Sure, of course there are other factors involved in pricing a stock. But, absent other factors, it seems rather obvious that a company that has just distributed $100M in dividends is worth $100M less. Because the price before the dividend included ownership of that $100M, and the price afterwards, well, didn't. The FINRA rule reflects that reality. Are you really arguing that the price of a stock ex-dividend doesn't generally fall by about the amount of the dividend, and that deviations from that are noise?
What’s the problem with dividends?
Re: What’s the problem with dividends?
Re: What’s the problem with dividends?
I have less than 5% of my portfolio in SCHD.Dude2 wrote: ↑Fri Apr 16, 2021 5:37 amTake risk, receive reward, but don't put on a blindfold, believing that the fund has attributes that somehow make it safer. That fund holds 100 large value companies. If that's your tilt, great, pick a plan and stick to it.
We can always subdivide the total market, picking parts that did better than the sum of the whole. I'm pretty sure that you could present a compelling argument for large growth as well. Now we are debating total market investment versus any other strategy. It's fine if you believe that high dividend paying companies are better or safer with more reward for less risk. Hopefully in your lifetime this will always be true. I suspect that this subset will have its season in the sun and then not do so great. This is why I choose total markets. Since I in no way know what is going on with these companies nor have the time to pay attention, I follow the herd as an index investor. Anybody that tries to sell me on sectors or form factors is wasting their time. How is promoting dividend investing any different?
In general, I maintain an age-appropriate asset allocation in a Boglehead-type portfolio with a few small exceptions.
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Re: What’s the problem with dividends?
For the market price to respond in such a way that the scenarios are not equivalent to stockholders, the perceived market value of the company after the transactions would have to be different between the two scenarios. But there is nothing different about the company that would give anyone any reason to value the company differently between these two scenarios. Either way, the company has parted with the same amount of cash, and each stockholder ends up with the same percentage of the company.RAchip wrote: ↑Fri Apr 16, 2021 6:09 pm My last effort: you are assuming you know the market price after the dividend and after the buyback. You are assuming that after the dividend my same number of shares drops and stays down forever by the amount of the dividend and that after a buyback that I dont sell into the market price goes up by the exact amount paid out to sellers. A distribution of cash (a dividend) and a repurchase of shares are as a matter of law, different transactions. They are not “the same.” What you are arguing is that from an economic perspective they identical to stockholders. Whether that is true depends on the market price after those transactions which is unknown.
If you think there is a reason anyone would value the company differently, I'm genuinely interested to hear a theory or research or something.
But if you're simply arguing that it's unknown, then you can't actually argue in favor of dividends over repurchases either- maybe they're better, but maybe they're worse. But I know the taxes are worse with dividends.
Side note: I never said the price would increase as a result of a buyback (and I do not think it would, all else equal).
Re: What’s the problem with dividends?
Yes, they are seriously arguing just that, and they appear to be genuinely convinced about it. I am baffled.
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Re: What’s the problem with dividends?
As I posted further up, by the time the ex-dividend date arrives, the return of cash is known, so the share price will drop by the dividend amount (all else equal). RAchip may be arguing that in the absence of dividends, investors may discount the value of a company's cash out of fear that the company may squander it, so the dividend is preferable to that alternative.Da5id wrote: ↑Fri Apr 16, 2021 6:25 pmSure, of course there are other factors involved in pricing a stock. But, absent other factors, it seems rather obvious that a company that has just distributed $100M in dividends is worth $100M less. Because the price before the dividend included ownership of that $100M, and the price afterwards, well, didn't. The FINRA rule reflects that reality. Are you really arguing that the price of a stock ex-dividend doesn't generally fall by about the amount of the dividend, and that deviations from that are noise?
It's reasonable to want some companies to distribute some of their earnings one way or another, so I think it's more helpful to discuss the differences between repurchases and dividends.
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Re: What’s the problem with dividends?
