Why are Dividend Stocks pushed so hard?

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sixpercentninja
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Why are Dividend Stocks pushed so hard?

Post by sixpercentninja » Sat Jan 11, 2020 2:42 pm

This is something that's been bothering me a long, long time. So when I got started retirement planning/investing, I probably went through a similar path to most people on this board: reading online articles, combing through old and new Bogleheads threads etc, learning about the 3 (these days 4?) fund portfolio, focusing on growth, long term, buy and hold etc etc....

And that's all great and dandy, and I do sincerely believe in this route. What I have never understood though, is why so many of the media, articles, videos, analysts etc, always push and advocate for buying dividend paying stocks instead.

And I'm talking like, EVERYone. From Forbes and Barrons articles pushed by my Apple News Feed, to analysts on CNBC channel, to freaking Youtube finance vloggers...I NEVER see an advocation for "buy the total stock market and hold long term for capital growth". They only EVER advocate either dividend paying individual stock or ETFs/MFs.

Why is it only on Bogleheads forums do I see any sanity/people pointing out that capital growth is proven to be better than dividends, more tax friendly, and all the thigns we talk about here on this forum etc?

Most importantly, I don't understand where they're coming from/how it benefits them. Like what's their angle?! I get it for active stock picking vs passive etfs. Because they get a literal commission when you buy their active fund etc. So I understand why they push for that. But how does buying a DIVIDEND-paying fund "benefit" these finance journalists, analysts, bloggers, etc??

TIA and sorry for rant

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Re: Why are Dividend Stocks pushed so hard?

Post by bogglizer » Sat Jan 11, 2020 2:53 pm

One way to price a stock is to sum up the value of all future dividends. Stocks that pay dividends now might be easier to price. In theory, that increased certainty in pricing should be baked into the stock price already. Maybe your pundits think otherwise?

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Re: Why are Dividend Stocks pushed so hard?

Post by abuss368 » Sat Jan 11, 2020 3:01 pm

It is nice to be "paid".
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Re: Why are Dividend Stocks pushed so hard?

Post by nisiprius » Sat Jan 11, 2020 3:09 pm

I have many questions of the form "why is X being pushed so hard?" With answers always being outside my ken.
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Re: Why are Dividend Stocks pushed so hard?

Post by GLState » Sat Jan 11, 2020 3:10 pm

Writers won't keep readers if every article tells the reader to buy a Total Market fund ... writer's need new material. Writer's make money by keeping readers and Index Investing articles quickly get boring once we've read a few. "Get the market return at low cost" is not an attention grabbing heading.

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Re: Why are Dividend Stocks pushed so hard?

Post by abuss368 » Sat Jan 11, 2020 3:13 pm

bogglizer wrote:
Sat Jan 11, 2020 2:53 pm
One way to price a stock is to sum up the value of all future dividends. Stocks that pay dividends now might be easier to price. In theory, that increased certainty in pricing should be baked into the stock price already. Maybe your pundits think otherwise?
The present value of future cash flows.
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Re: Why are Dividend Stocks pushed so hard?

Post by abuss368 » Sat Jan 11, 2020 3:13 pm

GLState wrote:
Sat Jan 11, 2020 3:10 pm
Writers won't keep readers if every article tells the reader to buy a Total Market fund ... writer's need new material. Writer's make money by keeping readers and Index Investing articles quickly get boring once we've read a few. "Get the market return at low cost" is not an attention grabbing heading.
The financial "porn" industry!
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Re: Why are Dividend Stocks pushed so hard?

Post by alex_686 » Sat Jan 11, 2020 3:19 pm

Dividends are intuitive. Like the fact that heavy objects fall faster then light ones.

It takes a fair amount of study and nuance to put dividends in the right context.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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Re: Why are Dividend Stocks pushed so hard?

Post by mrmass » Sat Jan 11, 2020 3:25 pm

CNBC does mention the yield often but it's nothing like Seeking Alpha.

I own some REIT stocks and I wouldn't kick the dividend out of bed. I've been getting some appreciation and yield. I'm not a trader and acquired these REITs from RSU from old jobs.

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Re: Why are Dividend Stocks pushed so hard?

