Receiving dividend and feeling good

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MathIsMyWayr
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Receiving dividend and feeling good

Post by MathIsMyWayr » Mon Mar 23, 2020 6:43 pm

Soon I will receive dividend in my taxable. It is large enough to cover more than a month's expenses. Dividends are not optimal, but receiving dividend in this time of uncertainty makes me happy. Something to look forward to in the midst of gloom and doom.

jb1
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Re: Receiving dividend and feeling good

Post by jb1 » Mon Mar 23, 2020 7:59 pm

I agree, not sure why many are against them

dukeblue219
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Re: Receiving dividend and feeling good

Post by dukeblue219 » Mon Mar 23, 2020 8:05 pm

jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
Because you could just as easily sell 1% of your shares each quarter and it would be exactly the same as a utility yielding 4%, but for people that didn't want to + they could choose not to take the tax hit.

That's pretty much all it comes down to.
Last edited by dukeblue219 on Mon Mar 23, 2020 8:05 pm, edited 1 time in total.

hirlaw
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Re: Receiving dividend and feeling good

Post by hirlaw » Mon Mar 23, 2020 8:05 pm

I usually receive them in cash, but have decided to reinvest them for the time being given the market drop.

Triple digit golfer
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Re: Receiving dividend and feeling good

Post by Triple digit golfer » Mon Mar 23, 2020 8:06 pm

jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
I don't think many people are against dividends. I think many people are against investing in dividend paying stocks or funds specifically for the dividend and excluding companies or funds that have a lower or no dividend.

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careytilden
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Re: Receiving dividend and feeling good

Post by careytilden » Mon Mar 23, 2020 8:06 pm

jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
One side of this discussion has a simple message: "Dividends are great!" You only have to think about good vs bad for this to make sense.

The other side has a complicated message: "Dividends are only a part of total return and shouldn't be considered in isolation." You should think about a bunch of things all at once for this to make sense.

It's an asymmetrical discussion.

alex_686
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Re: Receiving dividend and feeling good

Post by alex_686 » Mon Mar 23, 2020 8:10 pm

Do heavy objects fall faster than light ones? As a rule it is simple, intuitive, and often right. However, it is specifically false. If you start with the rule that heavy objects fall faster than light one you will start treading down a false path.

There are so many ways to lie with dividends. As a example, wait to see what you get for dividends in a year. Maybe a 1/3 less, maybe 1/2. Companies have already started to cut dividends.

The correct methodology is "Total Returns", when the return is principal appreciation and dividends. It is much harder to construct false narratives here. While it is a bit more abstract it is actually simpler.

MotoTrojan
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Re: Receiving dividend and feeling good

Post by MotoTrojan » Mon Mar 23, 2020 8:13 pm

I’m sorry about the drop in your share-price/NAV. Hopefully something else comes to directly offset it (before taxes).

Dontridetheindexdown
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Re: Receiving dividend and feeling good

Post by Dontridetheindexdown » Mon Mar 23, 2020 8:23 pm

Agree 100%!

At this time, we live on mailbox money (Social Security, modest pensions, annuity), and we re-invest all dividends (taxable, tax-deferred, and Roth).

Yes, we pay tax on our dividends in taxable - a very wise man once told me you are not making money until you go 50/50 with the government.

Just as indexers depend on the "wisdom of the market," we depend on the "wisdom of the managers" of the firms we own.

We pay our managers to nurture our businesses, and to return any surplus as dividends.

In good times or bad, dividends pay real money!

We care not at all about unrealized gains or losses, and we sleep well at night.

At the same time, we remain fully hedged, with stable assets sufficient to ballast our equity exposure.

This may not be everyone's choice, but it's a choice we are delighted to have made, especially in these arguably challenging times.

hoops777
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Re: Receiving dividend and feeling good

Post by hoops777 » Mon Mar 23, 2020 8:41 pm

Here we go again. Just let the people enjoy their dividends, especially now, and check your ego’s at the door. Thank you.
K.I.S.S........so easy to say so difficult to do.

Starfox
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Re: Receiving dividend and feeling good

Post by Starfox » Mon Mar 23, 2020 8:46 pm

I just noticed. Sp500 fund VFIAX gave its dividend two weeks ago.

If dividends were free money, you would sell the fund after getting the dividend and buy the total market fund VTSAX and get a second quarterly dividend two weeks later (this week) of approximately the same amount and from mostly the same companies.

