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Dividend Stocks: Any benefit beyond the psychological?

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  • Hatton
    replied
    Good post over at POFs site.

    Leave a comment:


  • PhysicianOnFIRE
    replied
    Thank you all for the feedback. I published my first post on the topic -- I think I could write a lot more about dividends vs. total return investing. I tried to keep the topic narrow, but still ended up with nearly 2,000 words. I focused on the tax benefit of selling shares to create your own dividend versus being forced to take your dividend in an amount and time determined by others.
    Selling Shares Beats Collecting Dividends

    While I think it would be cumbersome to do, and would make rebalancing and tax loss harvesting more difficult, I think a post on zero-dividend investing would be worthwhile and a good learning experience.

     

     

    Leave a comment:


  • StarTrekDoc
    replied
    One good thing about a high dividend stock -- hard to have day trading/option holders shorting the stock heavily.    Look at APPL; only down 1% today despite concerns on iPhone 8 sales and orders

    If AMZN shows any hiccup, it easily moves 2% on the news.

    Leave a comment:


  • Donnie
    replied




    FWIW dividend stock investing is not a thing in the institutional investing world. In other words I know of no corporate defined benefit pension plan, endowment, foundation, hospital operating asset pool, sovereign wealth fund, that is all-in on a dividend strategy for their equities. Some of these institutional investors might adopt slight growth/value biases, but even these are small biases. Mostly US stocks investors will bias along the lines of small cap etc and not value.

    So this leads me to think it is just a tax play for individual investors. And if, as you say above, there is no real tax play then it becomes a redundant strategy.

    I prefer that the management of the companies I invest in have freedom to deploy their capital to maximize shareholder returns. If that is in the form of dividends then fine, but it’s not the only way to create value for a firm.
    Click to expand...


    I am not sure comparing an individual investor to an institutional investor is a great idea.  They have much different goals, time horizons, revenue streams, investment opportunities, etc.  Institutions do invest in current yield strategies, but it is typically part of a diversified strategy as you mentioned.

    Leave a comment:


  • q-school
    replied




    FWIW dividend stock investing is not a thing in the institutional investing world. In other words I know of no corporate defined benefit pension plan, endowment, foundation, hospital operating asset pool, sovereign wealth fund, that is all-in on a dividend strategy for their equities. Some of these institutional investors might adopt slight growth/value biases, but even these are small biases. Mostly US stocks investors will bias along the lines of small cap etc and not value.

    So this leads me to think it is just a tax play for individual investors. And if, as you say above, there is no real tax play then it becomes a redundant strategy.

    I prefer that the management of the companies I invest in have freedom to deploy their capital to maximize shareholder returns. If that is in the form of dividends then fine, but it’s not the only way to create value for a firm.
    Click to expand...


    man i feel smarter just quoting him or her.  even better if he confirms my preconceived notions with official sounding verbiage.

     

    Leave a comment:


  • actuaryonfire
    replied
    FWIW dividend stock investing is not a thing in the institutional investing world. In other words I know of no corporate defined benefit pension plan, endowment, foundation, hospital operating asset pool, sovereign wealth fund, that is all-in on a dividend strategy for their equities. Some of these institutional investors might adopt slight growth/value biases, but even these are small biases. Mostly US stocks investors will bias along the lines of small cap etc and not value.

    So this leads me to think it is just a tax play for individual investors. And if, as you say above, there is no real tax play then it becomes a redundant strategy.

    I prefer that the management of the companies I invest in have freedom to deploy their capital to maximize shareholder returns. If that is in the form of dividends then fine, but it's not the only way to create value for a firm.

    Leave a comment:


  • chrisCD
    replied
    I have Total US Stock ETFs, I have a Dividend focused ETF.  I own a handful of dividend paying stocks.  Why do I bother with dividend paying stocks, because as someone else pointed out, if It was my own company, I would in fact pay myself a dividend.  I wouldn't sell parts of it off.  Also, "trust but verify" comes to mind.  Receiving some dividends along the way provides some of the income along the way.  I'm basically not ceding complete control to the management.  I guess I just don't completely trust them.  :O)

    Leave a comment:


  • Zaphod
    replied




































    Time Period Tax Rate on Dividends
    1913-1936 Exempt
    1936-1939 Individuals income tax rate (Max 79%)
    1939-1953 Exempt
    1954-1985 Individuals income tax rate (Max 90%)
    1985-2003 Individuals income tax rate (Max 28-50%)
    2003-Present 15%

    This table does not included the 20% and 23.8% tax changes.  You can see why no one wanted dividends from 1954-2003.  In the dot.com era virtually no tech stock paid dividends for obvious reasons.  Now even Apple pays one.  Also WCI blog post today talks about 0 tax on $100k of income after retirement.  Dividends in a low tax bracket pay 0 tax.  Tax laws change.  Strategies change.  I am not advocating for dividend investing or dividend free investing.  I am loathe to sell positions in my taxable account to tinker with this and incur a capital gains tax.
    Click to expand...


    Which is why everyone now touts dividend investing as a solid winning method. Those companies "enjoyed" low valuations since people heavily discounted the dividend streams and the companies, and as the taxes/frictions grew less their multiples increased making for a nice long term growth picture. When they do their back tests this part is omitted.

