Tell me again, why dividends are not useful ?

[sjar]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

[jebmke]

That's what bonds are for. In a down market I buy stocks, not sell. Dividends are a micro-sale of equity with potential tax implications.

[Fpdesignco]

That's what bonds are for. In a down market I buy stocks, not sell. Dividends are a micro-sale of equity with potential tax implications.

Not sure I fully understand your position. Bonds also have tax implications.

[sjar]

That's what bonds are for. In a down market I buy stocks, not sell. Dividends are a micro-sale of equity with potential tax implications.

The stocks one has remain the same. What do you mean by “micro-sale of equity” ?

[David Jay]

1. Very few here on BH would recommend a 100% equity position in retirement.
2. If one has a fixed-income allocation then one can withdraw from that allocation during downturns
3. One must have an extraordinarily large portfolio to live from dividends alone (without any fixed income allocation) if one is holding broad-based index funds. If one has a portfolio of that size (~2% withdrawal rate) then one has lots of withdrawal options and possible strategies. One is unlikely to require dividends to meet living expenses.
4. In a severe economic recession, dividends are often reduced. For example the cruise line stocks stopped paying dividends altogether during COVID.

[marcopolo]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

If you agree with the premise that dividends are just a part of the total return, then you can run the math and see that it does not make any difference.

For example, consider two portfolios that return -2%/yr for 10 years.
Portfolio 1 has a 3% dividend rate, but the capital erodes -5%/yr [3% + (-5%) = -2%]. Portfolio 2 does not pay any dividends, but only erodes in value at -2%/yr. [0% + (-2%) = -2%].

Both portfolios have the same total return, dividends are just a part of the total return, right?

So, if you spend say 3% from your portfolio each year, what will you have at the end of the 10 years in the two portfolios?

[sc9182]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

Ask your question the opposite way:

During downtown - if you are “not willing” to re-invest those dividends in downturn - then, you lost your golden opportunity to buy equities (or bonds) cheap/when-on-sale .. yeah, you didn’t sell low, but you totally wasted opportunity to buy “low” as well.

In my book - both equate to similar results ..

To make it worse - the Divident royals/kings/aristocats companies brag about increasing dividends year over year — even during downturns (make note - they practically have to bleed cash to pay for those “vaunted” dividends; alas, that’s what investors ike you expect/demand !! So, those companies go “down hard” rather than cut dividends — to survive in extended downturns ; But, there “you” are — and expecting dividend., and the Companies
hand is forced to live for “today” even at the possibility that it may experience sudden-death for drying cash/credit”)

You decide which one is preferable!?

[secondopinion]

That's what bonds are for. In a down market I buy stocks, not sell. Dividends are a micro-sale of equity with potential tax implications.

Well, I will argue otherwise. The cash has not been reinvested, so the stock behaves as say 99% stock + 1% cash. It does take from the company value, but of which marginal value that is not overly well returning.

[marcopolo]

1. Very few here on BH would recommend a 100% equity position in retirement.
2. If one has a fixed-income allocation then one can withdraw from that allocation during downturns
3. One must have an extraordinarily large portfolio to live from dividends alone (without any fixed income allocation) if one is holding broad-based index funds. If one has a portfolio of that size (~2% withdrawal rate) then one has lots of withdrawal options and possible strategies. One is unlikely to require dividends to meet living expenses.
4. In a severe economic recession, dividends are often reduced. For example the cruise line stocks stopped paying dividends altogether during COVID.

Not sure why people are bringing bonds into the discussion.

If one starts with the premise that dividends are just a part of total returns, then it is easy math to show that there is no difference between selling portions of your holding to generate the needed withdrawals vs. taking dividends.

Dividends only help in the scenario OP is describing if they are some magical source of additional return.

[rkhusky]

Dividends are a forced sale, whether it’s a down market or not.

When dividends are paid, the stock price drops to compensate. Does it matter whether you have 10 shares at $9/sh or 9 shares at $10/sh?