Post by Workable Goblin » Sat Jan 11, 2020 3:29 pm

sixpercentninja wrote:
Sat Jan 11, 2020 2:42 pm
And that's all great and dandy, and I do sincerely believe in this route. What I have never understood though, is why so many of the media, articles, videos, analysts etc, always push and advocate for buying dividend paying stocks instead.
Probably because it's simpler and more intuitive than the total stock market approach for the average person. Buy a stock, get cash payments, do...well, whatever you want with the cash. Easy-peasy. Most people are a little afraid of selling productive assets (ergo don't like harvesting capital gains) and can understand the idea of simply getting paid by a company better than nebulously relying on investor sentiment about what a company is worth.

And, to be honest, it's not really a bad strategy, at least not compared to things like putting your entire portfolio in gold or day-trading penny stocks. It might not be as good as owning the total stock market, but that doesn't mean it's terrible. Since saving rate is the most important and asset allocation the second most important factor in doing well as an investor, if the idea of receiving dividends gets someone to save more and buy a more reasonable stock allocation than they otherwise would it very likely pens out as a net positive for that investor, regardless of the tax drag.

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Re: Why are Dividend Stocks pushed so hard?

Post by unclescrooge » Sat Jan 11, 2020 3:33 pm

Everyone likes getting paid. It's like free money!

My cousin just invested $250k in a private REIT. He has another $100k that's looking for an investment home.
Yet, every month, instead of reinvesting the dividends from the REIT, he cashes it, and spends it on something irrational.

If the dividends wasn't getting paid, he wouldn't buy any of those things as he wouldn't want to draw down his $100k.

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Re: Why are Dividend Stocks pushed so hard?

Post by retiredjg » Sat Jan 11, 2020 3:33 pm

Some things that the general public knows as truths...are not.

One is that Roth is better than traditional. Lots of people know this and sometimes it is true.

Another example is that dividends are great! But that is because most people see them as "free money" or "income" and don't understand it is simply a return of some of what you already have....a return that is taxable. :shock:

These beliefs die hard, maybe because people tend not to question what they think is true.

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Re: Why are Dividend Stocks pushed so hard?

Post by Triple digit golfer » Sat Jan 11, 2020 3:46 pm

retiredjg wrote:
Sat Jan 11, 2020 3:33 pm
Some things that the general public knows as truths...are not.

One is that Roth is better than traditional. Lots of people know this and sometimes it is true.

Another example is that dividends are great! But that is because most people see them as "free money" or "income" and don't understand it is simply a return of some of what you already have....a return that is taxable. :shock:

These beliefs die hard, maybe because people tend not to question what they think is true.
Since a dividend is a return of capital, why is it taxed as income? There has to be logic somewhere that I'm missing.

I'm a simple, boring 3 fund investor and I don't claim to know or understand the nuances of some things.

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Re: Why are Dividend Stocks pushed so hard?

Post by rasta » Sat Jan 11, 2020 3:50 pm

dividends are not a return OF capital.

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Re: Why are Dividend Stocks pushed so hard?

Post by bertilak » Sat Jan 11, 2020 3:51 pm

I get the argument that the stock price is pushed down by the amount of the dividend paid. (It also goes up and down for other reasons.) Depending on the company, dividends make more or less sense. For companies without a lot of growth potential I'm happy to take earnings as a dividend. For companies with lots of growth potential I'd rather participate in the growth. And everywhere in between.

So, I like both dividends and growth but don't go hunting either down. I'm happy to let the companies sort themselves out as to how much to pay in dividends and how much to accumulate as NAV. If they get it wrong it will affect their capitalization (one of those "other reasons" prices go up and down) and my percentage of holdings will self-adjust.

Total Stock Market pays lots of dividends and that's enough for me.

In other words it is a mystery to me as well why anyone would "push" dividends.
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Re: Why are Dividend Stocks pushed so hard?

Post by Blue456 » Sat Jan 11, 2020 3:55 pm

retiredjg wrote:
Sat Jan 11, 2020 3:33 pm
Some things that the general public knows as truths...are not.

One is that Roth is better than traditional. Lots of people know this and sometimes it is true.

Another example is that dividends are great! But that is because most people see them as "free money" or "income" and don't understand it is simply a return of some of what you already have....a return that is taxable. :shock:
You do have to pay taxes on the growth of the fund.

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Re: Why are Dividend Stocks pushed so hard?

Post by retiredjg » Sat Jan 11, 2020 4:01 pm

Blue456 wrote:
Sat Jan 11, 2020 3:55 pm
retiredjg wrote:
Sat Jan 11, 2020 3:33 pm
Some things that the general public knows as truths...are not.

