Possibly including dividend stocks/ETFs in investment strategy

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sycamore
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by sycamore »

nolesrule wrote: Wed Oct 13, 2021 11:58 am I keep reading those posts. I don't think they mean what you think they mean.
Thanks for that - I needed my daily Princess Bride quote :)
olyveoil
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by olyveoil »

burritoLover wrote: Wed Oct 13, 2021 11:19 am
olyveoil wrote: Wed Oct 13, 2021 10:58 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Or...scroll down to the post immediately below yours I am quoting.
Yeah, I'm not saying dividends aren't part of total return. You received that money, even though your net worth dropped by the same amount, therefore you need to include dividends in any total return calculation.
Um. OK.
You consider dividends as 'moving money from one's own pocket to another' -- i.e. some sort of shell game, but still want to consider it part of total return
If it really is moving one's own money from one pocket to another it is not, by definition part of the return.
If my net worth really didn't increase due to dividend receipt then how can it be part of the return?

"Stock dividends do not increase your net worth. A dividend payment is the equivalent of you moving money from your own pile of money and sticking it in your pocket. Re-investing that dividend payment is the equivalent of you pulling it out of your pocket and putting it back into your original pile of money. And, if in taxable, you get the privilege of paying taxes on this "movement" of money.
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burritoLover
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by burritoLover »

olyveoil wrote: Wed Oct 13, 2021 1:48 pm
burritoLover wrote: Wed Oct 13, 2021 11:19 am
olyveoil wrote: Wed Oct 13, 2021 10:58 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Or...scroll down to the post immediately below yours I am quoting.
Yeah, I'm not saying dividends aren't part of total return. You received that money, even though your net worth dropped by the same amount, therefore you need to include dividends in any total return calculation.
Um. OK.
You consider dividends as 'moving money from one's own pocket to another' -- i.e. some sort of shell game, but still want to consider it part of total return
If it really is moving one's own money from one pocket to another it is not, by definition part of the return.
If my net worth really didn't increase due to dividend receipt then how can it be part of the return?

"Stock dividends do not increase your net worth. A dividend payment is the equivalent of you moving money from your own pile of money and sticking it in your pocket. Re-investing that dividend payment is the equivalent of you pulling it out of your pocket and putting it back into your original pile of money. And, if in taxable, you get the privilege of paying taxes on this "movement" of money.
It's an analogy. A better one would be some dude hands you $100 dividend payment from your pile of money and then takes $100 from your pile of money and sticks it in his pocket. You still received that money - you didn't lose any money (not considering taxes). So if you omit it, then the total return will be incorrect.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Da5id
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by Da5id »

olyveoil wrote: Wed Oct 13, 2021 1:48 pm
burritoLover wrote: Wed Oct 13, 2021 11:19 am
olyveoil wrote: Wed Oct 13, 2021 10:58 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Or...scroll down to the post immediately below yours I am quoting.
Yeah, I'm not saying dividends aren't part of total return. You received that money, even though your net worth dropped by the same amount, therefore you need to include dividends in any total return calculation.
Um. OK.
You consider dividends as 'moving money from one's own pocket to another' -- i.e. some sort of shell game, but still want to consider it part of total return
If it really is moving one's own money from one pocket to another it is not, by definition part of the return.
If my net worth really didn't increase due to dividend receipt then how can it be part of the return?

"Stock dividends do not increase your net worth. A dividend payment is the equivalent of you moving money from your own pile of money and sticking it in your pocket. Re-investing that dividend payment is the equivalent of you pulling it out of your pocket and putting it back into your original pile of money. And, if in taxable, you get the privilege of paying taxes on this "movement" of money.
You are just seeing what you choose to see. Both these statements can be true:

1) Dividends are part of total return
2) The act of paying the dividend does not increase your wealth when paid out. Because if a stock is at $100/share and pays a $2 dividend, you then have a stock worth ~$98 and $2 in your pocket.
nolesrule
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by nolesrule »

olyveoil wrote: Wed Oct 13, 2021 1:48 pm
burritoLover wrote: Wed Oct 13, 2021 11:19 am
olyveoil wrote: Wed Oct 13, 2021 10:58 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Or...scroll down to the post immediately below yours I am quoting.
Yeah, I'm not saying dividends aren't part of total return. You received that money, even though your net worth dropped by the same amount, therefore you need to include dividends in any total return calculation.
Um. OK.
You consider dividends as 'moving money from one's own pocket to another' -- i.e. some sort of shell game, but still want to consider it part of total return
If it really is moving one's own money from one pocket to another it is not, by definition part of the return.
If my net worth really didn't increase due to dividend receipt then how can it be part of the return?