Dontridetheindexdown
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Re: Receiving dividend and feeling good

Post by Dontridetheindexdown » Mon Mar 23, 2020 8:50 pm

Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.

Starfox
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Re: Receiving dividend and feeling good

Post by Starfox » Mon Mar 23, 2020 8:55 pm

Dontridetheindexdown wrote:
Mon Mar 23, 2020 8:50 pm
Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.
Worded this way one may think they can get free profits by buying the stock or fund before the dividend.

I’ve seen also someone say they don’t want to sell such and such stock or fund until a day or two after they get that big quarterly or annual dividend.

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MathIsMyWayr
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Re: Receiving dividend and feeling good

Post by MathIsMyWayr » Mon Mar 23, 2020 9:19 pm

Starfox wrote:
Mon Mar 23, 2020 8:55 pm
Dontridetheindexdown wrote:
Mon Mar 23, 2020 8:50 pm
Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.
Worded this way one may think they can get free profits by buying the stock or fund before the dividend.

I’ve seen also someone say they don’t want to sell such and such stock or fund until a day or two after they get that big quarterly or annual dividend.
The fact that dividend is not free money is the first thing you learn on the first page on investment. No point of repeating. It is a simple elementary math. In investment, there is a psychological aspect besides math. In a severe down market, receiving dividend relieves one of the onerous task of selling at a big loss. It is like a peekaboo. Less pain. I don't need dividends now, but receiving dividends somehow makes me happy.

Thesaints
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Re: Receiving dividend and feeling good

Post by Thesaints » Mon Mar 23, 2020 9:23 pm

Triple digit golfer wrote:
Mon Mar 23, 2020 8:06 pm
jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
I don't think many people are against dividends. I think many people are against investing in dividend paying stocks or funds specifically for the dividend and excluding companies or funds that have a lower or no dividend.
Actually, many people are not against receiving dividends as much as they are against paying taxes on received dividends.

SovereignInvestor
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Re: Receiving dividend and feeling good

Post by SovereignInvestor » Mon Mar 23, 2020 9:24 pm

dukeblue219 wrote:
Mon Mar 23, 2020 8:05 pm
jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
Because you could just as easily sell 1% of your shares each quarter and it would be exactly the same as a utility yielding 4%, but for people that didn't want to + they could choose not to take the tax hit.

That's pretty much all it comes down to.
This is exactly it. A buyback is auto invested dividend but without the tax. If you dont want to auto invest then sell the percentage of shares equal to buyback yield.

aristotelian
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Re: Receiving dividend and feeling good

Post by aristotelian » Tue Mar 24, 2020 6:13 am

jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
Nobody is against them, they just don't like to see the value of their fund dropping by the same amount.

MikeG62
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Re: Receiving dividend and feeling good

Post by MikeG62 » Tue Mar 24, 2020 6:37 am

MathIsMyWayr wrote:
Mon Mar 23, 2020 9:19 pm
Starfox wrote:
Mon Mar 23, 2020 8:55 pm
Dontridetheindexdown wrote:
Mon Mar 23, 2020 8:50 pm
Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.
Worded this way one may think they can get free profits by buying the stock or fund before the dividend.

I’ve seen also someone say they don’t want to sell such and such stock or fund until a day or two after they get that big quarterly or annual dividend.
The fact that dividend is not free money is the first thing you learn on the first page on investment. No point of repeating. It is a simple elementary math. In investment, there is a psychological aspect besides math. In a severe down market, receiving dividend relieves one of the onerous task of selling at a big loss. It is like a peekaboo. Less pain. I don't need dividends now, but receiving dividends somehow makes me happy.
OP, DW and I are retired and feel the same way you do. Yes I understand that what really matters is total return, but I too am looking forward to the cash inflow into my account over the next week or two. :sharebeer
Real Knowledge Comes Only From Experience

TropikThunder
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Re: Receiving dividend and feeling good

Post by TropikThunder » Tue Mar 24, 2020 12:21 pm

MikeG62 wrote:
Tue Mar 24, 2020 6:37 am
MathIsMyWayr wrote:
Mon Mar 23, 2020 9:19 pm
Starfox wrote:
Mon Mar 23, 2020 8:55 pm
Dontridetheindexdown wrote:
Mon Mar 23, 2020 8:50 pm
Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.
Worded this way one may think they can get free profits by buying the stock or fund before the dividend.

