One answer to the Dividend stocks puzzle from behavioral finance

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saltycaper
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by saltycaper » Fri Dec 08, 2017 6:20 pm

Artsdoctor wrote:
Fri Dec 08, 2017 6:04 pm

Was it Moynihan that said, "everyone is entitled to his own opinion, but not his own facts"?
That's so 1980s. Now there's the Internet for the masses. Confirmation bias-driven searching and social media posting accounts for the majority of Internet traffic. Don't believe me? You heard it here first.
Quod vitae sectabor iter?

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Artsdoctor
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Artsdoctor » Fri Dec 08, 2017 6:23 pm

saltycaper wrote:
Fri Dec 08, 2017 6:20 pm
Artsdoctor wrote:
Fri Dec 08, 2017 6:04 pm

Was it Moynihan that said, "everyone is entitled to his own opinion, but not his own facts"?
That's so 1980s. Now there's the Internet for the masses. Confirmation bias-driven searching and social media posting accounts for the majority of Internet traffic. Don't believe me? You heard it here first.

I'm trying desperately to make comments as far away from the current environment as I possibly can . . . 1980's seemed safe to me, especially since the comment can be used in any decade . . .

RAchip
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by RAchip » Fri Dec 08, 2017 6:28 pm

"selling shares led to an equivalent outcome."

If you have an $8mm portfolio if 23 individual stocks, deciding what to sell every 3 months would be extremely difficult. Plus, as you sell down your portfolio the dividend income decreases. The reality for me is that selling shares is not an equivalent outcome. I do acknowledge that it might be easier to sell bits if it was all in an s&p index fund.

I have built a portfolio of individual blue chip stocks (real companies, no REITs or MLPs) that pays me well over $250k per year in dividends (paid quarterly) AND which has appreciated in value by a huge amount over the years. If you have significant wealth and want meaningful income AND capital appreciation, building a portfolio of solid companies who pay a somewhat higher end and growing dividend is a very viable strategy.

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by saltycaper » Fri Dec 08, 2017 6:31 pm

pkcrafter wrote:
Tue Dec 05, 2017 10:42 pm

I read the article, and while "the guy" invests in dividend paying stocks or funds, no where does it say he takes the dividends.

Vanguard Dividend Appreciation has a beta of 0.87, Dividend growth as a beta of 0.85. Dividend appreciation has slightly beaten S&P500 for 10 years and Div. growth has tied. That is the point the guy was trying to make--lower volatility, good returns. I think it might be fine in a T-A (tax-advantaged) account for some investors who are more comfortable with a somewhat smoother ride. Of course, an investor can hold these funds for growth, taking the divys isn't mandatory.

Paul
Wait. The 10! guy? You posted before he was referenced. Maybe you mean a different guy. No bother. It doesn't matter...

That's one fund and one time period. Is there academic research on this topic that confirms investing in dividend-focused mutual funds provides similar returns to a total market index fund but with less standard deviation? In other words, dividend-focused mutual funds, on average, are more efficient than the total market?
Quod vitae sectabor iter?

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by snarlyjack » Fri Dec 08, 2017 6:59 pm

RAchip,

Let me be the 1st Boglehead to congratulate you
on your accomplishment. That's great $250,000.
per year in dividend income.

I would love to hear your story of how you did it & your ideas.

Well done...I' am impressed. :sharebeer

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by hoops777 » Fri Dec 08, 2017 7:26 pm

RAchip wrote:
Fri Dec 08, 2017 6:28 pm
"selling shares led to an equivalent outcome."

If you have an $8mm portfolio if 23 individual stocks, deciding what to sell every 3 months would be extremely difficult. Plus, as you sell down your portfolio the dividend income decreases. The reality for me is that selling shares is not an equivalent outcome. I do acknowledge that it might be easier to sell bits if it was all in an s&p index fund.

I have built a portfolio of individual blue chip stocks (real companies, no REITs or MLPs) that pays me well over $250k per year in dividends (paid quarterly) AND which has appreciated in value by a huge amount over the years. If you have significant wealth and want meaningful income AND capital appreciation, building a portfolio of solid companies who pay a somewhat higher end and growing dividend is a very viable strategy.
Congrats.That is what I call doing it your way,for your reasons.
K.I.S.S........so easy to say so difficult to do.

