Larry Swedroe: Slaughtering The High Dividend Sacred Cow

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

Post by AlohaJoe » Thu Nov 09, 2017 10:17 am

Da5id wrote:
Thu Nov 09, 2017 9:48 am
Do you have a current reference that indicates the deviation of stock decline in the US on ex-dividend date from the predicted amount?
Here's a paper from last year[1] which is where I learned about it.

[1]: https://papers.ssrn.com/sol3/papers.cfm ... id=2410534

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

Post by Da5id » Thu Nov 09, 2017 10:37 am

AlohaJoe wrote:
Thu Nov 09, 2017 10:17 am
Da5id wrote:
Thu Nov 09, 2017 9:48 am
Do you have a current reference that indicates the deviation of stock decline in the US on ex-dividend date from the predicted amount?
Here's a paper from last year[1] which is where I learned about it.

[1]: https://papers.ssrn.com/sol3/papers.cfm ... id=2410534
Interesting, thanks. I note that the data in the article (which is from last year) is based on trading up until 2007. This feels so amenable to automated capture/exploitation I wonder if the advantage has shrunk since then.

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Thu Nov 09, 2017 10:43 am

Da5id wrote:
Thu Nov 09, 2017 7:44 am
hoops777 wrote:
Wed Nov 08, 2017 9:39 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.
I think I made it quite clear numerous times that I was simply trying to explain why a lot of people invest in and like dividend stocks.I also said about 10 times that the bogleheads were correct in their technical analysis about dividend stocks.Oh well.
K.I.S.S........so easy to say so difficult to do.

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Thu Nov 09, 2017 10:48 am

triceratop wrote:
Wed Nov 08, 2017 10:15 pm
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.
I apologize for my bad attempt at injecting a little humor :D
K.I.S.S........so easy to say so difficult to do.

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

Post by avalpert » Thu Nov 09, 2017 10:50 am

dbr wrote:
Thu Nov 09, 2017 9:36 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:25 am
Da5id wrote:
Wed Nov 08, 2017 9:20 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.
Exactly, the literature has shown that difference is due to the difference in tax treatment between dividends and capital gains and transaction costs. That does provide small arbitrage opportunity for those who have relatively beneficial tax treatment of dividends, low transaction costs and are skilled at trade execution.

But for the intents of the broader discussion, it is accurate enough to say that the stock price adjusts by the amount of the dividend.

donaldfair71
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by donaldfair71 » Thu Nov 09, 2017 10:52 am

AlohaJoe wrote:
Thu Nov 09, 2017 9:25 am
Da5id wrote:
Wed Nov 08, 2017 9:20 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".
Through all of my meandering on this site, I think I am the last person to comment on a dividend thread. But here goes an honest, non-rhetorical question:

If we assume that the price doesn't drop by the dividend, as a rule, why hasn't a crafty manager used this to build a dividend fund whose only activity is to buy just before a dividend, get the dividend, then see immediately after, gaining the dividend minus any STCG tax? One could conceivably do this over and over and over again with no risk, no?

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

Post by Da5id » Thu Nov 09, 2017 10:56 am

donaldfair71 wrote:
Thu Nov 09, 2017 10:52 am
Through all of my meandering on this site, I think I am the last person to comment on a dividend thread. But here goes an honest, non-rhetorical question:

If we assume that the price doesn't drop by the dividend, as a rule, why hasn't a crafty manager used this to build a dividend fund whose only activity is to buy just before a dividend, get the dividend, then see immediately after, gaining the dividend minus any STCG tax? One could conceivably do this over and over and over again with no risk, no?
According to the paper cited, this was exploited profitably. I wonder if it decreased since then. But all sorts of market inefficiencies exist and can be exploited. They just tend to drop over time once discovered if there isn't some reason why they can't be eliminated. I hadn't heard of this one myself.

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

Post by triceratop » Thu Nov 09, 2017 11:51 am

hoops777 wrote:
Thu Nov 09, 2017 10:43 am
Da5id wrote:
Thu Nov 09, 2017 7:44 am
hoops777 wrote:
Wed Nov 08, 2017 9:39 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.
I think I made it quite clear numerous times that I was simply trying to explain why a lot of people invest in and like dividend stocks.I also said about 10 times that the bogleheads were correct in their technical analysis about dividend stocks.Oh well.
Is it your impression that we are not aware of why people prefer dividends? On the contrary it seems most people here are quite understanding, but want to keep repeating that no matter how tempting it is to submit to this behavioral error, it remains one. Why are you acting as a Devils advocate for these investors, when we are simply trying to explain the proper approach to understanding returns and invest for total return?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Thu Nov 09, 2017 11:59 am

triceratop wrote:
Thu Nov 09, 2017 11:51 am
hoops777 wrote:
Thu Nov 09, 2017 10:43 am
Da5id wrote:
Thu Nov 09, 2017 7:44 am
hoops777 wrote:
Wed Nov 08, 2017 9:39 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.
I think I made it quite clear numerous times that I was simply trying to explain why a lot of people invest in and like dividend stocks.I also said about 10 times that the bogleheads were correct in their technical analysis about dividend stocks.Oh well.
Is it your impression that we are not aware of why people prefer dividends? On the contrary it seems most people here are quite understanding, but want to keep repeating that no matter how tempting it is to submit to this behavioral error, it remains one. Why are you acting as a Devils advocate for these investors, when we are simply trying to explain the proper approach to understanding returns and invest for total return?
I apologize for my misdeed.I do not know what came over me or what I was thinking or trying to accomplish.
K.I.S.S........so easy to say so difficult to do.