"Stock dividends do not increase your net worth. A dividend payment is the equivalent of you moving money from your own pile of money and sticking it in your pocket. Re-investing that dividend payment is the equivalent of you pulling it out of your pocket and putting it back into your original pile of money. And, if in taxable, you get the privilege of paying taxes on this "movement" of money.
Because the dividend offsets a negative or decreased price appreciation that results from issuing the dividend. Or to put it another way, the price appreciation is different because of the dividend is issued.

Or to put it mathematically

total return = price appreciation in absence of dividend - price depreciation due to dividend + dividend

actual price appreciation = price appreciation in absence of dividend - price depreciation due to dividend

therefore
total return = actual price appreciation + dividend


Additionally for a stock with no dividends, the dividend and price depreciation due to the dividend are zero, so the equation also holds for stocks that don't issue dividends.
nolesrule
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by nolesrule »

sycamore wrote: Wed Oct 13, 2021 1:21 pm
nolesrule wrote: Wed Oct 13, 2021 11:58 am I keep reading those posts. I don't think they mean what you think they mean.
Thanks for that - I needed my daily Princess Bride quote :)
Happy to be of service. :D
muffins14
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by muffins14 »

olyveoil wrote: Wed Oct 13, 2021 1:48 pm
burritoLover wrote: Wed Oct 13, 2021 11:19 am
olyveoil wrote: Wed Oct 13, 2021 10:58 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Or...scroll down to the post immediately below yours I am quoting.
Yeah, I'm not saying dividends aren't part of total return. You received that money, even though your net worth dropped by the same amount, therefore you need to include dividends in any total return calculation.
Um. OK.
You consider dividends as 'moving money from one's own pocket to another' -- i.e. some sort of shell game, but still want to consider it part of total return
If it really is moving one's own money from one pocket to another it is not, by definition part of the return.
If my net worth really didn't increase due to dividend receipt then how can it be part of the return?

"Stock dividends do not increase your net worth. A dividend payment is the equivalent of you moving money from your own pile of money and sticking it in your pocket. Re-investing that dividend payment is the equivalent of you pulling it out of your pocket and putting it back into your original pile of money. And, if in taxable, you get the privilege of paying taxes on this "movement" of money.
Case 1
You have $100 in stock
Stock rises to $103
You get a $2 dividend and share price drops to $101

Your total return is $3, $2 dividend plus $1 price appreciation

It is part of the total return

Case 2
You have $100 in stock
Stock rises to $103
You get no dividend

Your total return is $3, from $3 price appreciation

You have the same amount of money, but in one case you have $2 that you've now had to pay taxes on and re-invest yourself, and in the other case that money was still in the stock and you didn't pay taxes yet. That's the "one pocket to another" point in that you have the same total return and the same money, you just have it in a different "place"
olyveoil
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by olyveoil »

nolesrule wrote: Wed Oct 13, 2021 11:58 am
olyveoil wrote: Wed Oct 13, 2021 10:54 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Someone on this thread stated that almost verbatim...then deleted. I didn't get screenshot. Assume they saw this back/forth.

viewtopic.php?f=10&t=358324&p=6232280
10th post.
13th post
18th post
a few others..i quit counting.

Search for yourself.
I keep reading those posts. I don't think they mean what you think they mean.
Well. I do. What I read is counting the ways to not count dividends.