One is that Roth is better than traditional. Lots of people know this and sometimes it is true.

Another example is that dividends are great! But that is because most people see them as "free money" or "income" and don't understand it is simply a return of some of what you already have....a return that is taxable. :shock:
You do have to pay taxes on the growth of the fund.
Perhaps I should have said that you have to pay taxes even though you have not sold anything and received some dollars to put in the bank.

People expect to pay taxes on capital gains (selling for more than you paid). Some don't like paying taxes on money that does actually not get into your bank account.

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Re: Why are Dividend Stocks pushed so hard?

Post by lakpr » Sat Jan 11, 2020 4:07 pm

Blue456 wrote:
Sat Jan 11, 2020 3:55 pm
You do have to pay taxes on the growth of the fund.
Only when you sell. Only when YOU decide when it is advantageous for YOU to sell. Big difference between having a choice and being forced to pay the tax regardless of whether it is required or not

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Re: Why are Dividend Stocks pushed so hard?

Post by Blue456 » Sat Jan 11, 2020 4:10 pm

retiredjg wrote:
Sat Jan 11, 2020 4:01 pm
Blue456 wrote:
Sat Jan 11, 2020 3:55 pm
retiredjg wrote:
Sat Jan 11, 2020 3:33 pm
Some things that the general public knows as truths...are not.

One is that Roth is better than traditional. Lots of people know this and sometimes it is true.

Another example is that dividends are great! But that is because most people see them as "free money" or "income" and don't understand it is simply a return of some of what you already have....a return that is taxable. :shock:
You do have to pay taxes on the growth of the fund.
Perhaps I should have said that you have to pay taxes even though you have not sold anything and received some dollars to put in the bank.
So you can just re-invest the money and you will not be taxed on it again. I maybe missing something here but you only get taxed on capital gains once and not twice.

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Re: Why are Dividend Stocks pushed so hard?

Post by Blue456 » Sat Jan 11, 2020 4:13 pm

lakpr wrote:
Sat Jan 11, 2020 4:07 pm
Blue456 wrote:
Sat Jan 11, 2020 3:55 pm
You do have to pay taxes on the growth of the fund.
Only when you sell. Only when YOU decide when it is advantageous for YOU to sell. Big difference between having a choice and being forced to pay the tax regardless of whether it is required or not
You get a choice when you buy the fund.

Also in taxable accounts where the money is going to be used fully in relatively short period of time 5-10 years, it maybe less of a burden to pay that taxes yearly as opposed to at the end of the savings period.

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Re: Why are Dividend Stocks pushed so hard?

Post by prd1982 » Sat Jan 11, 2020 4:28 pm

It is my understanding that most people's investments are in 401K/IRAs. So for them, there is no difference in how the money removed from the account is treated.

I did a quick search and saw several articles that said that dividend paying stocks were less volatile than growth stocks. If so, I can see how retired folks might like this feature. I have absolutely no idea if the volatility is less; I just buy total market funds.

Also, I have seen several comments on this forum from people that say they just spend the dividends and never touch capital. Of course, this doesn't take into account inflation. So the value of their stocks could very well be decreasing. But I can understand how this could give one a comfortable, if wrong, feeling.

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Re: Why are Dividend Stocks pushed so hard?

Post by TN_Boy » Sat Jan 11, 2020 4:29 pm

alex_686 wrote:
Sat Jan 11, 2020 3:19 pm
Dividends are intuitive. Like the fact that heavy objects fall faster then light ones.

It takes a fair amount of study and nuance to put dividends in the right context.
I like what you did there :happy

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Re: Why are Dividend Stocks pushed so hard?

Post by retiredjg » Sat Jan 11, 2020 4:29 pm

Blue456 wrote:
Sat Jan 11, 2020 4:10 pm
So you can just re-invest the money and you will not be taxed on it again. I maybe missing something here but you only get taxed on capital gains once and not twice.
I know it only gets taxed once. But with dividends, you don't have a choice about when you pay the tax. Sometimes, that's important.

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Re: Why are Dividend Stocks pushed so hard?