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patrick013
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by patrick013 » Thu Nov 09, 2017 3:05 pm

triceratop wrote:
Thu Nov 09, 2017 11:51 am
Is it your impression that we are not aware of why people prefer dividends? On the contrary it seems most people here are quite understanding, but want to keep repeating that no matter how tempting it is to submit to this behavioral error, it remains one. Why are you acting as a Devils advocate for these investors, when we are simply trying to explain the proper approach to understanding returns and invest for total return?
So if 2+2=3 that's good research but if 2+2=5 that's a behavioral error ?
If 2+2=4 all the time then your interpretation of both sides' research is
quite misleading. Dividends can and do win, when the math is crossfooted
there is no bias or error.

Here's some results using VG's own funds you
should be looking at. I wonder why the dividend
fund closed.

Ten year total returns:

Total Stock Mkt Idx Adm = 7.72%

Dividend Growth Fund = 8.17%


Ho hum...
age in bonds, buy-and-hold, 10 year business cycle

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Thu Nov 09, 2017 8:10 pm

I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.

Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
K.I.S.S........so easy to say so difficult to do.

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

Post by avalpert » Thu Nov 09, 2017 8:42 pm

hoops777 wrote:
Thu Nov 09, 2017 8:10 pm
I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.

Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
But the same exact thing could be said for any number of investment approaches that people here would not recommend you take - including most obviously investing in a small number of individual stocks. Just because it happened to work over a given period doesn't make it a good idea and if you come here asking for advice you should be prepared to receive advice that is backed by actual logic and reason not emotional attachments and past coincidences.

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Thu Nov 09, 2017 11:38 pm

avalpert wrote:
Thu Nov 09, 2017 8:42 pm
hoops777 wrote:
Thu Nov 09, 2017 8:10 pm
I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.

Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
But the same exact thing could be said for any number of investment approaches that people here would not recommend you take - including most obviously investing in a small number of individual stocks. Just because it happened to work over a given period doesn't make it a good idea and if you come here asking for advice you should be prepared to receive advice that is backed by actual logic and reason not emotional attachments and past coincidences.
Ok. I was not asking for advice.
So it is just a COINCIDENCE that dividend stocks have had excellent returns throughout the history of the market?That is an awfully long coincidence,wouldn’t any reasonable,logical person say? As usual you totally missed the point I made and called all dividend investors, who have had nothing but what any reasonable person would call success, illogical with emotional problems.
I would strongly argue that the typical dividend investor who has done well and knows nothing about the bogleheads philosophy, or analysts like Swedroe,has acted very logically and very reasonably.You guys all seem to assume that these investors all spend hours reading academic research and listening to people preaching bogleheads philosophy.Please explain how they are illogical and behaviorally challenged when they act in a sound and logical manner based on the knowledge they have,that has provided them a successful outcome?

I am not recommending dividend investing,but taking issue with the typical bogleheads complete lack of understanding that most are acting on what they have learned to be the best way to invest and all the put downs are uncalled for and actually come across as a little self righteous.
K.I.S.S........so easy to say so difficult to do.

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

Post by avalpert » Thu Nov 09, 2017 11:52 pm

hoops777 wrote:
Thu Nov 09, 2017 11:38 pm
avalpert wrote:
Thu Nov 09, 2017 8:42 pm
hoops777 wrote:
Thu Nov 09, 2017 8:10 pm
I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.

Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
But the same exact thing could be said for any number of investment approaches that people here would not recommend you take - including most obviously investing in a small number of individual stocks. Just because it happened to work over a given period doesn't make it a good idea and if you come here asking for advice you should be prepared to receive advice that is backed by actual logic and reason not emotional attachments and past coincidences.
Ok. I was not asking for advice.
So it is just a COINCIDENCE that dividend stocks have had excellent returns throughout the history of the market?That is an awfully long coincidence,wouldn’t any reasonable,logical person say?
It's just factually incorrect. Dividend stocks have had up and down periods like any other group of stocks that are best explained by their factor exposure. In some past periods they were less efficient and effective ways of getting exposure to the value factor - whether that will remain the case as dividend policies have shifted so dramatically remains to be seen. In any case, a reasonable, logical person would conclude that they should choose to get value exposure (if that is the additional risk they want to take for the expected higher returns) directly rather than in roundabout ways.
As usual you totally missed the point I made and called all dividend investors, who have had nothing but what any reasonable person would call success, illogical with emotional problems.
I never called anything they have problems - maybe you are projecting there. I would call them humans - and yes humans are largely illogical.
I would strongly argue that the typical dividend investor who has done well and knows nothing about the bogleheads philosophy, or analysts like Swedroe,has acted very logically and very reasonably.
And i would strongly argue that the investor who paid a load to invest with American Funds did well and knows nothing about bogleheads philosophy, etc. but has not in fact acted logically and would still be advised to change direction - just as the typical dividend investor would. As for the atypical dividend investor who actively argues for the supremacy of chasing dividends or thinks dividend stocks are bond equivalents or ignores total returns and price volatility - well they are not just illogical but unreasonable and prone to very big financial errors. Those errors are their own and not my problem, but I won't sit back and let their arguments go unchallenged as those other typical investors may come across it and not knowing better actually think it makes sense.
You guys all seem to assume that these investors all spend hours reading academic research and listening to people preaching bogleheads philosophy.
Quite the contrary, I assume they don't which is why I draw attention to some of the more pervasive errors when they get brought up on this forum as it is likely to be their only exposure to them.
Please explain how they are illogical and behaviorally challenged when they act in a sound and logical manner based on the knowledge they have,that has provided them a successful outcome?
Well, among the cognitive biases that may lead to their illogical choices when they are in fact not acting in a sound and logical manner is recency bias, gambler's fallacy, confirmation bias and availability cascade.
I am not recommending dividend investing,but taking issue with the typical bogleheads complete lack of understanding that most are acting on what they have learned to be the best way to invest and all the put downs are uncalled for and actually come across as a little self righteous.
I think most here not only understand that that is how they are acting but are also quite empathetic to that. Far more so than most corners of the internet when people come in with less understanding than the regulars.

hoops777
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Fri Nov 10, 2017 12:20 am

I appreciate your response.Your points were excellent but you are like a great player who retires and wants to be a coach and cannot understand why his players can’t play the game like he did.Thank you. :happy
I am done here.
Whoops,one last edit.I cannot let the term availability cascade go by without asking what pct of investors have any idea what that is?I like the sound of it almost as much as my bogleheads bobble head remark in one of my earlier dissertations :beer
Last edited by hoops777 on Fri Nov 10, 2017 12:29 pm, edited 2 times in total.
K.I.S.S........so easy to say so difficult to do.