You are welcome to go back to that thread and ask.
olyveoil
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by olyveoil »

Chip wrote: Wed Oct 13, 2021 1:09 pm
olyveoil wrote: Wed Oct 13, 2021 10:54 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Someone on this thread stated that almost verbatim...then deleted. I didn't get screenshot. Assume they saw this back/forth.

viewtopic.php?f=10&t=358324&p=6232280
10th post.
13th post
18th post
a few others..i quit counting.
Read them again. They don't say that dividends aren't part of total return.
Search for yourself.
You made the questionable claim. You back it up.
I read them.
You want me to find the verbatim post: "Dividends are not part of total return"? Is that the standard?
Not counting dividends is the same thing as not counting as part of total return.
nolesrule
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by nolesrule »

olyveoil wrote: Wed Oct 13, 2021 2:34 pm
nolesrule wrote: Wed Oct 13, 2021 11:58 am
olyveoil wrote: Wed Oct 13, 2021 10:54 am
Chip wrote: Wed Oct 13, 2021 7:23 am
olyveoil wrote: Tue Oct 12, 2021 9:01 am Plenty here do believe dividends are not part of total return. Keep scrolling..... I'd bet they will show up.
Still waiting for you to show us anyone that believes dividends aren't part of total return, much less "plenty" or "many" people.
Someone on this thread stated that almost verbatim...then deleted. I didn't get screenshot. Assume they saw this back/forth.

viewtopic.php?f=10&t=358324&p=6232280
10th post.
13th post
18th post
a few others..i quit counting.

Search for yourself.
I keep reading those posts. I don't think they mean what you think they mean.
Well. I do. What I read is counting the ways to not count dividends.

You are welcome to go back to that thread and ask.
What I am reading in those posts is that they are debunking the idea that dividends are some kind of extra return due to the misguided notion that price appreciation is the same regardless of whether or not a stock issues a dividend. What they are saying is that dividends aren't special and don't provide some sort of "magic money" extra return. They are not saying they aren't part of total return.
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retired@50
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by retired@50 »

Maybe these pages from Humble Dollar will help settle things down...

See links for the Gordon Equation and Total Return.

Total: https://humbledollar.com/money-guide/total-returns/

Gordon: https://humbledollar.com/money-guide/gordon-equation/

Regards,
This is one person's opinion. Nothing more.
nolesrule
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by nolesrule »

It doesn't matter whether they are reinvested or not. Dividends are part of the total return for the individual investor. But they offset a market price reduction that would not have happened had the dividend not been issued.

Whether one reinvests a dividend or not will have an effect on total return, simply because not reinvesting will mean less money invested going forward. But that's also true of just selling a holding you already have.
Last edited by nolesrule on Wed Oct 13, 2021 3:15 pm, edited 1 time in total.
muffins14
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by muffins14 »

olyveoil wrote: Wed Oct 13, 2021 2:45 pm [
In case 1 I didn't have to reinvest and I PLAN on the cash. On minute 2 of day after Ex-Div date the 'drop by the dividend amount' scenario is completely irrelevant and back to market gyrations.

It's like a broken record here. Not every investor wants to reinvest dividends. Not every investor just twiddles their thumbs when dividends hit. It's often the opposite -- they plan on them ... desire them.

Trying to claim that the dividend was already my money is incorrect. It is not my money until it hits my account. Trying to claim it is a shell game and be part of total return is ludicrous. I believe it being due to the dogma here that every investor is the same.
You are entitled to that money in both case 1 and case 2. You would have $103 whether it came from a dividend and hit your account, or if it came from price appreciation and "hit your account" that way.

It's not a shell game it's just ... dollars from another source. Dividends are part of your total return, they're not like magical free money that comes from the sky.

Would you rather have $103 in funds, and you could sell $2 worth and pay 15% in LTCG tax rate
OR
would you rather have $103 in funds, and be forced to sell $2, some is taxed at 15% and some is taxed at 35% due your income tax rate.