[nura]

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

A stock holder don't control when the dividends are issued. A company has no means of estimating when or how much a particular stock holder need from dividends to meet living expenses

[simplextableau]

Dividends permanently reduce the value of unsold shares because the cash is transferred off the company's accounts to the shareholders. Another way to permanently reduce the value of unsold shares (i.e. your portfolio) is to sell some of those shares. Whether you sell shares or the company permanently reduces the value of your unsold shares is equivalent. Either way, you have lost value in that holding and converted it into cash outside the holding.

[Minderbinder]

Because

1) company issues dividend, stock falls by dividend amount, consumer spends dividend

is the same as

2) company does not issue dividend, stock does not fall and consumer sells shares to create the same amount of dividend.

Both end up identically. The difference is in #1 the taxable event decision is made for you and #2 it's up to you when to get hit with capital gains.

Side note, this is exactly why qualified dividends and preferential tax treatment is a thing.

[delamer]

What do you mean by someone “ would also have to come back in?”

Investors can rebalance if their goal is to maintain a constant asset allocation over time?

[sc9182]

Dividends permanently reduce the value of unsold shares because the cash is transferred off the company's accounts to the shareholders. Another way to permanently reduce the value of unsold shares (i.e. your portfolio) is to sell some of those shares. Whether you sell shares or the company permanently reduces the value of your unsold shares is equivalent. Either way, you have lost value in that holding and converted it into cash outside the holding.

allow me to add to this: it may appear - both may be identical outcome to one investor, you/me.

But, from company’s standpoint however- it’s forced to preserve/keep-paying Dividend - no matter what., including in severe/extended downturns!! guess what happens when survival cash/credit crunch comes up during such scenario (most likely a sudden death or forced fire-sale).

[AlwaysLearningMore]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

[sc9182]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

may be you should pay attention to lowered value of such company’s stock — upon dividend payout. enough said ..

[Grogs]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

Not reinvesting dividends is the same as selling the same amount of the stock, i.e.,

Fund A starts at $100, puts off a $2 dividend which I spend = $98 left
Fund B starts at $100, no dividend so I sell $2 worth = $98 left

Assuming total returns for A & B are the same, then dividends make no difference. Dividends aren't magic money that falls from the sky.

[secondopinion]

Dividends are a forced sale, whether it’s a down market or not.

When dividends are paid, the stock price drops to compensate. Does it matter whether you have 10 shares at $9/sh or 9 shares at $10/sh?

But which would you have? 10 shares of stock at $9 plus $10 of cash in your hands, or 10 shares of stock at $10 where $1 per share is cash in their hands? Depending on the situation, it is better in your wallet; other times, theirs.

Dividends are a great way to rid of surplus cash allowing investors to buy a more leveraged stock.

[Beensabu]

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

Here's how I finally understood the "dividends are irrelevant" mantra (without math):

First, you need to assume that Dividend Portfolio A and No-Dividend Portfolio B have identical returns if dividends are reinvested.

Having made that assumption, spending a 3% dividend from Portfolio A (instead of reinvesting it) is the same as selling 3% of No-Dividend Portfolio B.

--

But what if Dividend Portfolio A and No-Dividend Portfolio B do not have identical returns if dividends are reinvested?

Well... here's a comparison of SCHD (dividend fund) to SWTSX (total market fund). Not exactly identical returns, but close enough.

And for a longer lookback, here's a comparison of VIG (dividend fund) to VTI (total market fund). Same deal.

Now let's do it starting in 2007 with withdrawals. I'd say that's probably a significantly lesser max drawdown taking into account the periodic withdrawals... So feel free to use that to make your point. But in the end, eventually, it doesn't really matter.

[secondopinion]

Because

1) company issues dividend, stock falls by dividend amount, consumer spends dividend

is the same as

2) company does not issue dividend, stock does not fall and consumer sells shares to create the same amount of dividend.

Both end up identically. The difference is in #1 the taxable event decision is made for you and #2 it's up to you when to get hit with capital gains.

Side note, this is exactly why qualified dividends and preferential tax treatment is a thing.