Post by lakpr » Sat Jan 11, 2020 4:30 pm

Blue456 wrote:
Sat Jan 11, 2020 4:13 pm
lakpr wrote:
Sat Jan 11, 2020 4:07 pm
Blue456 wrote:
Sat Jan 11, 2020 3:55 pm
You do have to pay taxes on the growth of the fund.
Only when you sell. Only when YOU decide when it is advantageous for YOU to sell. Big difference between having a choice and being forced to pay the tax regardless of whether it is required or not
You get a choice when you buy the fund.

Also in taxable accounts where the money is going to be used fully in relatively short period of time 5-10 years, it maybe less of a burden to pay that taxes yearly as opposed to at the end of the savings period.
I suppose you mean you can choose when you buy the fund, before or after the dividend date. True. But that is a onetime choice.

Or perhaps you mean either to buy or not buy a dividend paying stock. True again, although at Bogleheads we believe in buying index funds that represent a major slice of the market, if not the entire market itself. In that case, we don't quite get a choice of receiving or not receiving the dividend.

On the last point of spreading out the tax burden over the years instead of at once, given that even dividend aristocrats yield only about 3% to 4% in dividends, you are only talking about less than 10% of the tax burden resulting from a sale.

To me, dividends are the way a company is telling the investors, "Look, I do not think I can invest this money to get you a better return than what you can do on your own". Believing that money invested by investors in CDs or other safe assets is better than what the company can provide
Last edited by lakpr on Sat Jan 11, 2020 4:31 pm, edited 1 time in total.

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Re: Why are Dividend Stocks pushed so hard?

Post by FrankTheViking » Sat Jan 11, 2020 4:31 pm

On an intuitive level with dividend investing you are gaining more of something. Disregarding actual value, when you own X of something that produces an income, would you rather:

A. Get paid and still retain X of something
B. Sell X of something and retain less X of something going forward

Bogleheads know this is irrelevant when it comes to stock markets, but it is attractive to a lot of people, and given the vague example of A and B without context or knowledge, I don't know about you but A sounds pretty good :sharebeer
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Re: Why are Dividend Stocks pushed so hard?

Post by dodecahedron » Sat Jan 11, 2020 4:44 pm

Once upon a time, not so very long ago (e.g., when I was a teenager and in college--1960s and early 1970s), frictional transactions costs for buying and selling shares were very high, especially if you were not trading 100 shares at a time. Commissions were regulated and unthinkably high compared to today's levels. Spreads were also very high. (Anyone else remember when share prices were quoted in the newspapers in eighths of a dollar rather than in cents? So spreads were always at least an eighth of a dollar and even more for some stocks.)

If you needed a modest-size regular flow of income (as many retirees, widows, and orphans did and still do), holding dividend stocks was a sensible way to secure that stream without incurring all those high trading costs.

It is quite understandable why dividends were revered in the past.

But today's retirees, widows, and orphans have options their grandparents did not have.
Last edited by dodecahedron on Sun Jan 12, 2020 12:05 am, edited 1 time in total.

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Re: Why are Dividend Stocks pushed so hard?

Post by Wiggums » Sat Jan 11, 2020 4:49 pm

There are pros and cons to dividends which is well documented. Dividend paying stocks are not less volatile. They are mostly large companies they cannot offer growth, so they return cash In the form of dividends rather than to hold the money and use it to grow the business Or for capital expenditures.

Personally, I hold the three fund portfolio. Some people move into high dividend stocks when the market goes down. The dividend percentage versus stock price is more impressive then. Dividends are not guaranteed.

With the big corporate tax break, companies bought back their stock instead of retiring it to the shareholder. Sure there were exceptions. For example, my electric utility credited my account a small amount due to the Corporate tax reduction.

Paying a dividend is not evidence in itself of a strong company. GE paid a dividend while the stock price sunk. Finally, they sold off parts of the company and cut the dividend.

I don’t watch CNBC. It’s like one big entertainment show to me with brokers on camera to talk about stocks their company owns. There’s usually two guests for each segment and they rarely agree.

To me, it makes sense to buy the market and accept market returns. Anything else is merely a guess.

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Re: Why are Dividend Stocks pushed so hard?

Post by ClaycordJCA » Sat Jan 11, 2020 4:52 pm

I suspect there is a psychological appeal to dividend stocks. Many hope/believe that to retire they can or should live off the income generated by their investments and not touch the principal. There is comfort in knowing the number of shares you own will never be reduced and in believing that because dividends and interest will be paid even in bear markets your principal is not at risk. Of course, those in the finance industry want to continue earning their AUM fees and therefore have no incentive to promote portfolio withdrawals as a means to fund retirement living.