Dividends are definitely great and are a normal result of prudent investments.MapleSyrup wrote: ↑Wed Apr 14, 2021 10:11 pm Why do so many folks on here find dividend income undesirable if one needs income? Qualified dividends have the same tax rate as long term capital gains, so what difference does it make whether the income comes from selling appreciated assets or from dividends?
Qualified dividends are phenomenal.
I only invest 100% in VTSAX/VFIAX and I have very happy with the dividends that I receive.
Re: What’s the problem with dividends?
LilyFleur wrote: ↑Fri Apr 16, 2021 6:33 pmI have less than 5% of my portfolio in SCHD.Dude2 wrote: ↑Fri Apr 16, 2021 5:37 amTake risk, receive reward, but don't put on a blindfold, believing that the fund has attributes that somehow make it safer. That fund holds 100 large value companies. If that's your tilt, great, pick a plan and stick to it.
We can always subdivide the total market, picking parts that did better than the sum of the whole. I'm pretty sure that you could present a compelling argument for large growth as well. Now we are debating total market investment versus any other strategy. It's fine if you believe that high dividend paying companies are better or safer with more reward for less risk. Hopefully in your lifetime this will always be true. I suspect that this subset will have its season in the sun and then not do so great. This is why I choose total markets. Since I in no way know what is going on with these companies nor have the time to pay attention, I follow the herd as an index investor. Anybody that tries to sell me on sectors or form factors is wasting their time. How is promoting dividend investing any different?
In general, I maintain an age-appropriate asset allocation in a Boglehead-type portfolio with a few small exceptions.
I love SCHD.
Re: What’s the problem with dividends?
There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
I guess it all could be much worse. |
They could be warming up my hearse.
Re: What’s the problem with dividends?
This is patently wrong. First of all buybacks are a comparable way to return capital to investors, which trivially falsifies your claim. Secondly stocks which don't currently return capital to investors via dividends or buybacks may do so in the future, whether by starting one of those mechanisms or by having the company sold.
As to Kevin O'Leary, meh.
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Re: What’s the problem with dividends?
So Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
Re: What’s the problem with dividends?
In a recent interview, Kevin O'Leary, the "dividend guy", suddenly decided that he also loves Shopify, Google, Facebook, Zoom and ... gold.
Re: What’s the problem with dividends?
Don't both require one to sell them in order to put money in one's pocket.Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
I guess it all could be much worse. |
They could be warming up my hearse.
Re: What’s the problem with dividends?
As of the end of last year, 104 companies in S&P 500 paid no cash dividends. Those include BRK, Apple, Amazon, Tesla (OK, I'm dubious about Tesla ever justifying its price), Facebook, Google/Alphabet) etc. Mind you Apple, BRK, and Google all did buybacks in the past year so they are returning capital...Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
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Re: What’s the problem with dividends?
And that is the only thing they have in common, your theory is that makes them actually the same exact thing?7eight9 wrote: ↑Fri Apr 16, 2021 9:55 pmDon't both require one to sell them in order to put money in one's pocket.Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
Re: What’s the problem with dividends?
Yep. Doesn't follow that they are the same though.7eight9 wrote: ↑Fri Apr 16, 2021 9:55 pmDon't both require one to sell them in order to put money in one's pocket.Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
Re: What’s the problem with dividends?
I never said they were the same. See text in bold above.Da5id wrote: ↑Fri Apr 16, 2021 10:03 pmYep. Doesn't follow that they are the same though.7eight9 wrote: ↑Fri Apr 16, 2021 9:55 pmDon't both require one to sell them in order to put money in one's pocket.Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
I guess it all could be much worse. |
They could be warming up my hearse.
Re: What’s the problem with dividends?
Apple has been paying a dividend since 2012: AAPL Dividend HistoryDa5id wrote: ↑Fri Apr 16, 2021 10:02 pm As of the end of last year, 104 companies in S&P 500 paid no cash dividends. Those include BRK, Apple, Amazon, Tesla (OK, I'm dubious about Tesla ever justifying its price), Facebook, Google/Alphabet) etc. Mind you Apple, BRK, and Google all did buybacks in the past year so they are returning capital...
.