It depends; if the cash is not reinvested at the company level, then it impacts total returns per dollar. Paying the dividend ensures that the total return is kept leveraged on a per dollar basis.

[rkhusky]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

You are forced to sell part of the value of your shares for cash, upon which you may be prematurely taxed if held in a taxable account.

[iudiehard1]

I won’t argue with the crowd that dividends have to be considered in total returns. My rational is and has always been that if I have my money at stake, I share in the profits while we go along. I don’t work for the company, but I have indeed but skin in the game and therefore I appreciate the psychological part of getting some return on my money as we go. That and companies that pay dividends may not be growing at a clip of others, but they have cash.

Again, you won’t find support for dividends around here, but you will on bonds all day long. Because bonds are safe . . I’ll take my chances with SCHD and DGRO who offer a decent dividends….upside growth potential and historically less volatile on the way down. Will that be the case in the future? Who knows but plenty of people outside of this forum think dividends are just fine.

[FoolishJumper]

My perspective on dividends and share buybacks is for a company to be paying out cash (and for me to prefer that they pay that cash to me as a dividend instead of keeping it) then that implies that I can better invest that money than the company can. If they can invest it at a higher risked rate of return than I personally could (through other investments, mutuals funds, etc), then I would much rather they keep that money and profitably invest it for me (like I originally asked when I bought an investment in them - either directly or indirectly through a mutual fund or ETF).

Based on this belief, if I would prefer the company return cash to me (directly through dividends or indirectly through share buybacks), then I simply shouldn't be invested in such company as management is unable to exceed other opportunities that I personally have on a risk-basis.

Now - I won't actively go out of my way to avoid dividends - I still own VTI and others funds that pay a dividend, but I would never invest in a dividend fund or an individual stock that was known for high dividends, unless we are talking about doing so for tax specific reasons (i.e. REIT funds for example that legally have some dividend requirements) which I am then investing for on a tax-preferential basis, and I am happy for such investments to use the tax code for my benefit.

[8301]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

Paying dividend is like an inside job. Companies open their safes, grab some money and give it to investors.

[nisiprius]

...in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market...

The problem is that this doesn't actually accomplish anything. Dividends aren't free money and they come out of the stock price.

Rising market or falling market, total return being equal, you may hold the same number of shares--but the effect of bleeding money from dividends means that during a rising market, the price per share of the high-dividend stocks will grow somewhat more slowly than the market average. And during a falling market, the priceper share will decline somewhat faster than the market average.

Because dividends are relatively small compared to market fluctuations, it isn't always easy to see this. But the dividend-oriented Vanguard Equity-Income fund, VEIPX, specifically designed to generate dividend income, is a fairly close match in total return for the Vanguard 500 index fund, VFINX.

If we look at 12/31/2006 through 3/31/2009, we see that if we had reinvested dividends, VEIPX actually would have done slightly better than VFINX over that time period:

Source



But if we had spent the dividends, i.e. not used them to buy more shares, but held a constant number of shares... if we consult a Morningstar price chart... look at the numbers, the curves aren't helpful here...



...we see that the share price of VEIPX fell -46.92%, while the share price of VFINX only fell -43.76%.

That doesn't mean VEIPX was worse, because we would have gotten the dividends--much more than we would have gotten from VFINX. But does show that they were not free money. If you held VEIPX and spent the dividends, it was an illusion if you felt that you were better off just because you had not "sold shares." The dividend money had to come from somewhere, and it came out of the share price.

There are reasonable arguments, but IMHO weak ones, for preferring dividend stocks, but they do not and cannot rest on "I got money and I didn't need to sell shares." One argument is that it is convenient to have this happen automatically and to have someone else making the decision about how high a withdrawal is sustainable. Another argument is a belief that paying dividends tells you something about the company's management and that dividend stocks are Just Plain Better, in terms of total return, than the average.

"I got money and I didn't need to sell shares" sounds convincing, but it is an illusion.

[AlwaysLearningMore]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

Paying dividend is like an inside job. Companies open their safes, grab some money and give it to investors.