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

Post by jegp » Fri Nov 10, 2017 8:03 am

I always think that when you reinvest dividends, for example, in a SP500 index, you must do it in a "fair way".
Lets say, the dividends of KO goes to buy ONLY more KO shares, the dividends of JNJ goes only to buy more JNJ shares, and so on.
No dividends from X stock? Then no more shares of X stock.

The standard "buy more shares of the index with the index's dividend" makes you use dividends from "dividend-payers" to also buy "non-dividend-payers", and I think that is "not fair".

We need a smart-index or something to do this, right ?

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

Post by dbr » Fri Nov 10, 2017 8:25 am

jegp wrote:
Fri Nov 10, 2017 8:03 am
I always think that when you reinvest dividends, for example, in a SP500 index, you must do it in a "fair way".
Lets say, the dividends of KO goes to buy ONLY more KO shares, the dividends of JNJ goes only to buy more JNJ shares, and so on.
No dividends from X stock? Then no more shares of X stock.

The standard "buy more shares of the index with the index's dividend" makes you use dividends from "dividend-payers" to also buy "non-dividend-payers", and I think that is "not fair".

We need a smart-index or something to do this, right ?
The idea of investing in an index is to hold the index. The fund management themselves have to be constantly realigning the holdings to reflect the index with cash income and cash outlays as they occur. If you reinvest the fund dividend the fund management will take your cash along with all the other cash income and outgo and continue to invest so as to track the index. The net effect might actually be similar to what you suggest.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 11:29 am

jegp wrote:
Fri Nov 10, 2017 8:03 am
I always think that when you reinvest dividends, for example, in a SP500 index, you must do it in a "fair way".
Lets say, the dividends of KO goes to buy ONLY more KO shares, the dividends of JNJ goes only to buy more JNJ shares, and so on.
No dividends from X stock? Then no more shares of X stock.

The standard "buy more shares of the index with the index's dividend" makes you use dividends from "dividend-payers" to also buy "non-dividend-payers", and I think that is "not fair".

We need a smart-index or something to do this, right ?
No, don't see how reinvesting dividends into the stock that distributed them has anything to do with fairness - that makes no sense to me. If you are trying to maintain a market cap-weighted exposure then that is what you do regardless of where dividends come from, if you are trying to maintain some other weighting than that is what you do - but to reflexively put the money a stock distributed right back into that stock doesn't seem more fair or a good idea.

So no, we don't need a smart-index to anything to do that.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by jegp » Fri Nov 10, 2017 11:51 am

Let put the idea in this way, lets separate the sp500 standard index in 2 parts: sp500DP (dividend payers) and sp500NDP (non dividend payers).
You now have to buy both indexs for have the sp500 index. sp500DP have a dividend, sp500NDP don't have a dividend.
When you reinvest the sp500DP dividend, you only buy again more shares of sp500DP. You will never buy more shares of sp500NDP, because it never pays a dividend.

Well, thats the idea. I really don't do any math, not sure if it will be much different than just the sp500 index.

I have the idea (maybe wrong) that reinvested-dividends from an index, originated from their dividend payers stocks, inflate the price of the non-dividend-payers-stocks inside the index. And this idea maybe can fix it (if this problem really exists).

Just thinking...maybe is all wrong. :?

(sorry about my english, not my first language)

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by donaldfair71 » Fri Nov 10, 2017 1:17 pm

hoops777 wrote:
Thu Nov 09, 2017 8:10 pm
I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.



Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
I see what you're saying and agree. If it works for people it works for people (not everyone but those "people"). Investing non-optimally > not investing at all.

To take your analogy with basketball further, what if someone tried telling you that being a 40% 3 point shooter will net you more points than being a 60% two point shooter (all else equal)? All else equal there can be no debate. Now we know some kids are better shooting 3s than others and some of those kids are pretty automatic on layups. So there is behavioral element sure. But it doesn't change the simple math on a premise. I think that's where the debate comes in. Sometimes that math gets challenged when really it's the behavior that should be challenged. The math for our intents and purposes should be beyond reproach total return vs dividend/dividend growth. But it doesn't feel like it's accepted.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 1:30 pm

jegp wrote:
Fri Nov 10, 2017 11:51 am
Let put the idea in this way, lets separate the sp500 standard index in 2 parts: sp500DP (dividend payers) and sp500NDP (non dividend payers).
You now have to buy both indexs for have the sp500 index. sp500DP have a dividend, sp500NDP don't have a dividend.
When you reinvest the sp500DP dividend, you only buy again more shares of sp500DP. You will never buy more shares of sp500NDP, because it never pays a dividend.

Well, thats the idea. I really don't do any math, not sure if it will be much different than just the sp500 index.

I have the idea (maybe wrong) that reinvested-dividends from an index, originated from their dividend payers stocks, inflate the price of the non-dividend-payers-stocks inside the index. And this idea maybe can fix it (if this problem really exists).

Just thinking...maybe is all wrong. :?

(sorry about my english, not my first language)
Yeah, I think you are talking about a solution to a problem that doesn't exist. If you did what you describe you would no longer be market-cap weighted, you will be investing more in the dividend-payers (relative to market weight) than non-dividend payers and nothing you are saying suggests that is your goal (and even if it is there are more direct ways to do).