Re: What’s the problem with dividends?
You sure about that?Da5id wrote: ↑Fri Apr 16, 2021 10:02 pmAs of the end of last year, 104 companies in S&P 500 paid no cash dividends. Those include BRK, Apple, Amazon, Tesla (OK, I'm dubious about Tesla ever justifying its price), Facebook, Google/Alphabet) etc. Mind you Apple, BRK, and Google all did buybacks in the past year so they are returning capital...
https://www.nasdaq.com/market-activity/ ... nd-history
Re: What’s the problem with dividends?
I misread the dividend table about Apple somehow. But that said Apple was a fine investment prior to restarting dividends in 2012. They also seem to be very into stock buybacks the last few years, with buybacks outpacing dividends by almost 4:1.
Last edited by Da5id on Sat Apr 17, 2021 7:53 am, edited 1 time in total.
Re: What’s the problem with dividends?
Doesn't follow that they are similar at all. Just curious, what steps do you take to avoid investing in these terrible speculative companies? Presumably can't buy index funds.7eight9 wrote: ↑Fri Apr 16, 2021 10:08 pmI never said they were the same. See text in bold above.Da5id wrote: ↑Fri Apr 16, 2021 10:03 pmYep. Doesn't follow that they are the same though.7eight9 wrote: ↑Fri Apr 16, 2021 9:55 pmDon't both require one to sell them in order to put money in one's pocket.Johm221122 wrote: ↑Fri Apr 16, 2021 9:50 pmSo Berkshire Hathaway isn't any different than Bitcoin?7eight9 wrote: ↑Fri Apr 16, 2021 9:27 pm There is no problem with dividends.
Non-dividend paying stock isn't really all that different from Bitcoin or Pokemon Cards. It relies on the Greater Fool theory.
...when you buy a stock that doesn't pay a dividend, that is not an investment, that is a speculation ...(b)ecause the only way you can make money is it has to go up. --- Kevin O’Leary
https://www.wsj.com/articles/shark-tank ... %20go%20up
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Re: What’s the problem with dividends?
This is false. If Microsoft sends you $100, then your stock position will be worth $100 less, all else equal, just like if you sold $100 worth. This effect of distributing dividends is hidden by the high volatility of stocks.RAchip wrote: ↑Fri Apr 16, 2021 11:25 amI bought a bunch of MSFT in 2014 for around $40/sh because it was paying a 3% dividend and had announced a policy to grow its dividend every year. Now MSFT pays me more than double the dividend it paid me originally and the stock I bought is up 7x. If I had to rely on selling MSFT stock to produce income from my investment (rather than being able to draw income via dividends) I would have lost out on HUGE gains on all those shares I would have sold.dukeblue219 wrote: ↑Thu Apr 15, 2021 8:00 amHow recently? Would seem that so much of the market gains since 1995 have been AMZN, TSLA, NFLX, MSFT, AAPL, GOOG, FB, etc. A couple of those pay token dividends but overall I'd be hard pressed to agree that investors pay a premium for dividend payers in 2021.dkturner wrote: ↑Thu Apr 15, 2021 6:16 am Kenneth French has studied the dividend phenomenon and has documented that, historically, dividend paying stocks have provided higher total returns, with lower standard deviation of those returns, compared to non-dividend paying stocks. This may be a case of investors being willing to pay a higher price for dividend paying stocks because they are perceived as being more valuable than non-dividend paying stocks.
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Re: What’s the problem with dividends?