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Re: Why are Dividend Stocks pushed so hard?

Post by retiredjg » Sat Jan 11, 2020 5:03 pm

dodecahedron wrote:
Sat Jan 11, 2020 4:44 pm
It is quite understandable why dividends were revered in the past.
I didn't know any of those things. Thanks for posting it.

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Re: Why are Dividend Stocks pushed so hard?

Post by Goal33 » Sat Jan 11, 2020 5:21 pm

Because it’s too hard to achieve a 3% “safe withdraw” rate that covers expenses. 5% dividend is much easier. 20x expenses vs 33x expenses portfolio.
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Re: Why are Dividend Stocks pushed so hard?

Post by sambb » Sat Jan 11, 2020 5:30 pm

nothing wrong with dividends, except taxes. there are far worse investmentsout there, than blue chip dividend stocks. one could do far worse.

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Re: Why are Dividend Stocks pushed so hard?

Post by a_movable_life » Sat Jan 11, 2020 5:31 pm

Back in the day when selling stocks had high fees and you paid a commission on the percentage gain, dividends meant money you got without having to do a sale. Now it's not so much of a benefit with free trading.

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Re: Why are Dividend Stocks pushed so hard?

Post by MNGopher » Sat Jan 11, 2020 5:41 pm

The word dividend has a couple of different meanings in the dictionary. The one that most of us here think of here is "a distribution to shareholders". The other meaning simply means "reward", as in "Being nice to people pays dividends". I think many people confuse or intermingle the two meanings.

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Re: Why are Dividend Stocks pushed so hard?

Post by Admiral » Sat Jan 11, 2020 5:43 pm

sambb wrote:
Sat Jan 11, 2020 5:30 pm
nothing wrong with dividends, except taxes. there are far worse investmentsout there, than blue chip dividend stocks. one could do far worse.
That "exception" is a big one. It's one of the only things under your control when you invest in the stock market. If you don't need the money (dividend) for spending, I see no good reason to pay the tax. If you do need it... well you can still generate cash and pay tax only on the gain by selling shares

I think much of the general public simply doesn't understand that dividends are not interest payments, they don't like selling shares, and they don't understand taxation of capital.

That's my theory, anyway.

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Re: Why are Dividend Stocks pushed so hard?

Post by sixpercentninja » Sat Jan 11, 2020 5:44 pm

So I don't think I stated my question clearly enough. Seems most people are answering the question "why dividends may be attractive to some people".

I kinda already know that (for all the reasons people stated).

But what I DON'T know/get, is why these pundits/vloggers/analysts/writers are pushing for it, as well. Like, how does it benefit them to spread sub-optimal advice to everyone.

The closest/best justification I've seen yet is, because such headlines (i.e. "How to secure a safe retirement with Dividends") are eye-catching, and therefore draw clicks.

Which I guess IS a pretty good justification reason....but is that really all :| ? Seems kinda sad people would push sub-optimal (and potentially harmful) advice just to get an extra click/view or two.

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Re: Why are Dividend Stocks pushed so hard?

Post by Admiral » Sat Jan 11, 2020 5:46 pm

sixpercentninja wrote:
Sat Jan 11, 2020 5:44 pm
So I don't think I stated my question clearly enough. Seems most people are answering the question "why dividends may be attractive to some people".

I kinda already know that (for all the reasons people stated).

But what I DON'T know/get, is why these pundits/vloggers/analysts/writers are pushing for it, as well. Like, how does it benefit them to spread sub-optimal advice to everyone.

The closest/best justification I've seen yet is, because such headlines (i.e. "How to secure a safe retirement with Dividends") are eye-catching, and therefore draw clicks.

Which I guess IS a pretty good justification reason....but is that really all :| ? Seems kinda sad people would push sub-optimal (and potentially harmful) advice just to get an extra click/view or two.
Because it's much easier to draw eyeballs and clicks with complicated stories and "analysis" about how to pick dividend paying stocks than to say "buy an index fund and sell shares if you need money."

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Re: Why are Dividend Stocks pushed so hard?