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 1:34 pm

donaldfair71 wrote:
Fri Nov 10, 2017 1:17 pm
hoops777 wrote:
Thu Nov 09, 2017 8:10 pm
I finally came to grips with why this has been bugging me so much.
I am quite certain the average dividend investor invests that way because that is what they first learned or were exposed to in their investing life.If they did it well,they have made good money and have been successful investors.They are not stupid or behaviorally or psychologically challenged because they do not spend hours researching academic literature or because they do not know a boglehead from a bobble head.Most will google something like historical returns of dividend aristocrats,see some pretty positive results,fancy charts and feel satisfied.

I was a very dedicated basketball coach for 25 years and I can watch an NBA game and really understand the little details that determine the outcomes of various situations on the court.The average fan could care less why the Warriors defend the high pick and roll 3 or 4 different ways.They know the good players and teams and want their team to win,period.The average investor does not care about the minutiae of technical analysis.They just want to be successful.They want to win,and they have.



Even Swedroe would admit that a quality dividend stock investor has done quite well in relation to the total market.Sometimes a little better,sometimes even,sometimes a bit worse.They are doing what they know and they continue because they have had little reason not to.It would be one thing if they could clearly see that the last 40 years the SP500 returned an avg of 10 pct and quality dividend stocks,like those in Vanguards very successful dividend focused funds,returned 4 pct.That is not the case,so normal behavior for a human being is to stick with what has been successful in their eyes.There is a famous saying about walking a mile in someone else’s shoes.Maybe just think about that next time one of you is ready with your polite put down.A lot of these investors actually should be admired for their steadfastness,consistency and overall returns despite the fact they do not know a boglehead from a bobble head.I know I said that twice.It makes me :D
I see what you're saying and agree. If it works for people it works for people (not everyone but those "people"). Investing non-optimally > not investing at all.

To take your analogy with basketball further, what if someone tried telling you that being a 40% 3 point shooter will net you more points than being a 60% two point shooter (all else equal)? All else equal there can be no debate. Now we know some kids are better shooting 3s than others and some of those kids are pretty automatic on layups. So there is behavioral element sure. But it doesn't change the simple math on a premise. I think that's where the debate comes in. Sometimes that math gets challenged when really it's the behavior that should be challenged. The math for our intents and purposes should be beyond reproach total return vs dividend/dividend growth. But it doesn't feel like it's accepted.
That's a good example - now tell me, as the implications of that math and better analytics in general have infiltrated the NBA how have the successful teams adapted their strategies? Are there any who aren't building offenses designed to increase the number of quality three-point shots they get? The average investor isn't a fan rooting for their portfolio - they are the coach who should be learning and improving their strategies (or maybe if they are incapable paying someone else to do it for them).

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Fri Nov 10, 2017 1:38 pm

hoops777 wrote:
Fri Nov 10, 2017 12:20 am
I appreciate your response.Your points were excellent but you are like a great player who retires and wants to be a coach and cannot understand why his players can’t play the game like he did.Thank you. :happy
I am done here.
Whoops,one last edit.I cannot let the term availability cascade go by without asking what pct of investors have any idea what that is?I like the sound of it almost as much as my bogleheads bobble head remark in one of my earlier dissertations :beer
Well, you found out what happens in the dividend wars. You are right, if investors find that a dividend approach gets them good results, matching or even beating the market, they don't care about all the technical arguments. As long as you understand that it is factors like Value for High Dividend and Profitability/Quality that works for Dividend Growth, you are on solid ground. There is also overlap between dividends/Value/Low Volatility. My take is that if you buy quality dividend paying stocks at reasonable prices, you should do well. Again, it is the underlying factors and not the dividends themselves that drive returns.

What I would recommend is listen politely and then invest your money however you want. You also ran into somebody who is very argumentative and who just won't let up. I have a lot of sympathy for what you have been saying.

Best wishes,

Ned
A fool and his money are good for business.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Fri Nov 10, 2017 1:52 pm

Good point.However just to show how nothing is ever quite so simple,you are correct about the math regarding shooting 2’s vs 3’s but......Over the course of a season the math is the math,but shooting 3’s is more inconsistent and on a game to game basis you are more susceptible to being upset because of that.Curry and Thompson are arguably the best 3 point shooters in the world,but on any given night they may go 4 for 22.So on a short term basis 3 point shooting is more volatile and riskier,because of the increased difficulty of the shot.It also of course has greater rewards most of the time.

Yes the NBA has adapted and changed their strategies trying to imitate the Warriors the best they can.Easier said than done of course.They could also be accused of following the herd and copying the latest and greatest thing,kind of like investors :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 » Fri Nov 10, 2017 2:22 pm

nedsaid wrote:
Fri Nov 10, 2017 1:38 pm
hoops777 wrote:
Fri Nov 10, 2017 12:20 am
I appreciate your response.Your points were excellent but you are like a great player who retires and wants to be a coach and cannot understand why his players can’t play the game like he did.Thank you. :happy
I am done here.
Whoops,one last edit.I cannot let the term availability cascade go by without asking what pct of investors have any idea what that is?I like the sound of it almost as much as my bogleheads bobble head remark in one of my earlier dissertations :beer
Well, you found out what happens in the dividend wars. You are right, if investors find that a dividend approach gets them good results, matching or even beating the market, they don't care about all the technical arguments. As long as you understand that it is factors like Value for High Dividend and Profitability/Quality that works for Dividend Growth, you are on solid ground. There is also overlap between dividends/Value/Low Volatility. My take is that if you buy quality dividend paying stocks at reasonable prices, you should do well. Again, it is the underlying factors and not the dividends themselves that drive returns.

What I would recommend is listen politely and then invest your money however you want. You also ran into somebody who is very argumentative and who just won't let up. I have a lot of sympathy for what you have been saying.