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Artsdoctor » Fri Dec 08, 2017 7:41 pm

It's very nice to have that income. On the $8M portfolio, your return is a respectable 3%. Along the way of accumulating that wealth, you've been paying taxes on those mandatory dividends, I would think. Paying taxes in retirement is a necessary evil for most, but during your income-earning years, you'd hate to pay more taxes than necessary. And you're right about selling shares being a pain, especially because your capital gains with individual stocks will be most likely far greater than those holding mutual funds as outlined in the tax reform bill (which we're not allowed to talk about).

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Da5id » Sat Dec 09, 2017 9:13 am

RAchip wrote:
Fri Dec 08, 2017 6:28 pm
"selling shares led to an equivalent outcome."

If you have an $8mm portfolio if 23 individual stocks, deciding what to sell every 3 months would be extremely difficult. Plus, as you sell down your portfolio the dividend income decreases. The reality for me is that selling shares is not an equivalent outcome. I do acknowledge that it might be easier to sell bits if it was all in an s&p index fund.

I have built a portfolio of individual blue chip stocks (real companies, no REITs or MLPs) that pays me well over $250k per year in dividends (paid quarterly) AND which has appreciated in value by a huge amount over the years. If you have significant wealth and want meaningful income AND capital appreciation, building a portfolio of solid companies who pay a somewhat higher end and growing dividend is a very viable strategy.
Of course it is a viable strategy. There are tons of viable strategies. And the arguments against having to sell shares are totally legit, but I think that is from a convenience (and perhaps psychological) rather than a total return POV. The theoretical arguments here are mostly about claims of superior total return for dividend focused strategies. There really is not much point in arguing whether dividends may be convenient (particularly if you have individual stocks) or may make one feel good (some like feeling of having the company transfer money from cash in the company to cash in your account rather than selling to achieve something similar), or may have psychological benefits (avoiding choices, avoiding regret about timing of sales, etc).

I think the claim that "as you sell down your portfolio your dividend income decreases" is interesting though. Assuming alternative to a cash dividend is a company share buyback, I'm confused by the math behind this claim. I guess I don't get it.

hoops777
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by hoops777 » Sat Dec 09, 2017 1:05 pm

A dividend stock strategy can easily beat the market if you are fortunate to pick the right stocks,or of course it could go the other way.I have a young relative who has invested in Apple,Facebook,Netflix,Amazon and Tesla because he is a customer and loves the companies and understands what they do.He thinks investing in individual stocks is an easy way to make a lot of money :D
On that note,I think a lot of people want to be hands on in their investing and pick their own stocks,and see these long time blue chip dividend paying companies as a bit more comforting to hold long term,but I might be wrong,believe it or not :happy
K.I.S.S........so easy to say so difficult to do.

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by linenfort » Sat Dec 09, 2017 1:38 pm

Well that looks like an excellent book and it’s going into my library soon. Thanks for the recommendation!

When your name is Statman, you’ve got to know your stats.

Part of my portfolio exists because of irrationality. Oh well. I also eat some foods that aren’t healthful, such as cookies, but psychologically they possess an extremely powerful tractor beam. :happy
Is it too early for an all-bond-portfolio thread?

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patrick013
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by patrick013 » Sat Dec 09, 2017 7:00 pm

One of the best advisors in the country advocates dividend
growth and bond ladders going forward.

Also noticed international dividends are increasing especially
in asia/pacific. Perhaps a good EM dividend fund would be
good reading about. Oh well.
age in bonds, buy-and-hold, 10 year business cycle

hoops777
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by hoops777 » Sat Dec 09, 2017 7:33 pm

patrick013 wrote:
Sat Dec 09, 2017 7:00 pm
One of the best advisors in the country advocates dividend
growth and bond ladders going forward.

Also noticed international dividends are increasing especially
in asia/pacific. Perhaps a good EM dividend fund would be
good reading about. Oh well.
And what is the name of this advisor?
K.I.S.S........so easy to say so difficult to do.

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patrick013
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by patrick013 » Sat Dec 09, 2017 7:38 pm

hoops777 wrote:
Sat Dec 09, 2017 7:33 pm
patrick013 wrote:
Sat Dec 09, 2017 7:00 pm
One of the best advisors in the country advocates dividend
growth and bond ladders going forward.