I’ve seen also someone say they don’t want to sell such and such stock or fund until a day or two after they get that big quarterly or annual dividend.
The fact that dividend is not free money is the first thing you learn on the first page on investment. No point of repeating. It is a simple elementary math. In investment, there is a psychological aspect besides math. In a severe down market, receiving dividend relieves one of the onerous task of selling at a big loss. It is like a peekaboo. Less pain. I don't need dividends now, but receiving dividends somehow makes me happy.
OP, DW and I are retired and feel the same way you do. Yes I understand that what really matters is total return, but I too am looking forward to the cash inflow into my account over the next week or two. :sharebeer
You’d get the exact same cash flow by selling shares of a fund that didn’t pay a dividend, but I understand it’s mostly psychological.

bugleheadd
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Re: Receiving dividend and feeling good

Post by bugleheadd » Tue Mar 24, 2020 12:33 pm

aristotelian wrote:
Tue Mar 24, 2020 6:13 am
jb1 wrote:
Mon Mar 23, 2020 7:59 pm
I agree, not sure why many are against them
Nobody is against them, they just don't like to see the value of their fund dropping by the same amount.
price usually goes back up though (at least for VTI). so the drop in price is short lived and recovers quick and you get cash or more shares to reinvest

bugleheadd
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Re: Receiving dividend and feeling good

Post by bugleheadd » Tue Mar 24, 2020 12:34 pm

TropikThunder wrote:
Tue Mar 24, 2020 12:21 pm
MikeG62 wrote:
Tue Mar 24, 2020 6:37 am
MathIsMyWayr wrote:
Mon Mar 23, 2020 9:19 pm
Starfox wrote:
Mon Mar 23, 2020 8:55 pm
Dontridetheindexdown wrote:
Mon Mar 23, 2020 8:50 pm
Of course dividends are not "free money."

They are return of profits to shareholders who accept the risk.
Worded this way one may think they can get free profits by buying the stock or fund before the dividend.

I’ve seen also someone say they don’t want to sell such and such stock or fund until a day or two after they get that big quarterly or annual dividend.
The fact that dividend is not free money is the first thing you learn on the first page on investment. No point of repeating. It is a simple elementary math. In investment, there is a psychological aspect besides math. In a severe down market, receiving dividend relieves one of the onerous task of selling at a big loss. It is like a peekaboo. Less pain. I don't need dividends now, but receiving dividends somehow makes me happy.
OP, DW and I are retired and feel the same way you do. Yes I understand that what really matters is total return, but I too am looking forward to the cash inflow into my account over the next week or two. :sharebeer
You’d get the exact same cash flow by selling shares of a fund that didn’t pay a dividend, but I understand it’s mostly psychological.
but you lose shares if you sell, wheras a dividend you dont lose shares.

BoggledHead2
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Re: Receiving dividend and feeling good

Post by BoggledHead2 » Tue Mar 24, 2020 12:38 pm

You are essentially getting paid for owning a fund/stock

it's mindblowing how anyone could skew this as a negative - this is my first go around of accepting in cash to rebalance and thrilled about the timing (although the market can chill on the 9% run ups until Friday)

Enzo IX
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Re: Receiving dividend and feeling good

Post by Enzo IX » Tue Mar 24, 2020 12:50 pm

If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.

The share price goes down only on the x dividend date so that the dividend doesn't gets scalped. The other days the share price is being adjusted just like nonpayers based on the market.

The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
Last edited by Enzo IX on Tue Mar 24, 2020 1:00 pm, edited 1 time in total.

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CyclingDuo
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Re: Receiving dividend and feeling good

Post by CyclingDuo » Tue Mar 24, 2020 12:59 pm

Enzo IX wrote:
Tue Mar 24, 2020 12:50 pm
If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.

The share price goes down only on the x dividend date so that the dividend gets scalped. The other days the share price is being adjusted just like nonpayers based on the market.

The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
Obviously, the financials were hit hard in the 2007-09 bear and is where the majority of the dividend cuts came from in that bear market. This time around, I would imagine the weaker balance sheets and especially the industries hit the hardest with the stay at home mandates will come from travel, hotel, sit down restaurants, casinos, retail, energy, etc... in terms of where an investor will incur dividend cuts or halts.

Image
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Enzo IX
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Re: Receiving dividend and feeling good

Post by Enzo IX » Tue Mar 24, 2020 1:14 pm

CyclingDuo wrote:
Tue Mar 24, 2020 12:59 pm
Enzo IX wrote:
Tue Mar 24, 2020 12:50 pm
If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.

The share price goes down only on the x dividend date so that the dividend gets scalped. The other days the share price is being adjusted just like nonpayers based on the market.