Best wishes,

Ned
Thank you.
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 patrick013 » Fri Nov 10, 2017 5:01 pm

To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 5:46 pm

patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Fri Nov 10, 2017 5:57 pm

avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
I think the dividend advocates would like to argue that it is possible there are two sets of factors: {market, value, size} AND {market, dividend/dividend growth, size}. In that situation it would be defensible to pursue "dividends" as a factor and receive a premium; hoops777 and others have essentially said that they expect a premium and historically it has been justified. In my opinion a better way to disprove this would be to show that one of these factors has significantly more explanatory power than the other, ideally with lower cross-correlations or a lower premium for unit of risk. I suspect this has been done, but I am not familiar at all with the literature (if it's even published, it may be super obvious and I don't know that because I am not a practitioner).
"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 KyleAAA » Fri Nov 10, 2017 5:58 pm

magneto wrote:
Mon Nov 06, 2017 1:56 pm
Again as oft pointed out Revenue, Profits, Earnings are what the accountants say they are.
Dividends mostly (leverage fiddling excepted) are real money.
Believe Enron paid nil dividends ?
It is not uncommon for companies to take on debt in order to pay dividends. They don't seem any less vulnerable to manipulation than the statement of cash flows. Everything on the statement of cash flows are real money, too.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by patrick013 » Fri Nov 10, 2017 6:03 pm

avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Fri Nov 10, 2017 6:09 pm

patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
"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 dbr » Fri Nov 10, 2017 6:13 pm

patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
The point is that Fama and French and others who have looked at these things proceeded by testing all sorts of factors and have settled on those that are the most explanatory and least cross-correlated. When you do that dividends drop out and size, value, etc. are selected. But testing the explanatory power of regression models is just correlation and not causation. To this day it is may still be a point of discussion what the cause of size and value factors is while I would understand that financial economists are pretty sure there is no causal effect of dividends on return. It is a fair statement that these things are far from obvious, but I think that is exactly the point.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by patrick013 » Fri Nov 10, 2017 6:17 pm

triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
age in bonds, buy-and-hold, 10 year business cycle

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 6:52 pm

patrick013 wrote:
Fri Nov 10, 2017 6:17 pm
triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
I don't think you understand how regression models work. As mentioned above, it has been looked at and dividend yield doesn't provide additional explanation of returns while value, size and market fully explain the different performance of stocks sorted by dividend yield (this was presented in F&F 1993 paper introducing the three factor model).

Dividends are an ineffective way to explain returns, that is kind of the whole point - to make a model pretending otherwise is a disservice to investors taking them further away from good decision making.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by patrick013 » Fri Nov 10, 2017 7:11 pm

avalpert wrote:
Fri Nov 10, 2017 6:52 pm
patrick013 wrote:
Fri Nov 10, 2017 6:17 pm
triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm

What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
I don't think you understand how regression models work. As mentioned above, it has been looked at and dividend yield doesn't provide additional explanation of returns while value, size and market fully explain the different performance of stocks sorted by dividend yield (this was presented in F&F 1993 paper introducing the three factor model).

Dividends are an ineffective way to explain returns, that is kind of the whole point - to make a model pretending otherwise is a disservice to investors taking them further away from good decision making.
Well like I said I could do it but I'm too lazy. Whoever did it and didn't prove
it didn't do it right. The excess returns are there but I don't think I can post the
data. Plus the data I have is in summary and I need the annual data to proceed.
It would just have to be developed using the proper data. No problem, I don't
use FF anyway, just multi-decade tables and basic financial econometrics. Enough
for me. :)
age in bonds, buy-and-hold, 10 year business cycle

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Fri Nov 10, 2017 7:17 pm

patrick013 wrote:
Fri Nov 10, 2017 7:11 pm
avalpert wrote:
Fri Nov 10, 2017 6:52 pm
patrick013 wrote:
Fri Nov 10, 2017 6:17 pm
triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm


Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
I don't think you understand how regression models work. As mentioned above, it has been looked at and dividend yield doesn't provide additional explanation of returns while value, size and market fully explain the different performance of stocks sorted by dividend yield (this was presented in F&F 1993 paper introducing the three factor model).

Dividends are an ineffective way to explain returns, that is kind of the whole point - to make a model pretending otherwise is a disservice to investors taking them further away from good decision making.
Well like I said I could do it but I'm too lazy. Whoever did it and didn't prove
it didn't do it right. The excess returns are there but I don't think I can post the
data. Plus the data I have is in summary and I need the annual data to proceed.
It would just have to be developed using the proper data. No problem, I don't
use FF anyway, just multi-decade tables and basic financial econometrics. Enough
for me. :)
Yep, those seasoned finance professors did it all wrong - just use multi-decade tables no need for their highfalutin math.

Seriously, this is why this 'debate' never ends - one side refuses to accept the evidence that contradicts their belief. The best we can hope for is to not leave their assertions unanswered and hope to help some of the onlookers who aren't already anchored to their existing biases.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Fri Nov 10, 2017 7:32 pm

avalpert wrote:
Fri Nov 10, 2017 6:52 pm
patrick013 wrote:
Fri Nov 10, 2017 6:17 pm
triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm

What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
I don't think you understand how regression models work. As mentioned above, it has been looked at and dividend yield doesn't provide additional explanation of returns while value, size and market fully explain the different performance of stocks sorted by dividend yield (this was presented in F&F 1993 paper introducing the three factor model).