Ok, I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend yield and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.Northern Flicker wrote: ↑Sat Apr 17, 2021 12:45 amThis is false. If Microsoft sends you $100, then your stock position will be worth $100 less, all else equal, just like if you sold $100 worth. This effect of distributing dividends is hidden by the high volatility of stocks.RAchip wrote: ↑Fri Apr 16, 2021 11:25 amI bought a bunch of MSFT in 2014 for around $40/sh because it was paying a 3% dividend and had announced a policy to grow its dividend every year. Now MSFT pays me more than double the dividend it paid me originally and the stock I bought is up 7x. If I had to rely on selling MSFT stock to produce income from my investment (rather than being able to draw income via dividends) I would have lost out on HUGE gains on all those shares I would have sold.dukeblue219 wrote: ↑Thu Apr 15, 2021 8:00 amHow recently? Would seem that so much of the market gains since 1995 have been AMZN, TSLA, NFLX, MSFT, AAPL, GOOG, FB, etc. A couple of those pay token dividends but overall I'd be hard pressed to agree that investors pay a premium for dividend payers in 2021.dkturner wrote: ↑Thu Apr 15, 2021 6:16 am Kenneth French has studied the dividend phenomenon and has documented that, historically, dividend paying stocks have provided higher total returns, with lower standard deviation of those returns, compared to non-dividend paying stocks. This may be a case of investors being willing to pay a higher price for dividend paying stocks because they are perceived as being more valuable than non-dividend paying stocks.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: What’s the problem with dividends?
Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
Re: What’s the problem with dividends?
Company values aren’t based entirely on the total cash on hand, or cash on hand minus debt. They’re based on many things, including subjective things like emotions, speculation, potential future profits, or, as we’ve learned recently, the potential for a short squeeze. If valuing a company were as simple as the cash on hand minus the debt, I would agree that paying a dividend would decrease the stock price by exactly the price of the dividend. I don’t believe the price of a stock is that easily determined.Northern Flicker wrote: ↑Sat Apr 17, 2021 2:08 am Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
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Re: What’s the problem with dividends?
Are you aware that if MSFT repurchased shares instead of issuing dividends, then there would be fewer total shares outstanding?rossington wrote: ↑Sat Apr 17, 2021 1:19 am Ok, I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend yield and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.
Scenario 1: A shareholder owns 1% of MSFT and receives a dividend. They still own 1% of MSFT and have some cash (and the entire cash amount is subject to taxes).
Scenario 2: A shareholder owns 1% of MSFT and sells the same proportion of their shares as MSFT repurchases. They still own 1% of MSFT afterward and have some cash (and only the gains on the sale are subject to tax, not the entire amount).
Selling shares during a buyback does not mean less % ownership of MSFT.
Re: What’s the problem with dividends?
It occurs to me this discussion may be a question of whether we’re discussing the overall change to the stock price over time vs the price at market open after a dividend. Yes, the stock price does decrease initially but I think the bigger question is whether that actually impacts the overall return on the stock. What I don’t believe is that the stock price is inherently lower in the long term because the dividend is paid or that if a dividend weren’t paid the stock price in the long term would be exactly the same plus the amount the dividends that weren’t paid.gtrplayer wrote: ↑Sat Apr 17, 2021 2:29 amCompany values aren’t based entirely on the total cash on hand, or cash on hand minus debt. They’re based on many things, including subjective things like emotions, speculation, potential future profits, or, as we’ve learned recently, the potential for a short squeeze. If valuing a company were as simple as the cash on hand minus the debt, I would agree that paying a dividend would decrease the stock price by exactly the price of the dividend. I don’t believe the price of a stock is that easily determined.Northern Flicker wrote: ↑Sat Apr 17, 2021 2:08 am Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
If a stock pays a $1 dividend a year and has a share price of $5, and five years later has a share price of $25, you would have $25 plus $5 in dividends. I have a hard time believing if that dividend had not been paid that the stock price in five years would be exactly $30.
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Re: What’s the problem with dividends?
No, but a company with Y dollars of cash on hand is worth Y-Z more than if it instead had Z dollars of cash on hand, all else equal with Z < Y. Cash on hand unquestionably adds value to the company relative to not having it.gtrplayer wrote: Company values aren’t based entirely on the total cash on hand, or cash on hand minus debt.
Another way to see it is if you buy a share of stock at the moment before it goes ex-dividend for X dollars, then it goes ex-dividend distributing Y dollars/share, then you own the stock ex-dividend and have Y dollars in your pocket (ignoring any taxes). So you effectively paid X-Y dollars for the ex-dividend share, but paid X dollars for the pre-dividend share.