Good to know.

[sjar]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

[secondopinion]

...in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market...

The problem is that this doesn't actually accomplish anything. Dividends aren't free money and they come out of the stock price.

Rising market or falling market, total return being equal, you may hold the same number of shares--but the effect of bleeding money from dividends means that during a rising market, the price per share of the high-dividend stocks will grow somewhat more slowly than the market average. And during a falling market, the priceper share will decline somewhat faster than the market average.

Because dividends are relatively small compared to market fluctuations, it isn't always easy to see this. But the dividend-oriented Vanguard Equity-Income fund, VEIPX, specifically designed to generate dividend income, is a fairly close match in total return for the Vanguard 500 index fund, VFINX.

If we look at 12/31/2006 through 3/31/2009, we see that if we had reinvested dividends, VEIPX actually would have done slightly better than VFINX over that time period:

Source



But if we had spent the dividends, i.e. not used them to buy more shares, but held a constant number of shares... if we consult a Morningstar price chart... look at the numbers, the curves aren't helpful here...



...we see that the share price of VEIPX fell -46.92%, while the share price of VFINX only fell -43.76%.

That doesn't mean VEIPX was worse, because we got the dividends--much more than we got from VFINX. But does show that they were not free money. If you held VEIPX and spent the dividends, it was an illusion if you felt that you were better off just because you had not "sold shares." Because the dividends have to come from somewhere, and they come out of the share price.

There are arguments, but IMHO weak ones, for preferring dividend stocks, but they do not and cannot rest on "I got money and I didn't need to sell shares." One argument is that it is convenient to have this happen automatically and to have someone else making the decision about how much of a withdrawal is sustainable. Another argument is a belief that paying dividends tells you something about the company's management and that dividend stocks are Just Plain Better, in terms of total return, than the average.

"I got money and I didn't need to sell shares" sounds convincing, but it is an illusion.

In some cases, I rather they pay out the money than reinvest it terribly or reduce the effective leverage. Buybacks are more tax efficient, however.

I agree it is not a free lunch. In theory, selling stock is the same thing as receiving a dividend; in practice, it is slightly different depending on how the company operates.

[muffins14]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

Dividends are still just a part of total return though. You’re still reducing share price when you get a dividend, just like you’d reduce share volume when selling. it’s like if you want fewer shares of higher value (selling shares that appreciating more) or more shares of lower value (spending dividends from shares that thus appreciated less, bc of the dividend payment).

Who cares, take your money and otherwise stay invested. 6 of one, half dozen of the other

[sc9182]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

chances are yes - thus, the dividends gets “diluted” for folks who join gravy train later on (after share price bumps).

On the contrary- just because one Joe had thought it’s a good company/stock — doesn’t make it thus so (and it will succumb/play-by to same market/competitive forces that it had to)

[Minderbinder]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

Look at what happens to any stock on its ex-dividend date.

[Beensabu]

But if we had spent the dividends, i.e. not used them to buy more shares, but held a constant number of shares... if we consult a Morningstar price chart... look at the numbers, the curves aren't helpful here...

[image removed]

...we see that the share price of VEIPX fell -46.92%, while the share price of VFINX only fell -43.76%.

But what if you compared that to selling the equivalent amount of VFINX? As in "spend dividends from VEIPX" vs. "sell shares of VFINX"? It's not about share price. It's about portfolio value.

"I got money and I didn't need to sell shares" sounds convincing, but it is an illusion.

Now let's do it starting in 2007 with withdrawals. I'd say that's probably a significantly lesser max drawdown taking into account the periodic withdrawals... So feel free to use that to make your point. But in the end, eventually, it doesn't really matter.

VIG vs VTI with $40k withdrawals starting on a $1m portfolio in 2007 experienced a max drawdown -46.6% vs -55.87 taking into account the periodic withdrawals. People add a good amount of fixed income to their portfolio to try to reduce a drawdown by 9%.

That's not an illusion, even if doesn't really matter years down the line after drawdown recovery.