Post by JoMoney » Sat Jan 11, 2020 5:46 pm

sixpercentninja wrote:
Sat Jan 11, 2020 2:42 pm
... capital growth is proven to be better than dividends ...
I don't think it's true that "capital growth is proven to be better than dividends", nor am I saying that dividends are better than capital growth.
They both are an important component of returns....
... and If you don't qualify what the objective is that it's "better" (or not) at doing, I don't see how you can even judge it.
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Re: Why are Dividend Stocks pushed so hard?

Post by sperry8 » Sat Jan 11, 2020 5:55 pm

bertilak wrote:
Sat Jan 11, 2020 3:51 pm
I get the argument that the stock price is pushed down by the amount of the dividend paid. (It also goes up and down for other reasons.) Depending on the company, dividends make more or less sense. For companies without a lot of growth potential I'm happy to take earnings as a dividend. For companies with lots of growth potential I'd rather participate in the growth. And everywhere in between.

So, I like both dividends and growth but don't go hunting either down. I'm happy to let the companies sort themselves out as to how much to pay in dividends and how much to accumulate as NAV. If they get it wrong it will affect their capitalization (one of those "other reasons" prices go up and down) and my percentage of holdings will self-adjust.

Total Stock Market pays lots of dividends and that's enough for me.

In other words it is a mystery to me as well why anyone would "push" dividends.
Exactly. One is not better than the other. If you reinvest dividends that is.

But they are pushed because people need to live off something. And it's easier to identify the dividend that is automatically paid out than it is to explain to someone they should sell a portion of their assets whether they are up or down. It's basically a self sold dividend in that case... but it's just harder to pitch.
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Re: Why are Dividend Stocks pushed so hard?

Post by ChinchillaWhiplash » Sat Jan 11, 2020 5:56 pm

A lot of people see dividends being paid by a company to mean they are a strong and solid investment. They have a surplus of cash so they must be doing good, right? Sometime that is the case, but not always. Nothing wrong with dividends. What maters most is total return. If you have higher dividend payers in a tax deferred account, there is no tax drag either. They also seem to be a favorite of retirees for income. They are the ones that are probably reading those article the most.

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Re: Why are Dividend Stocks pushed so hard?

Post by retiredjg » Sat Jan 11, 2020 6:00 pm

sixpercentninja wrote:
Sat Jan 11, 2020 5:44 pm
But what I DON'T know/get, is why these pundits/vloggers/analysts/writers are pushing for it, as well. Like, how does it benefit them to spread sub-optimal advice to everyone.
Because that is what people want to read about. They won't be in business long if they continually write about things people are not interested in reading about.

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Re: Why are Dividend Stocks pushed so hard?

Post by alex_686 » Sat Jan 11, 2020 6:07 pm

sixpercentninja wrote:
Sat Jan 11, 2020 5:44 pm
But what I DON'T know/get, is why these pundits/vloggers/analysts/writers are pushing for it, as well. Like, how does it benefit them to spread sub-optimal advice to everyone.
As I alluded to, it is a intuitively simple and safe investment. This is what the general public believes in and it is easy to write about.

The fact that intuition is leading people astray is another matter.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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JoMoney
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Re: Why are Dividend Stocks pushed so hard?

Post by JoMoney » Sat Jan 11, 2020 6:10 pm

FWIW, dividend payers tend to be large companies, and large companies generally have lower volatility.
Also, regular dividends tend to be sticky. Shareholders get very angry when a regular dividend is cut, so companies typically are careful about increasing a dividend beyond what they believe can be sustained. Raising a dividend is a signal of strength of the company, and a company that has a long record of consistently raising dividends is a pretty good screen for "quality".
While I don't think any of that is case against using a simple low-cost index fund, or that dividend stocks will build a superior portfolio to the broad market, if one was going to go about building a portfolio of individual stocks, picking among the ones expected to continue paying regular dividends is a pretty simple screen that gets rid of a lot of junk.
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Re: Why are Dividend Stocks pushed so hard?

Post by typical.investor » Sat Jan 11, 2020 7:04 pm

ChinchillaWhiplash wrote:
Sat Jan 11, 2020 5:56 pm
A lot of people see dividends being paid by a company to mean they are a strong and solid investment. They have a surplus of cash so they must be doing good, right? Sometime that is the case, but not always. Nothing wrong with dividends. What maters most is total return. If you have higher dividend payers in a tax deferred account, there is no tax drag either. They also seem to be a favorite of retirees for income. They are the ones that are probably reading those article the most.
If you don't use dividend payers, you are going to have to manage your sales to generate dividends. While you and I know this isn't complicated (because we have bonds for safety and figure that in), it does get a little more complex than mostly just spending the dividends.