Dividends are an ineffective way to explain returns, that is kind of the whole point - to make a model pretending otherwise is a disservice to investors taking them further away from good decision making.
I am not getting started again,but probably 98 pct of the investing public thinks Fama and French is something on aisle 7 at the supermarket,which is why I tried to defend them in the first place,but alas,I was overwhelmed by technical correctness and I lost my case,dooming millions to living in dividend hell.Sorry,sorry.Just thought the discussion needed a little lightening up.
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 avalpert » Fri Nov 10, 2017 7:39 pm

hoops777 wrote:
Fri Nov 10, 2017 7:32 pm
avalpert wrote:
Fri Nov 10, 2017 6:52 pm
patrick013 wrote:
Fri Nov 10, 2017 6:17 pm
triceratop wrote:
Fri Nov 10, 2017 6:09 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm


Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
As I alluded to in an edit in my previous post, you also need to also show something like: dividends as a factor 1) explain more of stock returns based on their characteristics in terms of this factor, 2) are less correlated with other factors (hard, given existing correlations in the 3-factor model!), or 3) dividends have a higher excess return (per unit risk?).

Otherwise might as well just use value, and more tax efficiently, as well.

I think. (someone please double check this reasoning)
Yes, it would be a new model no doubt. Like I said I don't use FF but it would
be something to do over the weekend. :)

edit: I'd develop the coefficient for dividends the same way the coefficients
for size and value were developed. I can't do it, too lazy and can't afford the
database req'd, etc..
I don't think you understand how regression models work. As mentioned above, it has been looked at and dividend yield doesn't provide additional explanation of returns while value, size and market fully explain the different performance of stocks sorted by dividend yield (this was presented in F&F 1993 paper introducing the three factor model).

Dividends are an ineffective way to explain returns, that is kind of the whole point - to make a model pretending otherwise is a disservice to investors taking them further away from good decision making.
I am not getting started again,but probably 98 pct of the investing public thinks Fama and French is something on aisle 7 at the supermarket,which is why I tried to defend them in the first place,but alas,I was overwhelmed by technical correctness and I lost my case,dooming millions to living in dividend hell.Sorry,sorry.Just thought the discussion needed a little lightening up.
98% of the investing public isn't posting on an 'Investing - Theory and General' section of a forum dedicated to investing theories rooted in logic and research.

You aren't defending that 98% here, [OT comment removed by admin LadyGeek] - you are defending the ones who do post in a place where lots of knowledgeable people are there to point them to the evidence and research that can debase their biases and yet refuse to acknowledge and incorporate the new evidence they are being exposed to into their arguments. This has nothing to do with millions who are misled into thinking dividend investing makes sense, or the millions who are misled into investing with Edward Jones or the millions who are convinced of the need for and value of whole life insurance schemes or any other of myriad of ways in which salesman take advantage of those who are ignorant (not because of lack of capability or any personal failing) of financial facts - this is solely about those who no longer have that ignorance as an excuse yet continue to argue against said facts.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by AlohaJoe » Fri Nov 10, 2017 7:48 pm

dbr wrote:
Fri Nov 10, 2017 6:13 pm
patrick013 wrote:
Fri Nov 10, 2017 6:03 pm
avalpert wrote:
Fri Nov 10, 2017 5:46 pm
patrick013 wrote:
Fri Nov 10, 2017 5:01 pm
To solve the problem apart from multi-decade return tabulations
Fama and French should include dividends as a separate and
additional factor. Then we could read factor studies that highlight
alpha's, dividend premium, size premium, value premium, for
small, mid, and large cap stocks.

Alot of people think when a company pays a dividend they're liquidating
the company. Rather they're mature companies with established market
share. A FF dividend premium calc would shed some light on that.
What problem does that solve? Dividend yield adds no explanatory power to the three factor model - the intercepts are essentially zero when using the three-factor model to explain returns of stocks sorted by dividend yield. In other words, there is no additional 'dividend premium' - the returns of stocks paying dividend can be completely explained using market, value and size risk factors.
Explain excess returns by dividends as well . Why not. I don't use FF but the
math trick should be there for dividends as well. Measure the historic excess
returns of dividend stocks over the market as a whole.
The point is that Fama and French and others who have looked at these things proceeded by testing all sorts of factors and have settled on those that are the most explanatory and least cross-correlated. When you do that dividends drop out and size, value, etc. are selected.
This isn't 100% accurate. For instance in Swedroe's Complete Guide to Factor-Based Investing he and his co-author write
The carry factor is the tendency for higher-yielding assets to provide higher returns than lower-yielding assets.

[...]

Thus, for equities, the carry trade is defined by the dividend yield.

[...]

Ralph Koijen, Tobias Moskowitz, Lasse Pedersen, and Evert Vrugt, authors of the 2015 study "Carry", found that a carry trade that takes long positions in high-carry assets and short positions in low-carry assets earns significant returns in each asset class.

[...]

In each of the four asset classes [ed: equities, fixed income, commodities, currencies], the carry trade has basically been at least as persistent as any of the premiums we have examined thus far, regardless of the time horizon. In addition, the Sharpe ratios are among the highest [ed: Sharpe of 0.88] (our other top finisher -- momentum -- posted a ratio of 0.61
They describe that the carry trade is Pervasive, Persistent, Investable, Intuitive, and Implementable and thus counts as a factor in their book.

When I first read this chapter I thought, "Wait a second, why is Larry Swedroe telling me that dividends are a factor after all of his dividend bashing!? And why is the point being made so subtly? Why is this entire chapter about currencies and fixed income when they just showed it applied to equities as well? And why is there an appendix about how dividends aren't a factor but it doesn't mention Curry at all to reconcile this conflicting message?"

Honestly, I found their explanation of Carry vs. Dividend extremely poor. Because right there when they are saying Carry is a factor they say it is dividend yield.

It wasn't until I read the paper that they referenced ("Carry") that the explanation is made:
[...] our futures-based measure of carry depends on expected dividends derived from futures prices. We show that these two measures can be quite different.

[...]