[secondopinion]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

Look at what happens to any stock on its ex-dividend date.

Yes, they took cash and gave it to you. Not a free lunch. Now, the effective leverage is higher because they do not have that cash. If they kept it and failed to reinvest it, then it reduces the effective leverage; if they reinvest poorly, then you are worse off.

Aside from doing a buyback, they have to come up with some way to use the earnings to keep total returns as expected; that is not always possible at every point in time.

[8301]

I don't expect to sell shares or need dividends. But I don't mind small dividends, e.g., from VTSAX. I will consider such dividends as a reward for a job, lifetime savings, well done. My bonus to me.

[Marseille07]

There have been multiple discussions on this topic, but I am trying to come at it from a different angle.

I understand that Dividends are considered part of total returns, but in a down market, when a person is trying to use his or her portfolio for living expenses, wouldn’t dividends allow them to take out money from their portfolio without selling in a down market that could be for one year or God Forbid 10 years ?

If they have a non-dividend portfolio, then they would have to sell in a down market and then they would also have to come back in at some time.
How would they even do that if they are living off their portfolio?

So, don’t dividends help in the buy and hold strategy that Bogleheads swear by ? What am I missing here ?

You aren't missing anything. High dividend ETFs tend to be less volatile than VTI, so if you want this property during a downturn, by all means.

[jebmke]

That's what bonds are for. In a down market I buy stocks, not sell. Dividends are a micro-sale of equity with potential tax implications.

Not sure I fully understand your position. Bonds also have tax implications.

If I have to sell something, I sell bonds. I retired in December, 2007. For the first two years I was selling bonds like crazy. Some of the proceeds I used to live but most of it was re-balanced to equity. btw, I also harvested a boat load of losses in equity that I was able to use a few short years later to sell equity with no tax consequences. Some of the proceeds I used to live and the rest I re-balanced to bonds. I'd have to look back but I don't think I have ever paid a capital gain tax despite all those sales.

[jebmke]

Dividends are a forced sale, whether it’s a down market or not.

So the investor ends up with fewer shares after a dividend distribution?

same number of shares, they're just worth less

[cmr86]

same number of shares, they're just worth less

Unless DRIPing.

[sjar]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

Look at what happens to any stock on its ex-dividend date.

How would you know what happens ? It could go down more than the dividend paid or go way up than that based on the news or events of the day.. Correct ?

[cmr86]

It's not that they're bad. They're just a tax-inefficient use of capital. Sure, there are qualified dividends, but unless it's in a tax-advantaged account you're going to have drag. Moreover, you're going to want to look at the total return more than anything. Ben Felix has a great video about this on YouTube.

[Minderbinder]

Aren’t share prices though not an exact mathematical formula, but also what people think the price ‘should be’ ?
I understand that dividends theoretically and mathematically come out of the share price, but if enough people think dividends are good then wouldn’t the prices of those dividend stocks be bidden higher ?

Look at what happens to any stock on its ex-dividend date.

How would you know what happens ? It could go down more than the dividend paid or go way up than that based on the news or events of the day.. Correct ?

I know what happens because I've already once done this data mining exercise. Stocks fall by their dividend payout on average.

But if you don't believe me, by all means, go buy stocks the day before their ex-dividend date, collect the dividend, and then sell the day after. Should be infinitely profitable and the easiest returns ever if I'm wrong. Let us know what you find.

[jebmke]

It's not that they're bad. They're just a tax-inefficient use of capital. Sure, there are qualified dividends, but unless it's in a tax-advantaged account you're going to have drag. Moreover, you're going to want to look at the total return more than anything. Ben Felix has a great video about this on YouTube.

The Federal tax on my dividends in 2021 was more than 100% of my Federal tax bill that year. Had I been able to take the cash in the form of stock sales (or bond sales) I would not have had a tax liability at all.

[Marseille07]

I know what happens because I've already once done this data mining exercise. Stocks fall by their dividend payout on average.