Also noticed international dividends are increasing especially
in asia/pacific. Perhaps a good EM dividend fund would be
good reading about. Oh well.
And what is the name of this advisor?
Just a full page article in last week's Barron's, can't remember name.
Usual journalism, you know.
age in bonds, buy-and-hold, 10 year business cycle

gilgamesh
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by gilgamesh » Sat Dec 09, 2017 7:52 pm

I know the dividend puzzle can be frustrating, but now I find it useful in this forum...is someone can't get a good handle of this, how good could they be with other aspects of financing - helps me weed out whose advice to believe :D
Last edited by gilgamesh on Sat Dec 09, 2017 8:04 pm, edited 3 times in total.

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Toons
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Toons » Sat Dec 09, 2017 7:56 pm

We are "traveling"
On Dividends.
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

gilgamesh
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by gilgamesh » Sat Dec 09, 2017 8:53 pm

Toons wrote:
Sat Dec 09, 2017 7:56 pm
We are "traveling"
On Dividends.
:mrgreen:
Are you traveling for free? Which you would have to pay if not for the dividends :P

katon
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Mon Dec 11, 2017 10:29 am

Artsdoctor wrote:
Fri Dec 08, 2017 6:04 pm
snarlyjack wrote:
Fri Dec 08, 2017 5:38 pm
I' am not under the illusion that dividends are guaranteed
or even free money (gotta pay those taxes).

But I do like my dividends. I' am looking forward to my
Christmas dividend. I look at dividends as penny's from
heaven (penny's from my deceased Mom...thanks Mom)!
(Their's some psychology for you...from the grave to me).
Very, very well put. And this is the crux of the entire argument.

The dividends are indeed emotional. They don't really make a lot of sense from a strictly monetary point of view, but your emotional attachment to them is exactly what they're all about. I believe this gets back to the original post, three pages paper.

There are many things we do which really don't make sense. I like to have a cash buffer which many here would disagree with, and I realize that I'm most likely giving up return. But I freely acknowledge it.

I don't think that there is any shame in making a financial decision that is emotionally-based, and I suspect that if everyone here were totally honest, we'd all have our own idiosyncrasies. The problem ultimately is when one tries to remove the emotional justification and argue it as fact.

Was it Moynihan that said, "everyone is entitled to his own opinion, but not his own facts"?
I will lay it here :)
https://www.nobelprize.org/nobel_prizes ... press.html

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by JustinR » Sat Dec 23, 2017 6:10 pm

RAchip wrote:
Fri Dec 08, 2017 6:28 pm
"selling shares led to an equivalent outcome."

If you have an $8mm portfolio if 23 individual stocks, deciding what to sell every 3 months would be extremely difficult. Plus, as you sell down your portfolio the dividend income decreases. The reality for me is that selling shares is not an equivalent outcome. I do acknowledge that it might be easier to sell bits if it was all in an s&p index fund.

I have built a portfolio of individual blue chip stocks (real companies, no REITs or MLPs) that pays me well over $250k per year in dividends (paid quarterly) AND which has appreciated in value by a huge amount over the years. If you have significant wealth and want meaningful income AND capital appreciation, building a portfolio of solid companies who pay a somewhat higher end and growing dividend is a very viable strategy.
Just because you chose to own a bunch of individual stocks and automatically paid out dividends happens to be easier for you in your specific case, that doesn't make dividends superior.

Isn't the whole point that if those companies didn't pay dividends, your wealth would be exactly the same? Except you wouldn't have a $250k forced taxable event every year.

So I'm not seeing your point.

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by JustinR » Sat Dec 23, 2017 6:12 pm

dbr wrote:
Sun Dec 03, 2017 6:01 pm
livesoft wrote:
Sun Dec 03, 2017 5:52 pm
hoops777 wrote:
Sun Dec 03, 2017 5:39 pm
Another factor which the author did not address is that how a person is first introduced to investing also carries a lot of weight regarding their ability to change.
That is quite an interesting observation. Do you know of any articles about it?
I don't know about that as a data driven observation but an anecdotal observation here on the forum is that some misunderstandings by some posters do arise from a "bank account with interest" model for stock investing, and that model is too simple. There are also occasional postings of the "spend the interest and don't invade the principal" variety. I am not really sure where those come from, but my theory is that a lot of people parrot things they have heard and don't understand more than they propose things they really believe. This is true in my opinion about almost all the threads on DCA and increasingly whenever "sequence of returns risk" is mentioned. In fact the latter may well be the current idee fixe on the forum.
I know the mental fallacies of dividends and DCA. What's the one about sequence of returns risk?

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by patrick013 » Sat Dec 23, 2017 6:22 pm

They're worth a tilt, they look good in the total return column.