The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
Obviously, the financials were hit hard in the 2007-09 bear and is where the majority of the dividend cuts came from in that bear market. This time around, I would imagine the weaker balance sheets and especially the industries hit the hardest with the stay at home mandates will come from travel, hotel, sit down restaurants, casinos, retail, energy, etc... in terms of where an investor will incur dividend cuts or halts.

Image
Bingo, Thankyou, now call me a fool but would you rather live on dividends or sell your shares to live on into the decline.

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amp
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Re: Receiving dividend and feeling good

Post by amp » Tue Mar 24, 2020 1:18 pm

MikeG62 wrote:
Tue Mar 24, 2020 6:37 am
OP, DW and I are retired and feel the same way you do. Yes I understand that what really matters is total return, but I too am looking forward to the cash inflow into my account over the next week or two. :sharebeer
I'm retired too, and I'd much prefer not to have the dividend inflow. The problem in my case is that I have some very large capital gains in individual stocks which I'd like to realize but the dividend income prevents me from selling all but a tiny portion without moving into the next bracket.

aristotelian
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Re: Receiving dividend and feeling good

Post by aristotelian » Tue Mar 24, 2020 1:32 pm

Enzo IX wrote:
Tue Mar 24, 2020 1:14 pm

Bingo, Thankyou, now call me a fool but would you rather live on dividends or sell your shares to live on into the decline.
Objectively, it does not matter. If it works for you subjectively, that is fine. The market value of your portfolio will be exactly the same at the end of the day.

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MathIsMyWayr
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Re: Receiving dividend and feeling good

Post by MathIsMyWayr » Tue Mar 24, 2020 1:38 pm

Dividend is an essential part of investing. Don't fight dividend, but learn how to live with it. Living on dividends of total stock market index or S&P 500, aka 2% WR, or 75% of dividends along with fixed income is golden. If I reach that point, I will not sweat over things like tax efficiency. Life is more than money. Money is not the ultimate goal of life, but just means of life.

alex_686
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Re: Receiving dividend and feeling good

Post by alex_686 » Tue Mar 24, 2020 1:41 pm

bugleheadd wrote:
Tue Mar 24, 2020 12:34 pm
but you lose shares if you sell, wheras a dividend you dont lose shares.
This reminds me of the old joke where a little kid is so proud that he exchanged 1 quarter for 2 dimes, the 2 dimes for 3 nickel, and 3 nickels for 4 pennies.

You are correct, if you sell you lose values. However, if the company issues dividends yo lose value. This is a hard accounting fact. Don't focus on the dividends, which are secondary. Focus on value and total returns.

TN_Boy
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Re: Receiving dividend and feeling good

Post by TN_Boy » Tue Mar 24, 2020 3:04 pm

Enzo IX wrote:
Tue Mar 24, 2020 12:50 pm
If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.

The share price goes down only on the x dividend date so that the dividend doesn't gets scalped. The other days the share price is being adjusted just like nonpayers based on the market.

The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
I think the key point is that total return is what is important, and there no evidence that the total return of a dividend-focused stock portfolio is any higher than something like a total market equity portfolio. There just isn't. But this point has been thrashed to death in numerous threads.

If you can just live off the dividends, you have a low withdrawal rate that almost any portfolio can support.

Incidentally, due to tax loss harvesting I don't pay any taxes when I sell shares, i.e. a tax rate of zero, which I think is even better than the LTCG rate.

The withdrawal studies I've seen all use a total return method. Could you point me to a study showing that a dividend strategy survives bear markets better than a total return strategy?

But I am not going to convince you, so I'm not sure why I am typing this ..... we have dividend threads weekly.

bhough
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Re: Receiving dividend and feeling good

Post by bhough » Tue Mar 24, 2020 5:57 pm

I'm no expert, but here is how I've solved this for myself:

Dividend paying stocks held in taxable incur a tax even when you don't want them. They are deciding when you get that money. Rarely do your needs coincide exactly with the distribution patterns of a multinational corporation.

It hurts to sell an appreciated stock because you don't want to lose shares, but mathematically, you can sell just when you need the money and incur the tax when you want to.

So, hold dividend stocks (and corporate bonds) in pretax (IRA, 401K) and index funds (or value plays if you are buying individual stocks) in posttax (brokerage funds). And buy a few I bonds if you have a few extra dollars to spare!
b

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Phineas J. Whoopee
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Re: Receiving dividend and feeling good

Post by Phineas J. Whoopee » Tue Mar 24, 2020 7:59 pm

We are not against dividends.