Add in a little lower volatility for dividend payers and I can see why many would view them as easier to manage in retirement when certainly the market tides will be especially worrisome.

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Re: Why are Dividend Stocks pushed so hard?

Post by Grt2bOutdoors » Sat Jan 11, 2020 7:09 pm

The audience believes that there is a free lunch. They can have dividends and market appreciation without having to redeem shares. They are uncomfortable with the thought of having to redeem shares. As they get older in age, managing a portfolio could get cumbersome, easier to accumulate dividends and tell brokerage and/or mutual fund company to mail me my dividends. Selling of shares to them is verboten because they see it as “dipping into seed corn. They don’t want to erode principal”. They are unable to understand that paying a dividend reduces a company’s assets and stockholders equity.
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Re: Why are Dividend Stocks pushed so hard?

Post by LadyGeek » Sat Jan 11, 2020 7:43 pm

This thread is now in the Investing - Theory, News & General forum (general discussion).
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Re: Why are Dividend Stocks pushed so hard?

Post by Riprap » Sat Jan 11, 2020 9:13 pm

One of the most puzzling aspects of Bogleheadism for me is the nearly universal dogma espoused here that dividends are irrational. I've read over and over again here that creating your own dividend by selling appreciated shares is far superior to forced dividends imposed by a company's board of directors or a fund's trustees. I also believe it's fair to say that Bogleheads as a group are probably the most financially savvy group in investing.

Yet, in yesterday's WSJ, there is an article headlined, "Dividend Payouts Are Poised to Top $500 Billion for the First Time This Year" referring to the dividend payouts by companies in the SP500. Corporate America is run by some pretty savvy people too.

So why the disconnect? I'm truly baffled by it.

If you can put cash to better use than a company's management or board of directors, then you should want a dividend. It's a return of your equity in a business you own. There are some spectacular examples of wealth destruction caused by corporate management abusing shareholder's cash, particularly in mergers gone awry. AOL/Time Warner merger is a great example.

If the argument refers to the payment of dividends by mutual funds as opposed to the underlying companies owned by the mutual fund, then maybe I can see the argument. But it's a silly argument because the law requires mutual funds to pay out underlying dividends.

I am in 100% agreement when Bogleheads point out that dividends aren't free money and there's no secret sauce. I agree a lot of folks seem to think that and that a dividend is some sort of magical return above the market return. It's silly and folks should be corrected.

But I'm puzzled when some Bogleheads seem to mindlessly join the "dividends are bad" groupthink without really considering what they're saying or applying it to capital allocation considerations. After all, isn't that what we are as investors? Capital allocators? And for those investing in ETFs or mutual funds in a tax sheltered account, it really makes no difference anyway. So why the fuss?

So my question is how can corporate America as represented by the SP500 be so wrong (to the tune of $500 Billion) and Bogleheads be so right? :confused

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Re: Why are Dividend Stocks pushed so hard?

Post by nedsaid » Sat Jan 11, 2020 9:21 pm

sixpercentninja wrote:
Sat Jan 11, 2020 2:42 pm
This is something that's been bothering me a long, long time. So when I got started retirement planning/investing, I probably went through a similar path to most people on this board: reading online articles, combing through old and new Bogleheads threads etc, learning about the 3 (these days 4?) fund portfolio, focusing on growth, long term, buy and hold etc etc....

And that's all great and dandy, and I do sincerely believe in this route. What I have never understood though, is why so many of the media, articles, videos, analysts etc, always push and advocate for buying dividend paying stocks instead.

And I'm talking like, EVERYone. From Forbes and Barrons articles pushed by my Apple News Feed, to analysts on CNBC channel, to freaking Youtube finance vloggers...I NEVER see an advocation for "buy the total stock market and hold long term for capital growth". They only EVER advocate either dividend paying individual stock or ETFs/MFs.

Why is it only on Bogleheads forums do I see any sanity/people pointing out that capital growth is proven to be better than dividends, more tax friendly, and all the thigns we talk about here on this forum etc?

Most importantly, I don't understand where they're coming from/how it benefits them. Like what's their angle?! I get it for active stock picking vs passive etfs. Because they get a literal commission when you buy their active fund etc. So I understand why they push for that. But how does buying a DIVIDEND-paying fund "benefit" these finance journalists, analysts, bloggers, etc??

