorrect in the technical analysis regarding dividend stocks really being a proxy for value, which is the main reason for their performance.I simply said most people do not care.THEY DO NOT CARE.
Did you think that just maybe,just maybe,this is hoops analysis only,that a big reason dividends stocks do well,is because so many people buy them because of the dividend?JNJ,KO,PG,etc.....I wonder how many millions of shares have been bought by these irrational investors and how that has changed the value of the company?Just sayin.
I rest my case.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr »

GibsonL6s wrote: Wed Nov 08, 2017 4:58 pm I get the argument that only focusing on dividend paying stocks hurts you because you loose diversification and growth stocks in your mix

but

"the price of your shares falls by the amount of the dividends" makes no sense to me. I own MO which today trades for $64.50 and has paid out $126 in dividends per share since 1970. So it is more accurate to say a stock may "temporarily" fall by the dividend in the short run. The issue is what is happening to the cash management is retaining.
While the price of a share must be affected downward by the payment of the dividend it is also affected upward and downward at the same time by all the other factors that affect the price of a share every minute that share is on the market. In that sense the statement is literally false but absolutely true in the context of someone thinking that a dividend is free money and that the share value would grow just the same no matter what dividend is paid.

It is more useful to do the math correctly by simply tabulating the return, dividends included, of whatever investments one want to examine.

As to what one might want to buy and hold, that depends on both the return and the variability/certainty/reliability of the return. If and when it is true that concentrating in dividend paying or more dividend paying stocks results in a reliable expectation of significantly greater return for the risk taken than what might be expected from an alternative choice, then it would make sense to choose the concentration in dividend paying or higher dividend paying stocks. If that expectation can't be established or if the decision is based on bad information or faulty reasoning, then the decision is either ineffective or may actually be to the investors disadvantage.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by The Wizard »

White Coat Investor wrote: Mon Nov 06, 2017 9:19 pm I agree with Larry on the dividend issue. But what are you going to do? Lots of people have an almost religious belief in them.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert »

The Wizard wrote: Wed Nov 08, 2017 6:31 pm
White Coat Investor wrote: Mon Nov 06, 2017 9:19 pm I agree with Larry on the dividend issue. But what are you going to do? Lots of people have an almost religious belief in them.
Eat your eggs, not your chickens, yes...
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 »

Da5id wrote: Wed Nov 08, 2017 5:05 pm
hoops777 wrote: Wed Nov 08, 2017 4:48 pm
Da5id wrote: Wed Nov 08, 2017 1:28 pm
hoops777 wrote: Wed Nov 08, 2017 1:13 pm Yes many “happy” dividend investors who enjoy the cash in their accounts while being technically incorrect and not knowing they should really just be invested in the total market and selling shares every month instead!I sometimes worry about these investors and if they will survive the egregious errors of their ways!So far the millions and millions of such investors seem to be staying above water,somehow. :D
Millions of happy investors are investing at Edward Jones and buying Whole Life policies and Equity Indexed annuities from their best friend, the "adviser" as well. Lots of people do it isn't a rational argument. I'm a fan of rational arguments, do you have any to offer? I think a strong point of bogleheads (or should be) an attempt to present something like a logical case backed by something other than feelings. I've done that I think. Is above the distillation of your entire case? If so, regrettable IMHO.

FYI, I don't think dividends are evil. Or even bad. Or an egregious error. I personally invest in total market in both taxable and non-taxable, I don't distort my investing to avoid dividends even though I'd prefer they be buybacks in my taxable account.
Well,I would say the fact that dividend stocks soundly beat the SP 500 is meaningful.I would say the opinion that you have saying people are foolish to enjoy seeing dividends deposited in their accounts is an opinion,not a fact.You believe what you want to believe based on research that you agree with.I would say someone investing in quality dividend paying companies is not in any way, shape,or form equivalent to people using expensive advisors or buying equity indexed annuities,any more than buying the market is.
If you cannot see beyond your rigid technical analysis and see I was simply making some points on why people like dividend stocks,than so be it.I never said you were incorrect in the technical analysis regarding dividend stocks really being a proxy for value, which is the main reason for their performance.I simply said most people do not care.THEY DO NOT CARE.
Did you think that just maybe,just maybe,this is hoops analysis only,that a big reason dividends stocks do well,is because so many people buy them because of the dividend?JNJ,KO,PG,etc.....I wonder how many millions of shares have been bought by these irrational investors and how that has changed the value of the company?Just sayin.
I rest my case.
.
Last edited by hoops777 on Thu Nov 09, 2017 9:18 am, edited 1 time in total.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop »

We don't search for the most popular investor answers on bogleheads.org; we search for the ones well-supported by historical evidence, facts, and logic. It doesn't matter how likely those who would agree with the correct answer are to be found on a jury; it simply isn't the metric by which we should define correctness.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

hoops777 wrote: Wed Nov 08, 2017 8:39 pm I think you should settle.Your argument was technically correct but there will be no dbr’s on the jury.The jury,made up of common investors, will understand my points about why people invest in dividend stocks,and why they do not care about them being value proxies and all.They will understand that they simply like dividends being deposited in their bank accounts,that they spend,even though the dividend lowers the value of the stock in equal amounts.You are toast,but I will go easy on you.All I want is some bogleheads to lower those high horses just a bit because polite insults are a bit beneath them.Peace,and this has run its course.I know you will appeal it because you know you are right,but I have connections and certain bogleheads will never make a jury.Case closed. :D