    That could be different going forward, one thing thats certain is investing with a dividend stream in the future in mind is no longer a secret. This almost always means the premium and out performance will not be there in the future. The speed at which edges disappear today is remarkable.

    Leave a comment:


  • Hatton
    replied

































    Time Period Tax Rate on Dividends
    1913-1936 Exempt
    1936-1939 Individuals income tax rate (Max 79%)
    1939-1953 Exempt
    1954-1985 Individuals income tax rate (Max 90%)
    1985-2003 Individuals income tax rate (Max 28-50%)
    2003-Present 15%

    This table does not included the 20% and 23.8% tax changes.  You can see why no one wanted dividends from 1954-2003.  In the dot.com era virtually no tech stock paid dividends for obvious reasons.  Now even Apple pays one.  Also WCI blog post today talks about 0 tax on $100k of income after retirement.  Dividends in a low tax bracket pay 0 tax.  Tax laws change.  Strategies change.  I am not advocating for dividend investing or dividend free investing.  I am loathe to sell positions in my taxable account to tinker with this and incur a capital gains tax.

    Leave a comment:


  • Kamban
    replied


    Focusing on a no-dividend strategy is just as bad as focusing on a high-dividend strategy. Each strategy will cause you to weight your portfolio in ways that you do not fully understand. Dividend and non-dividend stocks should both be part of a diversified portfolio of stocks.
    Click to expand...


    Well said. I find that focusing solely on a no dividend growth stock might lead one to invest in companies that might grow like crazy for a few years with no dividends being given. And one fine day these companies crash and burn taking all the growth and money with them.

    People don't seem to remember the dot com boom and bust much now. There is no guarantee that even a fund that focuses solely on growth will do better than one that is diversified with both dividend and growth stocks.

    Leave a comment:


  • Lithium
    replied
    Thanks.  It's not for me about trying to beat the market.  Most of my stock investing is based on maximizing the few free lunches we get.  Tax efficiency is a significant one.  With a no-dividend strategy you maximize that, which is why I'd say it's slightly better than a high-dividend one.  But diversification is the most important free lunch out there, and if either strategy compromises that, it probably isn't worth following.

    Leave a comment:


  • Donnie
    replied
    I don't know. Typically no dividend is growth and dividend is value. The basic idea is that dividend paying companies have nothing better to do with the earnings than give it back to you, while growth companies use the cash to invest in growth initiatives. The issue is that the market efficiently prices these stocks, so there is no ability for the average investor to increase risk/reward through a portfolio allocation strategy. Best to broadly diversify and minimize idiosyncratic risk.

    Leave a comment:


  • Lithium
    replied







    The problem is that index funds don’t get you out of paying dividends either.  If you just buy a TSM or S&P 500, no big deal, but you can’t tilt small or find many international funds that don’t have sizable non qualified dividends to boot.  It has really made me question the value in tilting.

    If I were starting over and weren’t sitting on six figure capital gains I’d give serious thought to implementing a zero dividend Phil DeMuth style portfolio.
    Click to expand…


    Focusing on a no-dividend strategy is just as bad as focusing on a high-dividend strategy.  Each strategy will cause you to weight your portfolio in ways that you do not fully understand.  Dividend and non-dividend stocks should both be part of a diversified portfolio of stocks.

    Keep it simple and invest in total stock market funds and don’t spend another second thinking about this topic.  There is no chance for main street investors to figure this stuff out on their own in a way they could exploit to achieve higher risk-adjusted returns than a broadly diversified strategy.  By the time any idea filters down to us, any value has been arbitraged away.
    Click to expand...


    This makes sense.  But I want to understand anyway.  If I looked at the top 50 stocks in the S&P 500, Do you know in what ways a portfolio of the 25 lower paying dividend stocks would be weighted differently than one of the 25 higher paying ones?  More growth/value?  If you have any links on this I'm happy to read further.

    Leave a comment:


  • Donnie
    replied




    The problem is that index funds don’t get you out of paying dividends either.  If you just buy a TSM or S&P 500, no big deal, but you can’t tilt small or find many international funds that don’t have sizable non qualified dividends to boot.  It has really made me question the value in tilting.

    If I were starting over and weren’t sitting on six figure capital gains I’d give serious thought to implementing a zero dividend Phil DeMuth style portfolio.
    Click to expand...


    Focusing on a no-dividend strategy is just as bad as focusing on a high-dividend strategy.  Each strategy will cause you to weight your portfolio in ways that you do not fully understand.  Dividend and non-dividend stocks should both be part of a diversified portfolio of stocks.

    Keep it simple and invest in total stock market funds and don't spend another second thinking about this topic.  There is no chance for main street investors to figure this stuff out on their own in a way they could exploit to achieve higher risk-adjusted returns than a broadly diversified strategy.  By the time any idea filters down to us, any value has been arbitraged away.

    Leave a comment:


  • ReFinDoc
    replied
    Vanguard Small Cap Value dividend has a current 1.81% SEC (dividend) yield with 75% being qualified, at least in 2016.

    International funds have the foreign tax  credit at least in taxable accounts.

    DeMuth's approach is also un-diversified.

    I don't really care about dividends. I don't seek them out and don't consider them as "income."

    Leave a comment:

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