TIA and sorry for rant
A couple of reasons. First, dividends are a sign of earnings consistency and quality of the company itself. Declaration of a dividend is a vote of confidence by The Board of Directors that earnings will continue. Second, earnings are easier to fake than dividends. A third possible reason is that dividends enforce a discipline upon management, too much cash on the balance sheet and management gets tempted to make foolish acquisitions. Peter Lynch called it the bladder theory. Too much cash and the management will tend to piss it away.

That being said, dividends are not free money. All other things being equal, on ex-dividend day, the stock price will drop by the amount of the per share dividend declared. Also cash rich companies tend towards higher Price/Earnings ratios than companies with less cash. So the markets take into consideration the amount of cash on the balance sheet.
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Re: Why are Dividend Stocks pushed so hard?

Post by koala2 » Sat Jan 11, 2020 9:26 pm

sixpercentninja wrote:
Sat Jan 11, 2020 2:42 pm
Most importantly, I don't understand where they're coming from/how it benefits them. Like what's their angle?!
I think the concept of a dividend is fairly easy for someone to understand, and likewise appealing and easy to market. Seemingly "safe" compared to volatility elsewhere.

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Re: Why are Dividend Stocks pushed so hard?

Post by rkhusky » Sat Jan 11, 2020 9:35 pm

If there were no dividends, then stock investing would be like collecting art or Beanie Babies.

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Re: Why are Dividend Stocks pushed so hard?

Post by Grt2bOutdoors » Sat Jan 11, 2020 9:35 pm

nedsaid wrote:
Sat Jan 11, 2020 9:21 pm
sixpercentninja wrote:
Sat Jan 11, 2020 2:42 pm
This is something that's been bothering me a long, long time. So when I got started retirement planning/investing, I probably went through a similar path to most people on this board: reading online articles, combing through old and new Bogleheads threads etc, learning about the 3 (these days 4?) fund portfolio, focusing on growth, long term, buy and hold etc etc....

And that's all great and dandy, and I do sincerely believe in this route. What I have never understood though, is why so many of the media, articles, videos, analysts etc, always push and advocate for buying dividend paying stocks instead.

And I'm talking like, EVERYone. From Forbes and Barrons articles pushed by my Apple News Feed, to analysts on CNBC channel, to freaking Youtube finance vloggers...I NEVER see an advocation for "buy the total stock market and hold long term for capital growth". They only EVER advocate either dividend paying individual stock or ETFs/MFs.

Why is it only on Bogleheads forums do I see any sanity/people pointing out that capital growth is proven to be better than dividends, more tax friendly, and all the thigns we talk about here on this forum etc?

Most importantly, I don't understand where they're coming from/how it benefits them. Like what's their angle?! I get it for active stock picking vs passive etfs. Because they get a literal commission when you buy their active fund etc. So I understand why they push for that. But how does buying a DIVIDEND-paying fund "benefit" these finance journalists, analysts, bloggers, etc??

TIA and sorry for rant
A couple of reasons. First, dividends are a sign of earnings consistency and quality of the company itself. Declaration of a dividend is a vote of confidence by The Board of Directors that earnings will continue. Second, earnings are easier to fake than dividends. A third possible reason is that dividends enforce a discipline upon management, too much cash on the balance sheet and management gets tempted to make foolish acquisitions. Peter Lynch called it the bladder theory. Too much cash and the management will tend to piss it away.

That being said, dividends are not free money. All other things being equal, on ex-dividend day, the stock price will drop by the amount of the per share dividend declared. Also cash rich companies tend towards higher Price/Earnings ratios than companies with less cash. So the markets take into consideration the amount of cash on the balance sheet.
Not exactly - dividends are NOT a sign of earnings consistency. Companies pay dividends for a variety of reasons - attract a specific type of investor or they lack attractive investment opportunities in their business and decide to return the excess cash to investors or management wants to get “paid” on all the shares they own via deferred compensation plans “take the cash now” and boards are all too complicit sometimes to the detriment of shareholders. Dividends can be paid from earnings, sale of assets, borrowing. Quite a few companies are borrowing to pay the sacrosanct dividend. Cutting the dividend is a sign of financial stress - GE is the current poster child, old dividend was $1.00, now it’s a penny.
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