Research - High Dividend
age in bonds, buy-and-hold, 10 year business cycle

TJSI
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by TJSI » Sat Dec 23, 2017 7:48 pm

Thank you Patrick!

That is one of the most interesting studies of the superior performance of dividend paying stocks. For the study period ( 12/99 to 9/17) the classic div aristocrats had a return of 10.1%, the high div-low vol had a return of 11.8% while the S&P had a return of 5.1%.

And their returns by dividend decile study shows comparable results to those developed by Professor Siegel.

dbr
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by dbr » Sat Dec 23, 2017 8:49 pm

JustinR wrote:
Sat Dec 23, 2017 6:12 pm
dbr wrote:
Sun Dec 03, 2017 6:01 pm
livesoft wrote:
Sun Dec 03, 2017 5:52 pm
hoops777 wrote:
Sun Dec 03, 2017 5:39 pm
Another factor which the author did not address is that how a person is first introduced to investing also carries a lot of weight regarding their ability to change.
That is quite an interesting observation. Do you know of any articles about it?
I don't know about that as a data driven observation but an anecdotal observation here on the forum is that some misunderstandings by some posters do arise from a "bank account with interest" model for stock investing, and that model is too simple. There are also occasional postings of the "spend the interest and don't invade the principal" variety. I am not really sure where those come from, but my theory is that a lot of people parrot things they have heard and don't understand more than they propose things they really believe. This is true in my opinion about almost all the threads on DCA and increasingly whenever "sequence of returns risk" is mentioned. In fact the latter may well be the current idee fixe on the forum.
I know the mental fallacies of dividends and DCA. What's the one about sequence of returns risk?
It is the current fad about needing to control a phenomenon that has been known for a couple of decades and already taken into account in most studies, models, and recommendations about what sort of asset allocations one might hold in retirement.

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Tue Dec 26, 2017 1:42 am

patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
interesting

katon
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Tue Dec 26, 2017 2:36 am

patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
They talk about low volatility index, but i see that the top holding stock is IRON MOUNTAIN.
It seems to be a high volatile stock..

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patrick013
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by patrick013 » Tue Dec 26, 2017 6:24 pm

katon wrote:
Tue Dec 26, 2017 2:36 am
patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
They talk about low volatility index, but i see that the top holding stock is IRON MOUNTAIN.
It seems to be a high volatile stock..
Well the 3 year beta for SPHD is .81, the 5 year beta for IRM is .87
so it must have just snuck in.
age in bonds, buy-and-hold, 10 year business cycle

katon
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Wed Dec 27, 2017 2:42 am

patrick013 wrote:
Tue Dec 26, 2017 6:24 pm
katon wrote:
Tue Dec 26, 2017 2:36 am
patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
They talk about low volatility index, but i see that the top holding stock is IRON MOUNTAIN.
It seems to be a high volatile stock..
Well the 3 year beta for SPHD is .81, the 5 year beta for IRM is .87
so it must have just snuck in.
ok thanks

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patrick013
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by patrick013 » Wed Dec 27, 2017 3:00 pm

katon wrote:
Wed Dec 27, 2017 2:42 am
patrick013 wrote:
Tue Dec 26, 2017 6:24 pm
katon wrote:
Tue Dec 26, 2017 2:36 am
patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
They talk about low volatility index, but i see that the top holding stock is IRON MOUNTAIN.
It seems to be a high volatile stock..
Well the 3 year beta for SPHD is .81, the 5 year beta for IRM is .87
so it must have just snuck in.
ok thanks
Actually IRM is a very interesting stock. It has a high PE, high payout
ratio, and a medium high dividend yield. I'd suspect it's making mostly
excess profit accumulation distributions to avoid a tax penalty. Hard to
price if that's the case. Don't really know the complete story on IRM.
age in bonds, buy-and-hold, 10 year business cycle

katon
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Thu Dec 28, 2017 6:14 am

patrick013 wrote:
Wed Dec 27, 2017 3:00 pm
katon wrote:
Wed Dec 27, 2017 2:42 am
patrick013 wrote:
Tue Dec 26, 2017 6:24 pm
katon wrote:
Tue Dec 26, 2017 2:36 am
patrick013 wrote:
Sat Dec 23, 2017 6:22 pm
They're worth a tilt, they look good in the total return column.