Carry provides a forward-looking measure of dividends derived from futures prices, while the standard dividend yield used in the prediction literature is backward looking.
So, if I'm understanding the paper, they are saying that historical dividends aren't a factor. But expected dividends are a factor. They just don't call it "dividends" they call it "carry".

(To reiterate: they use equity future contracts to determine this, which no ETF/mutual fund does AFAIK, so "high-dividend funds" aren't getting exposure to the carry factor except maybe by accident.)

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Fri Nov 10, 2017 8:07 pm

Fantastic post, AlohaJoe, thank you for breaking that down. :beer
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by LadyGeek » Fri Nov 10, 2017 8:48 pm

With reference to some earlier interchanges, the discussion is getting derailed on conjecture of what "other people" think.

Please stay on-topic and state your concerns in a civil, factual manner.

(I also removed an off-topic remark which was above our "family friendly" threshold.)
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Fri Nov 10, 2017 11:08 pm

I get it.I have too much respect for this forum to carry on.I am happy that a few of the venerable bogleheads understood my points.I know why the others did not or would not.Carry on! :happy
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 nedsaid » Sat Nov 11, 2017 7:23 am

hoops777 wrote:
Fri Nov 10, 2017 7:32 pm

I am not getting started again, but probably 98 pct of the investing public thinks Fama and French is something on aisle 7 at the supermarket, which is why I tried to defend them in the first place,
but alas, I was overwhelmed by technical correctness and I lost my case, dooming millions to living in dividend hell. Sorry, sorry. Just thought the discussion needed a little lightening up.
I happily collect and reinvest my dividends, hardly life in hell. I might be in heck, for minor offenses like drinking out of an expired milk carton, pulling the tag off my mattress, and enjoying seeing dividend payments hit my brokerage account. My investing sin with regard to dividends seems pretty minor and the consequences seem pretty minor as well, pretty much getting scolded by anonymous avatars. Consider that your wrist was just hit by a ruler. Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
A fool and his money are good for business.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id » Sat Nov 11, 2017 8:59 am

nedsaid wrote:
Sat Nov 11, 2017 7:23 am
Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
If arguing against misguided ideas (like dividends investing > total return investing) is worthy of criticism, OK. I'd argue that letting inaccurate statements stand unchallenged is a bad idea in a forum on investing theory. I also think people who like dividends qua dividends should read Larry's article with an open mind. I think people should work on identifying their weaknesses -- which we all have, being human, and which can sabotage an investing plan --- and fight against them. But hey, that would take discipline of a different sort.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by petulant » Sat Nov 11, 2017 9:43 am

RAchip wrote:
Wed Nov 08, 2017 9:35 am
"the price of your shares falls by the amount of the dividends"

This is what I don't agree with. Over the long term (5-10 years or more) if cash is held in a company rather than being paid out as a dividend, nobody knows for sure what would happen to the market price of the stock. That money could easily be wasted by the company (spent on things that don't increase earnings). You should ask yourself: why do over 80% of the companies in the S&P 500 and 100% of the companies in the DJIA pay dividends? Answer: they do it because it creates shareholder value.
It would be interesting to see an empirical analysis of this point. The flip-side is that cash on the balance sheet isn't taxed as a dividend, and at least prior to the 1990s a large corporation really would probably be better positioned to hold high-interest debt instruments or even stock. Now, with low interest rates, tax-advantaged accounts, and ease of access, it is easy to believe an individual investor can allocate dividends as well as a large corporation.

As to the specific issue of whether a stock goes down by the amount of dividend, empirical analysis would be helpful but possibly difficult to conduct. The idea is that on the day after dividends are recorded for shareholders, a stock's price tends to go down by about the amount of the dividend. That is empirically true. Some draw the inference, however, that the shares are actually worth that much less; in other words, a share price of $100 includes the value of having $5 in cash, so if you pay out $5 in cash, the share price is now $95.

It's entirely possible, however, that before the dividend date the stock market views the share as two instruments rolled into one--the first company stock, the second a sort of commercial paper-like asset. In this view, once a dividend is declared and is roughly certain, the share price includes both the expectation of the dividend being paid as well as the stock itself, in the same way that an in-the-money option might contain both time value and intrinsic value. Thus, the share price falls by the amount of the dividend, but not because the market views the corporation as necessarily worth that much less but because the highly liquid and certain dividend itself was priced into the share the day before. In other words, the market would view the company as worth $97 with the cash and business but $95 with just business but not the $5 in cash. Once a $5 dividend is declared, the market would revalue the company to $95 rather than $97 but then would include the $5 dividend in the share price for $100 total. Once the dividend is paid, the price would fall to $95. The market may not value a company with extra cash on its balance sheet for the full value of that cash if it is not necessary working capital, the company already has great credit, and it is not earning a high return.

Empirical analysis would be helpful to show whether share prices tend to increase a small amount, by a little less than the amount of the dividend perhaps, between the date dividends are declared and the date they're recorded for shareholders. However, this analysis would be difficult because the share price would likely fluctuate too much and many corporations have stable dividend policies that would mean the declared date may not be meaningful.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by SGM » Sat Nov 11, 2017 9:48 am

Dividends are part of total return, but are less tax efficient than selling stock in a taxable account as all of the dividend is taxed yearly and when selling stocks only the capital gains part is taxed. So I am ambivalent about dividends. If you can live off of dividends in retirement and are not reaching for yield, you are likely taking out a sustainable or safe withdrawal rate at current yields. Dividends in tax preferred accounts are not taxed any differently than capital gains so it is a wash.

One historic thing about dividends is that if a company retained a lot of earnings and have a lot of cash on hand they became takeover targets. I am not a big fan of buybacks. The timing is often when stock valuations are higher and sometimes new stock is issued to management which dilutes the effect of buybacks.