The burden of proof actually lies with those who want to claim that a company can distribute cash out of its coffers without lowering its value by that amount relative to what the value would have been if they held the cash instead.
Last edited by Northern Flicker on Sat Apr 17, 2021 2:46 am, edited 2 times in total.
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Re: What’s the problem with dividends?
If you're comparing a dividend to a stock repurchase, they are logically similar enough in their effect that any difference is splitting hairs. There would have to be at least a consistent enough benefit to dividends over repurchases to overcome the (quite certain) tax benefits of dividends, so simply saying we can't know the effects of a dividend vs buyback is enough to say we should prefer repurchases.gtrplayer wrote: ↑Sat Apr 17, 2021 2:29 am Company values aren’t based entirely on the total cash on hand, or cash on hand minus debt. They’re based on many things, including subjective things like emotions, speculation, potential future profits, or, as we’ve learned recently, the potential for a short squeeze. If valuing a company were as simple as the cash on hand minus the debt, I would agree that paying a dividend would decrease the stock price by exactly the price of the dividend. I don’t believe the price of a stock is that easily determined.
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Re: What’s the problem with dividends?
As I said further up the thread, it is plausible for shareholders to think a company does not have any good prospects to spend its earnings on. If the company shows no intention of transferring that cash to investors by routinely distributing a dividend or repurchasing shares, then there could be concern about the company squandering that money on bad projects, and the cash could be discounted in valuing the company. Best case, it sits idle, and I do not want idle cash in my equity holdings. (It wouldn't be a fair comparison to assume the company could spend this cash on successful projects since they presumably didn't think any existed or else they wouldn't have issued a dividend).Northern Flicker wrote: ↑Sat Apr 17, 2021 2:43 am No, but a company with Y dollars of cash on hand is worth Y-Z more than if it instead had Z dollars of cash on hand, all else equal with Z < Y. Cash on hand unquestionably adds value to the conpany relative to not having it.
Another way to see it is if you buy a share of stock at the moment before it goes ex-dividend for X dollars, then it goes ex-dividend distributing Y dollars/share, then you own the stock ex-dividend and have Y dollars in your pocket (ignoring any taxes). So you effectively paid X-Y dollars for the ex-dividend share, but paid X dollars for the pre-dividend share.
The burden of proof actually lies with those who want to claim that a company can distribute cash out of its coffers without lowering its value by that amount relative to what the value would have been if they held the cash instead.
The argument has to be between repurchases or dividends, and I would prefer repurchases for the tax benefit.
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Re: What’s the problem with dividends?
How many shares did they repurchase between '14 and now?CuriousTacos wrote: ↑Sat Apr 17, 2021 2:36 amAre you aware that if MSFT repurchased shares instead of issuing dividends, then there would be fewer total shares outstanding?rossington wrote: ↑Sat Apr 17, 2021 1:19 am Ok, I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend yield and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.
Scenario 1: A shareholder owns 1% of MSFT and receives a dividend. They still own 1% of MSFT and have some cash (and the entire cash amount is subject to taxes).
Scenario 2: A shareholder owns 1% of MSFT and sells the same proportion of their shares as MSFT repurchases. They still own 1% of MSFT afterward and have some cash (and only the gains on the sale are subject to tax, not the entire amount).
Selling shares during a buyback does not mean less % ownership of MSFT.
I am looking for evidence of actual total return value comparisons using real data that disprove the post by RAchip.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: What’s the problem with dividends?
Let's try this again...we're specifically referring to MSFT since '14.Northern Flicker wrote: ↑Sat Apr 17, 2021 2:08 am Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend payout and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Re: What’s the problem with dividends?
Asking for an impossible proof isn't a good response to a simple math proposition, it is deflecting.rossington wrote: ↑Sat Apr 17, 2021 3:54 amLet's try this again...we're specifically referring to MSFT since '14.Northern Flicker wrote: ↑Sat Apr 17, 2021 2:08 am Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend payout and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.