If you NEED the money now, maybe it doesn't matter
if you don't need the money now, wouldn't you rather keep the $103 and not be forced to sell and pay taxes?
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burritoLover
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by burritoLover »

olyveoil wrote: Wed Oct 13, 2021 2:32 pm "How hard is it to understand that if a company pays out X amount per share of a dividend, that the company is now worth X amount less per share? "
--That doesn't mean my personal account didn't grow by the dividend paid. How hard is it to understand that?
If you get $1/share dividend, the stock price drops by $1/share - there's no free lunch with dividends - the market is efficient enough to arbitrage that away. Now, of course, the stock price moves for other reasons and it may not drop at all on the ex-div date - that just means the price appreciation due to other reasons was greater than the dividend paid.
"If not, then you could simply buy individual stocks the day before ex-div date and then sell on the ex-div date and collect the full dividend (with little risk)."
--It's called dividend harvesting / dividend capture strategy. It's real. So....your "if not", qualifier is moot.
--Nothing is risk free with investing. Trying to set something up as risk free is disingenuous.
--The inverse is also a thing. Knowing that dividend capture is being undertaken there are pre Ex-Div date sellers.
Lol. I said little risk - not risk free. Since you believe that stock dividends are increasing your net worth and there's no effect on the stock price from the dividend payment, then you could simply buy stocks at the end of the day before ex-div and sell the next morning - you could do this with a number of high yield stocks - that have a 4 or 5% yield or more and do this 4 times a year - holding each stock for less than a day at a time. You could spread this across industries to reduce risk and enough companies to reduce idiosyncratic risk. The rest of the time, the money could be in short-term treasuries. This could replace your bond allocation - the gain in yield (especially at today's low bond yields) vs the small amount of risk you would be taking on would be incredible (you would be in "risk-free" short-term treasuries 96% of the time). And you keep your stock allocation the same. Sounds too good to be true, doesn't it?
"If the market was not efficient enough to arbitrage away that opportunity, one that can be seen hundred miles away (the exact payout and time is known in advance), then active managers would be making a killing over their benchmark index (hint: the vast majority can't even beat their index)."
-- The market is not predictable enough. (Hint: much of what you off-handedly dismiss actually occurs. Hint: not everything is VTI or 3 fund portfolio. Hint: Not every investment is out to outdo benchmarks.
Oh, so active managers don't want to generate alpha - lol. And a dividend payment that, according to you, has no effect on the stock price, even though that payment is entirely predictable and known by all market participants. Right.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
nolesrule
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by nolesrule »

olyveoil wrote: Wed Oct 13, 2021 3:32 pm Your words. Not theirs. Same for burrito lover.
Try reading what they wrote in context of the thread including what posts they are responding to instead of thereading them in isolation. I'm fairly certain that a poster like livesoft knows that dividends are included in total return, and I actually find it humorous that you think he's saying the opposite.
One term -- "marketing gimmick"
Dividend payouts can increase demand for a stock that otherwise wouldn't have the demand, on the basis that people think dividends are magic money. In that sense, it is a marketing gimmick.
olyveoil
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Re: Possibly including dividend stocks/ETFs in investment strategy

Post by olyveoil »

muffins14 wrote: Wed Oct 13, 2021 2:55 pm
olyveoil wrote: Wed Oct 13, 2021 2:45 pm [
In case 1 I didn't have to reinvest and I PLAN on the cash. On minute 2 of day after Ex-Div date the 'drop by the dividend amount' scenario is completely irrelevant and back to market gyrations.

It's like a broken record here. Not every investor wants to reinvest dividends. Not every investor just twiddles their thumbs when dividends hit. It's often the opposite -- they plan on them ... desire them.

Trying to claim that the dividend was already my money is incorrect. It is not my money until it hits my account. Trying to claim it is a shell game and be part of total return is ludicrous. I believe it being due to the dogma here that every investor is the same.
You are entitled to that money in both case 1 and case 2. You would have $103 whether it came from a dividend and hit your account, or if it came from price appreciation and "hit your account" that way.

It's not a shell game it's just ... dollars from another source. Dividends are part of your total return, they're not like magical free money that comes from the sky.

Would you rather have $103 in funds, and you could sell $2 worth and pay 15% in LTCG tax rate
OR
would you rather have $103 in funds, and be forced to sell $2, some is taxed at 15% and some is taxed at 35% due your income tax rate.

If you NEED the money now, maybe it doesn't matter
if you don't need the money now, wouldn't you rather keep the $103 and not be forced to sell and pay taxes?
Talk to burrito. It's her/his analogy.
No one (including me) is claiming any magical money. But, yet that phrase gets repeated here ad-nauseum.
Your OR scenario is irrelevant to me.
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Re: Possibly including dividend stocks/ETFs in investment strategy

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