But if you don't believe me, by all means, go buy stocks the day before their ex-dividend date, collect the dividend, and then sell the day after. Should be infinitely profitable and the easiest returns ever if I'm wrong. Let us know what you find.

But this isn't what we're talking about in terms of holding long-term. High yield ETFs are notably less volatile, partly because you are constantly drawing your returns via dividends. Some people, especially the retirees, may prefer dividends.

[NiceUnparticularMan]

At this point I am most interested in figuring out why so many people struggle to really understand dividend irrelevance (holding aside taxes).

Recently it has become clear to me a lot of it seems to be implicitly based on the idea that if a company's market valuation changes due to broader market conditions, this means how the market values retained cash will also change.

That, of course, makes no sense, and the empirical evidence understandably suggests otherwise. Market events may affect how the company's other sorts of operating assets are valued, but not retained cash.

And hopefully once you grasp that, you can grasp why dividend irrelevance is maintained regardless of what happens with market valuations. Your choices remain taking the cash out, or reinvesting the cash in the company. And you can make that choice independent of what the company does with dividends, and the details of the path you take to the outcome you want won't make any difference--assuming no taxation.

[NiceUnparticularMan]

High yield ETFs are notably less volatile

So assuming that premise is true, likely you are looking at different pools of underlying companies, such that the companies in the "high yield" pool are lower volatility in terms of total returns. That is plausible because lower volatility earnings could potentially make it easier for company management to set higher dividend policies, and lower volatility earnings could also lead to lower volatility total returns. However, at least after controlling for "value" factors, you typically should also assign lower expected returns to lower volatility stock pools.

Accordingly, it might be more efficient to lower your overall portfolio's total return volatility by using a different mix of non-stock assets, rather than by changing your stock mix. Or it might be a wash. But it would not be rational to expect you could get lower volatility of returns at the same level of expected returns simply by choosing higher-yielding stocks (at least not controlling for value).

[stocknoob4111]

When you receive a dividend you're essentially getting your own money back since the dividend is part of the growth in the share price. Whether it's retained in the share price or deducted from the share price and paid out to you as a dividend - there is no mathematical change in your net worth.

Which is why in my opinion the concept of "dividend investing" makes no sense to me at all. A company's dividend payout policy should be totally irrelevant when determining whether a company is a good investment candidate or not.

I also consider "dividend investing" to be dangerous - I see a lot of people retiring by creating a "dividend portfolio" with high dividend stocks. Nobody knows what these companies are doing to give you a dividend, some may be leveraging themselves as well because many companies are pressured into not cutting their dividends and a lot of these folks are not sophisticated enough to be analyzing the companies financial statements.

[Nicolas]

There used to be more of a case for dividends. Dividends were more valuable when we all still paid brokerage fees to sell stock. Then you could live off dividends without the drag of the fees. You got checks in the mail every quarter without paying any fees.

But now there are no fees to sell stock unless you still use a full service broker. So now instead of collecting dividends with no fees you can also just sell shares to live off of with no fees. This has been true for just a few years now. So dividends lost that advantage.

[Marseille07]

So assuming that premise is true, likely you are looking at different pools of underlying companies, such that the companies in the "high yield" pool are lower volatility in terms of total returns. That is plausible because lower volatility earnings could potentially make it easier for company management to set higher dividend policies, and lower volatility earnings could also lead to lower volatility total returns. However, at least after controlling for "value" factors, you typically should also assign lower expected returns to lower volatility stock pools.

Accordingly, it might be more efficient to lower your overall portfolio's total return volatility by using a different mix of non-stock assets, rather than by changing your stock mix. Or it might be a wash. But it would not be rational to expect you could get lower volatility of returns at the same level of expected returns simply by choosing higher-yielding stocks (at least not controlling for value).

I don't subscribe to the volatility / reward idea, but the premise actually wasn't true: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Stdev and maxDD are comparable; while the worst year is good, that's a crude measurement because it is segmented by calendar year.

So you were actually correct, dividends are irrelevant.

[WhiteMaxima]

dividend is good because day trader or gambler won’t touch them.