To be clear, if you don't think stocks fall by the amount of the dividend on the ex-dividend date, there is a trivial way to exploit that.
1) Buy stock day before dividend date
2) Collect dividend
3) Sell stock
4) Profit! You have the dividend, and the stock fell by less than the dividend amount so you have a net gain in a day!
This strategy, called dividend capture, has worked somewhat at various points. But it is trivial to implement and any alpha available is presumably consumed by automated trading at this point.
I'm baffled that people are arguing about this point. That the stock falls by the amount of the dividend isn't a criticism of dividends. It is just math. If you don't believe it is basically true, dividend capture is clearly the strategy you should be pursuing based on your beliefs.
Re: What’s the problem with dividends?
If you have enough of them it can be tough to spend them all.
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Re: What’s the problem with dividends?
So far I'm liking the dividends I get in my 401k VIIIX fund. I reinvest and get more shares. Dividends amount should keep going up., as long as I keep reinvesting.
Re: What’s the problem with dividends?
No way to prove that either way. If they had done stock buybacks I'd assume that you'd have a similar result. While there have been issues with companies timing buybacks poorly, if a company did buybacks in place of dividends in the same schedule and amount I'd guess you come up with similar outcomes (but can't be proven of course).gtrplayer wrote: ↑Sat Apr 17, 2021 2:40 am If a stock pays a $1 dividend a year and has a share price of $5, and five years later has a share price of $25, you would have $25 plus $5 in dividends. I have a hard time believing if that dividend had not been paid that the stock price in five years would be exactly $30.
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Re: What’s the problem with dividends?
I've put forth this argument more than a few times and the yield-chasing dividend lovers all have non-sensical responses to it. I've come to the conclusion that some investors just invest with the emotional side of their brain - they see a nice shiny dividend payment and that's enough for them - facts don't matter. It doesn't help either that there are numerous sites that peddle crap about living off the dividends without spending down the principal.Da5id wrote: ↑Sat Apr 17, 2021 7:21 amAsking for an impossible proof isn't a good response to a simple math proposition, it is deflecting.rossington wrote: ↑Sat Apr 17, 2021 3:54 amLet's try this again...we're specifically referring to MSFT since '14.Northern Flicker wrote: ↑Sat Apr 17, 2021 2:08 am Company has a value of X dollars. Company distributes Y dollars of cash from its coffers. Company then has a value of X - Y.
I would like to have your proof that his total return investment (Dividends collected + share price appreciation) in MSFT (originally @ 40/share, and using actual dividend payout and share price data prior to ex-dividend each quarter since '14 ) is now worth less by holding ALL of his shares....as opposed to if he had had sold shares to cover that same dividend total each quarter since '14... and thus having less total MSFT shares now.
To be clear, if you don't think stocks fall by the amount of the dividend on the ex-dividend date, there is a trivial way to exploit that.
1) Buy stock day before dividend date
2) Collect dividend
3) Sell stock
4) Profit! You have the dividend, and the stock fell by less than the dividend amount so you have a net gain in a day!
This strategy, called dividend capture, has worked somewhat at various points. But it is trivial to implement and any alpha available is presumably consumed by automated trading at this point.
I'm baffled that people are arguing about this point. That the stock falls by the amount of the dividend isn't a criticism of dividends. It is just math. If you don't believe it is basically true, dividend capture is clearly the strategy you should be pursuing based on your beliefs.
Re: What’s the problem with dividends?
Don't ya think it's ironic that our mentor Jack Bogle himself recommended not worrying about price and instead collecting dividends?burritoLover wrote: ↑Sat Apr 17, 2021 8:13 am I've put forth this argument more than a few times and the yield-chasing dividend lovers all have non-sensical responses to it. I've come to the conclusion that some investors just invest with the emotional side of their brain - they see a nice shiny dividend payment and that's enough for them - facts don't matter. It doesn't help either that there are numerous sites that peddle crap about living off the dividends without spending down the principal.
(I'm paraphrasing, but I could find the passage in his writings where he made that point as it stuck with me. Just like Gus Sauter's observation that economies and stock market returns aren't correlated)
Re: What’s the problem with dividends?