We're only against misunderstandings about dividends.

PJW

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CyclingDuo
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Re: Receiving dividend and feeling good

Post by CyclingDuo » Wed Mar 25, 2020 9:47 am

Enzo IX wrote:
Tue Mar 24, 2020 1:14 pm
CyclingDuo wrote:
Tue Mar 24, 2020 12:59 pm
Enzo IX wrote:
Tue Mar 24, 2020 12:50 pm
If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.

The share price goes down only on the x dividend date so that the dividend gets scalped. The other days the share price is being adjusted just like nonpayers based on the market.

The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
Obviously, the financials were hit hard in the 2007-09 bear and is where the majority of the dividend cuts came from in that bear market. This time around, I would imagine the weaker balance sheets and especially the industries hit the hardest with the stay at home mandates will come from travel, hotel, sit down restaurants, casinos, retail, energy, etc... in terms of where an investor will incur dividend cuts or halts.

Image
Bingo, Thankyou, now call me a fool but would you rather live on dividends or sell your shares to live on into the decline.
I'm not calling you a fool.

Truth be told, I'd rather do neither at the moment since we are still in the accumulation years so all of our dividends are automatically reinvested as income from our human capital is still rolling in for the moment to cover our expenses. If the rug is pulled out from that, we would most likely turn to the dividend income stream before selling the underlying assets. In the meantime, outside of the underlying conditions for this particular bear market, I welcome the chance that our reinvested dividends are purchasing additional shares of the underlying assets at prices that look promising in terms of looking out to the longer term.

That being said, if one has built a portfolio of dividend paying assets to provide income - there is nothing wrong with that. It's a way to spend the return of capital to you if so desired rather than reinvesting it into additional shares. Some do one over the other (take the dividends vs. sell the asset), some do both.

We could apply the strategy to other productive assets as well...

I'd rather live on the income from the oil than sell the oil well.
I'd rather live on the income from the rental real estate than sell the real estate.
I'd rather live on the income from the rental farm land than sell the land.

Of course, an investor has the ability to sell the underlying asset as well in those examples as part of a total return investing strategy.

In the meantime, we are hunkered down in our bunker due to having both been recently exposed to Covid19. It's day 7 and counting since our exposure...

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

JackoC
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Re: Receiving dividend and feeling good

Post by JackoC » Wed Mar 25, 2020 10:19 am

CyclingDuo wrote:
Tue Mar 24, 2020 12:59 pm
Enzo IX wrote:
Tue Mar 24, 2020 12:50 pm
If you are in the distribution phase of your life, and they are qualified dividends which is the same rate as LTCG take the dividend.
...
The key point in my opinion, is that historically dividends are cut less in recessions than share prices falls, less of a drawdown which is what is fatal for a portfolio in retirement.
Obviously, the financials were hit hard in the 2007-09 bear and is where the majority of the dividend cuts came from in that bear market. This time around, I would imagine the weaker balance sheets and especially the industries hit the hardest with the stay at home mandates will come from travel, hotel, sit down restaurants, casinos, retail, energy, etc... in terms of where an investor will incur dividend cuts or halts.

Image
There's also a forward looking view, from dividend futures, which are traded on the S&P and various other major world stock indicies. This summary as of a few days ago shows the futures estimating a decline of around 40% in the $ pay out rate for the S&P between Q4 2019 and Q1 2021. A much steeper decline than in the historical examples, and this makes sense IMO because of the unprecedented nature of the 'sudden stop' on cash positions at companies, also unprecedented govt assistance will tend to make it more difficult to justify cash outflows other than to employees.
https://seekingalpha.com/article/433403 ... -s-economy

As the rest of the discussion has mentioned (per 'Stocks 101') dividend payouts are not directly related to pre tax total return, under the assumption dividend changes give no independent new information about future profits. And specifically the futures market would be using general information about the crisis and expected need for companies to conserve cash via dividend reductions, so it's not separate info about future total return.

However for those of us who do pay most or all our living expenses, and partly control our stock allocations, by taking dividends in cash and spending them, this does have implications for cash management and tax (hitting various income cliffs like IRMAA or ACA ones, how much appreciated stock we can give to our Donor Advised Fund under the 30% limit on AGI, etc).

It will probably not in any case be one of those downturns where dividends keep chugging along, basically, and the dividend yield just goes up for awhile.

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