Seriously,I honestly would like to know about the effect all those investors have had on the companies like JNJ,PG,KO and the like.You have to admit there are a LOT of investors who only invest in these companies because they are great companies that pay dividends.In my simple approach to this, I would think the fact they they have been great long time dividend payers has had positive results regarding their performance?I wonder what pct of investors in JNJ would not invest without a dividend?If ATT dropped it’s 5.5 pct dividend to 0 next week and half the investors bailed what happens to ATT going forward?
Does your line of discourse constitute a rational point of view in your mind? One that would persuade those who don't agree with you? Or are you a fan of Monty Python's The Argument perhaps? I don't believe you are open to anything that disagrees with your point of view. You seem to think I'm arguing against returning earnings to investors if the company can't use them productively. In fact I'm not doing so. I'm fine with getting dividends in tax advantaged accounts. I'd rather the companies return capital using buybacks in my taxable holdings. I don't know of any strong arguments against that point of view, and haven't seen any here.
Last edited by Da5id on Thu Nov 09, 2017 8:02 am, edited 1 time in total.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by 2pedals »

How about fund that includes all of the nondividend stocks (TSM-Div. stocks) that can be placed in a taxable account and a fund that includes all of the the dividend stocks (TSM-nondividend stocks) that can be placed in a tax advantaged account?
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

2pedals wrote: Thu Nov 09, 2017 7:45 am How about fund that includes all of the nondividend stocks (TSM-Div. stocks) that can be placed in a taxable account and a fund that includes all of the the dividend stocks (TSM-nondividend stocks) that can be placed in a tax advantaged account?
BRK aside, non-dividend stocks tend to be "growth" stocks is my understanding. I'd rather not segment that way myself, and it would be logistically difficult to handle given that ~80% of S&P 500 companies pay dividends. The amount you have in taxable and non-taxable applies another constraint, so you'd have issues trying to do this. And also capital gains issues when funds stop/start paying dividends and switch between these funds.

I just wish there were "buyback" share classes and "dividend" classes, and that could be juggled correctly by the company. Then we could all get our preference. I'd be happy to have either class of share in tax deferred, and prefer buyback in taxable :) But that isn't happening, so I'll just buy my TSM in both and pay my taxes.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr »

2pedals wrote: Thu Nov 09, 2017 7:45 am How about fund that includes all of the nondividend stocks (TSM-Div. stocks) that can be placed in a taxable account and a fund that includes all of the the dividend stocks (TSM-nondividend stocks) that can be placed in a tax advantaged account?
My understanding is that a large majority of the stocks in the TSM by number do not pay dividends though by cap weighting that might be less true. The above comment that selecting for not paying dividends might be a growth tilt would have to be considered.

But again, the question is what is the return and what is the risk and have you invested in the risk and return you want.

Also, no one is seriously telling anyone to specifically avoid dividends. TSM pays about 2% right now and it is fairly difficult to arrange a portfolio that pays a lot more without losing a lot of diversification. My understanding is that US stock dividends are quite a bit less than they have been in earlier years. That does make life much more difficult for dividend seekers. https://www.investopedia.com/articles/m ... -yield.asp
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by AlohaJoe »

Da5id wrote: Wed Nov 08, 2017 8:20 am (where the price of your shares falls by the amount of the dividends)
While I understand that this is a useful and convenient way to explain things to people who have bought the dividend Kool-Aid, it isn't true.

The price of shares is set by the market. The amount of dividend is not. There is no mathematical/accounting reason that the price of shares would fall by the amount of the dividend.

Which means someone would need to look at the actual market behaviour and see what happens. Many academics have. They have all found that the share price does not drop by the amount of the dividend. It has been known since at least 1970 that the price drops by less than the dividend. There is strong evidence that institutional investors attempt to take advantage of this; it is called a "dividend capture strategy".
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr »

AlohaJoe wrote: Thu Nov 09, 2017 8:25 am
Da5id wrote: Wed Nov 08, 2017 8:20 am (where the price of your shares falls by the amount of the dividends)
While I understand that this is a useful and convenient way to explain things to people who have bought the dividend Kool-Aid, it isn't true.

The price of shares is set by the market. The amount of dividend is not. There is no mathematical/accounting reason that the price of shares would fall by the amount of the dividend.

Which means someone would need to look at the actual market behaviour and see what happens. Many academics have. They have all found that the share price does not drop by the amount of the dividend. It has been known since at least 1970 that the price drops by less than the dividend. There is strong evidence that institutional investors attempt to take advantage of this; it is called a "dividend capture strategy".
One paper I read some time ago found that stock prices fell by the after tax value of the dividend. That would be less than the amount of the dividend but takes some estimating of the tax cost across the entire market of investors. That result seems logical on the face of it.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by NotWhoYouThink »

So in reality the dividend cow has found a gap in the fencing and is running free as the wind.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id »

AlohaJoe wrote: Thu Nov 09, 2017 8:25 am
Da5id wrote: Wed Nov 08, 2017 8:20 am (where the price of your shares falls by the amount of the dividends)
While I understand that this is a useful and convenient way to explain things to people who have bought the dividend Kool-Aid, it isn't true.

The price of shares is set by the market. The amount of dividend is not. There is no mathematical/accounting reason that the price of shares would fall by the amount of the dividend.

Which means someone would need to look at the actual market behaviour and see what happens. Many academics have. They have all found that the share price does not drop by the amount of the dividend. It has been known since at least 1970 that the price drops by less than the dividend. There is strong evidence that institutional investors attempt to take advantage of this; it is called a "dividend capture strategy".
It remains to a first approximation true though. Presumably arbitrage makes it converge on the dividend amount? Particularly in the modern era of automation and low transaction costs? Do you have a current reference that indicates the deviation of stock decline in the US on ex-dividend date from the predicted amount?
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