Research - High Dividend
They talk about low volatility index, but i see that the top holding stock is IRON MOUNTAIN.
It seems to be a high volatile stock..
Well the 3 year beta for SPHD is .81, the 5 year beta for IRM is .87
so it must have just snuck in.
ok thanks
Actually IRM is a very interesting stock. It has a high PE, high payout
ratio, and a medium high dividend yield. I'd suspect it's making mostly
excess profit accumulation distributions to avoid a tax penalty. Hard to
price if that's the case. Don't really know the complete story on IRM.
thanks for your answer patrick

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Pajamas
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Pajamas » Thu Dec 28, 2017 8:34 am

patrick013 wrote:
Wed Dec 27, 2017 3:00 pm
Actually IRM is a very interesting stock. It has a high PE, high payout
ratio, and a medium high dividend yield. I'd suspect it's making mostly
excess profit accumulation distributions to avoid a tax penalty. Hard to
price if that's the case. Don't really know the complete story on IRM.
The short story is that Iron Mountain converted to a REIT a few years ago.

https://www.reuters.com/article/us-iron ... B720120605

snarlyjack
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by snarlyjack » Thu Dec 28, 2017 10:11 am

The latest & greatest.

Dividend Growth Investor Bet With Warren Buffett.
(Dividend articles on why he thinks he can beat Warren Buffett bet with the S & P 500).
Interesting study...enjoy this new info.

viewtopic.php?f=10&t=235880

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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by willthrill81 » Thu Dec 28, 2017 10:45 am

Here is yet another example of a systemic bias in the market, yet many still religiously hold to the EMH.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

FrankLUSMC
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by FrankLUSMC » Thu Dec 28, 2017 11:13 am

So I am new enough here that I don't have the time to read each and every thread all the way through and this isn't the longest by far. So forgive me if this has been mentioned before.
Regarding dividends, BRK doesn't pay them but you can sure bet that BRK receives them from its holdings. Where do you think Buffetts cash holdings come from to buy up shares of other companies. KO >3%, wmt >2%, wfc>2.5%, IBM >3.8% on and on.

Boglegrappler
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by Boglegrappler » Thu Dec 28, 2017 11:50 am

Regarding dividends, BRK doesn't pay them but you can sure bet that BRK receives them from its holdings. Where do you think Buffetts cash holdings come from to buy up shares of other companies. KO >3%, wmt >2%, wfc>2.5%, IBM >3.8% on and on
Indeed they do, although that is not any indication of some sort of "hypocrisy". Corporations get an exclusion and don't pay full taxes on dividends from other companies. See "dividends received deduction" in google.

The classic financial analysis for whether a company should pay dividends is whether the shareholders can earn a higher rate of return on the money paid to them (as dividends) than the company can earn if it retains the cash. Buffett has routinely shown that he and his small team are the Bill Belichicks of capital allocation. They don't allow businesses to simply spend on capital projects that don't earn the appropriate return.

FrankLUSMC
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by FrankLUSMC » Thu Dec 28, 2017 12:42 pm

Boglegrappler wrote:
Thu Dec 28, 2017 11:50 am
Regarding dividends, BRK doesn't pay them but you can sure bet that BRK receives them from its holdings. Where do you think Buffetts cash holdings come from to buy up shares of other companies. KO >3%, wmt >2%, wfc>2.5%, IBM >3.8% on and on
Indeed they do, although that is not any indication of some sort of "hypocrisy". Corporations get an exclusion and don't pay full taxes on dividends from other companies. See "dividends received deduction" in google.

The classic financial analysis for whether a company should pay dividends is whether the shareholders can earn a higher rate of return on the money paid to them (as dividends) than the company can earn if it retains the cash. Buffett has routinely shown that he and his small team are the Bill Belichicks of capital allocation. They don't allow businesses to simply spend on capital projects that don't earn the appropriate return.
Thanks for the DRD information, i knew there were corporate benefits but didn't know it had a name. :)

katon
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Re: One answer to the Dividend stocks puzzle from behavioral finance

Post by katon » Sun Jan 14, 2018 8:14 am

Pajamas wrote:
Thu Dec 28, 2017 8:34 am
patrick013 wrote:
Wed Dec 27, 2017 3:00 pm
Actually IRM is a very interesting stock. It has a high PE, high payout
ratio, and a medium high dividend yield. I'd suspect it's making mostly
excess profit accumulation distributions to avoid a tax penalty. Hard to
price if that's the case. Don't really know the complete story on IRM.
The short story is that Iron Mountain converted to a REIT a few years ago.

https://www.reuters.com/article/us-iron ... B720120605
Interesting

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