The quote from Bogle isRiprap wrote: ↑Sat Apr 17, 2021 8:19 amDon't ya think it's ironic that our mentor Jack Bogle himself recommended not worrying about price and instead collecting dividends?burritoLover wrote: ↑Sat Apr 17, 2021 8:13 am I've put forth this argument more than a few times and the yield-chasing dividend lovers all have non-sensical responses to it. I've come to the conclusion that some investors just invest with the emotional side of their brain - they see a nice shiny dividend payment and that's enough for them - facts don't matter. It doesn't help either that there are numerous sites that peddle crap about living off the dividends without spending down the principal.
(I'm paraphrasing, but I could find the passage in his writings where he made that point as it stuck with me. Just like Gus Sauter's observation that economies and stock market returns aren't correlated)
That said, much as I respect him and his role in creating low cost index funds (and creating downward pressure on costs in other areas) I don't consider what Bogle says holy writ. e.g. I don't agree with his take on International. We all get to make our own calls. And I'd avoid oversimplifying what he said, as the logical inference (which he never implemented or advocated afaik) would seem to be to invest in portions of the index (S&P or TSM) that pay dividends and avoid the other parts. I think dividends are a part of total return, and other than the tax consequences I'm fine with them as a way to return capital. Buybacks may be a better choice with US tax laws, hence their ascendancy in recent years. I think people in general are fine with dividends, so other than some straw men not clear there is a huge actual dispute in this thread.The true investor . . . will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
Re: What’s the problem with dividends?
At the risk of boiling the waters, I personally think the emphasis on buybacks has more to do with the effect on stock price and the resulting positive impact upon stock options than anything else ....Da5id wrote: ↑Sat Apr 17, 2021 8:36 amThe quote from Bogle isRiprap wrote: ↑Sat Apr 17, 2021 8:19 amDon't ya think it's ironic that our mentor Jack Bogle himself recommended not worrying about price and instead collecting dividends?burritoLover wrote: ↑Sat Apr 17, 2021 8:13 am I've put forth this argument more than a few times and the yield-chasing dividend lovers all have non-sensical responses to it. I've come to the conclusion that some investors just invest with the emotional side of their brain - they see a nice shiny dividend payment and that's enough for them - facts don't matter. It doesn't help either that there are numerous sites that peddle crap about living off the dividends without spending down the principal.
(I'm paraphrasing, but I could find the passage in his writings where he made that point as it stuck with me. Just like Gus Sauter's observation that economies and stock market returns aren't correlated)That said, much as I respect him and his role in creating low cost index funds (and creating downward pressure on costs in other areas) I don't consider what Bogle says holy writ. e.g. I don't agree with his take on International. We all get to make our own calls. And I'd avoid oversimplifying what he said, as the logical inference (which he never implemented or advocated afaik) would seem to be to invest in portions of the index (S&P or TSM) that pay dividends and avoid the other parts. I think dividends are a part of total return, and other than the tax consequences I'm fine with them as a way to return capital. Buybacks may be a better choice with US tax laws, hence their ascendancy in recent years. I think people in general are fine with dividends, so other than some straw men not clear there is a huge actual dispute in this thread.The true investor . . . will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
Otherwise I agree, there is a lot more smoke than fire in the dividend debate. Or would be, if people did not, as you say, bring up straw man arguments.
- burritoLover
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Re: What’s the problem with dividends?
I think that is a Benjamin Graham quote.
Re: What’s the problem with dividends?
That does sound like something Benjamin Graham wrote, but Jack Bogle also gave the same basic advice.
- burritoLover
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Re: What’s the problem with dividends?
Well, there is a behavioral component to dividends. Investors receiving regular higher dividends might be, from a behavioral perspective, more likely to stay the course. The biggest enemy to the average investor's performance is themselves by far - selling low (fear), buying high (FOMO), they often underperform the funds they invest in by quite a bit. If a high yield stock fund causes an investor to stay the course because of the anticipation of those big dividend payments, then they are likely better off than if they invested in the total market, even though the high yield fund underperforms the total market.