I can't avoid dividends, but I try to look at them as part of total return. My preference is that companies would find good usages for their excess cash and not go overboard on dividends and make sure that buybacks are in the interest of shareholders primarily.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sat Nov 11, 2017 12:10 pm

Da5id wrote:
Sat Nov 11, 2017 8:59 am
nedsaid wrote:
Sat Nov 11, 2017 7:23 am
Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
If arguing against misguided ideas (like dividends investing > total return investing) is worthy of criticism, OK. I'd argue that letting inaccurate statements stand unchallenged is a bad idea in a forum on investing theory. I also think people who like dividends qua dividends should read Larry's article with an open mind. I think people should work on identifying their weaknesses -- which we all have, being human, and which can sabotage an investing plan --- and fight against them. But hey, that would take discipline of a different sort.
I own three of Larry Swedroe's books and I have read many of his articles. I also have interacted with him many times on this forum. I know exactly what Larry says about dividends. I have restated what he has said here many times. The thing is, this is going beyond pointing out factual errors, it is becoming plain old fussbudget behavior and I for one am getting tired of it.
A fool and his money are good for business.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by RAchip » Sat Nov 11, 2017 12:29 pm

"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?"

You are correct, I think. But I think it makes a big difference if you own a portfolio of 20+ dividend aristocrats versus and S&P 500 fund or total market fund. Its easy to sell a bit of a fund position to create homemade dividends. Its harder if you own a significant individual stock portfolio. Deciding what shares of what stocks to sell would be very difficult.

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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sat Nov 11, 2017 12:42 pm

petulant wrote:
Sat Nov 11, 2017 9:43 am
RAchip wrote:
Wed Nov 08, 2017 9:35 am
"the price of your shares falls by the amount of the dividends"

This is what I don't agree with. Over the long term (5-10 years or more) if cash is held in a company rather than being paid out as a dividend, nobody knows for sure what would happen to the market price of the stock. That money could easily be wasted by the company (spent on things that don't increase earnings). You should ask yourself: why do over 80% of the companies in the S&P 500 and 100% of the companies in the DJIA pay dividends? Answer: they do it because it creates shareholder value.
It would be interesting to see an empirical analysis of this point. The flip-side is that cash on the balance sheet isn't taxed as a dividend, and at least prior to the 1990s a large corporation really would probably be better positioned to hold high-interest debt instruments or even stock. Now, with low interest rates, tax-advantaged accounts, and ease of access, it is easy to believe an individual investor can allocate dividends as well as a large corporation.

As to the specific issue of whether a stock goes down by the amount of dividend, empirical analysis would be helpful but possibly difficult to conduct. The idea is that on the day after dividends are recorded for shareholders, a stock's price tends to go down by about the amount of the dividend. That is empirically true. Some draw the inference, however, that the shares are actually worth that much less; in other words, a share price of $100 includes the value of having $5 in cash, so if you pay out $5 in cash, the share price is now $95.

It's entirely possible, however, that before the dividend date the stock market views the share as two instruments rolled into one--the first company stock, the second a sort of commercial paper-like asset. In this view, once a dividend is declared and is roughly certain, the share price includes both the expectation of the dividend being paid as well as the stock itself, in the same way that an in-the-money option might contain both time value and intrinsic value. Thus, the share price falls by the amount of the dividend, but not because the market views the corporation as necessarily worth that much less but because the highly liquid and certain dividend itself was priced into the share the day before. In other words, the market would view the company as worth $97 with the cash and business but $95 with just business but not the $5 in cash. Once a $5 dividend is declared, the market would revalue the company to $95 rather than $97 but then would include the $5 dividend in the share price for $100 total. Once the dividend is paid, the price would fall to $95. The market may not value a company with extra cash on its balance sheet for the full value of that cash if it is not necessary working capital, the company already has great credit, and it is not earning a high return.

Empirical analysis would be helpful to show whether share prices tend to increase a small amount, by a little less than the amount of the dividend perhaps, between the date dividends are declared and the date they're recorded for shareholders. However, this analysis would be difficult because the share price would likely fluctuate too much and many corporations have stable dividend policies that would mean the declared date may not be meaningful.
Companies are mostly valued by Wall Street as a multiple of earnings. Consistent earnings get a higher multiple than volatile earnings. Higher growth rates get higher multiples than lower earnings growth rates. Nirvana is achieved when you have relatively high growth rates coupled with consistency. That being said, the market also takes into account assets on the balance sheet. Evidence for this is that higher levels of cash on the balance sheet tend towards higher P/E ratios and lower levels of cash tend towards lower P/E ratios.

Share prices don't necessarily go down by the amount of the dividend on ex-dividend day. There are other factors involved that affect the stock price on that day. For example, positive news could cause the price of the stock to go up even as the market takes into account the dividend. It would be fair to say that the stock would trade at a price reflecting the extra cash had the dividend not been paid.
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Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 1:31 pm

I do have a question.I mentioned earlier in some other phrasing and it was ignored, so maybe it is a foolish question.
Let’s take a company like JNJ.I think it is accurate and fair to say a lot of investors have stayed with this stock for many years because it is a household name that pays a nice dividend.
An investor starts buying the stock in their 30’s and the plan is to reinvest all dividends until retirement.What happens is the amount of shares drastically increase over time as does the yield on the initial investment.The investor retires and now uses the stock as a income vehicle,never selling shares,but now spending the dividends,and when he dies at 85 he leaves the stock to his kids.Say he initially bought 10,000 dollars and it is now worth 200,000,just making up numbers here.

Of course a similar or better outcome would occur if he just sold shares instead of taking dividends when he retired.I get that.

Here is my question.A lot of dividend investors buy the stock because of this strategy,technically flawed or not.They would not have bought JNJ If it did not pay a dividend.So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Would this not make the dividends a factor in a sense?
Last edited by hoops777 on Sat Nov 11, 2017 4:14 pm, edited 3 times in total.
K.I.S.S........so easy to say so difficult to do.

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