Re: What’s the problem with dividends?
Well said.burritoLover wrote: ↑Sat Apr 17, 2021 9:37 am Well, there is a behavioral component to dividends. Investors receiving regular higher dividends might be, from a behavioral perspective, more likely to stay the course. The biggest enemy to the average investor's performance is themselves by far - selling low (fear), buying high (FOMO), they often underperform the funds they invest in by quite a bit. If a high yield stock fund causes an investor to stay the course because of the anticipation of those big dividend payments, then they are likely better off than if they invested in the total market, even though the high yield fund underperforms the total market.
Re: What’s the problem with dividends?
So liking dividends is a behavioral error? OK.burritoLover wrote: ↑Sat Apr 17, 2021 9:37 am Well, there is a behavioral component to dividends. Investors receiving regular higher dividends might be, from a behavioral perspective, more likely to stay the course. The biggest enemy to the average investor's performance is themselves by far - selling low (fear), buying high (FOMO), they often underperform the funds they invest in by quite a bit. If a high yield stock fund causes an investor to stay the course because of the anticipation of those big dividend payments, then they are likely better off than if they invested in the total market, even though the high yield fund underperforms the total market.
Re: What’s the problem with dividends?
Well, https://www.goodreads.com/work/quotes/1 ... rantee-you says it was Bogles, which is why I gathered he had said it. But of course it could have been Bogle quoting or paraphrasing Graham.
Re: What’s the problem with dividends?
Yes, I've heard Jack Bogle in videos suggest that advice during turbulent times. It was probably Jack quoting Benjamin Graham, which he did on several ocasions.Da5id wrote: ↑Sat Apr 17, 2021 9:49 amWell, https://www.goodreads.com/work/quotes/1 ... rantee-you says it was Bogles, which is why I gathered he had said it. But of course it could have been Bogle quoting or paraphrasing Graham.
Benjamin Graham in The Intelligent Investor, Ch.8 The Investor and Market Fluctuations wrote:... At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: What’s the problem with dividends?
Reminds me of a Groucho Marx story. He was touring the New York Stock Exchange and a floor trader yelled out at him, "Hey Groucho, where do you invest your money?" The leader of the Marx brother replied, "I keep my money in Treasury bonds." "They don't make you much money," a trader shouted back. "They do," Groucho said, "if you have enough of them...."
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Re: What’s the problem with dividends?
That is a second argument that can be made once the notion that dividends are like bond interest is dispelled.CuriousTacos wrote: ↑Sat Apr 17, 2021 2:57 amAs I said further up the thread, it is plausible for shareholders to think a company does not have any good prospects to spend its earnings on. If the company shows no intention of transferring that cash to investors by routinely distributing a dividend or repurchasing shares, then there could be concern about the company squandering that money on bad projects, and the cash could be discounted in valuing the company. Best case, it sits idle, and I do not want idle cash in my equity holdings. (It wouldn't be a fair comparison to assume the company could spend this cash on successful projects since they presumably didn't think any existed or else they wouldn't have issued a dividend).Northern Flicker wrote: ↑Sat Apr 17, 2021 2:43 am No, but a company with Y dollars of cash on hand is worth Y-Z more than if it instead had Z dollars of cash on hand, all else equal with Z < Y. Cash on hand unquestionably adds value to the conpany relative to not having it.
Another way to see it is if you buy a share of stock at the moment before it goes ex-dividend for X dollars, then it goes ex-dividend distributing Y dollars/share, then you own the stock ex-dividend and have Y dollars in your pocket (ignoring any taxes). So you effectively paid X-Y dollars for the ex-dividend share, but paid X dollars for the pre-dividend share.
The burden of proof actually lies with those who want to claim that a company can distribute cash out of its coffers without lowering its value by that amount relative to what the value would have been if they held the cash instead.
The argument has to be between repurchases or dividends, and I would prefer repurchases for the tax benefit.