Dividends Are Irrelevant (Sort Of...)

*Correction: The five factor model includes market beta as a factor, not quality

If you constantly sell your stocks for the pseudo-dividend, you will eventually run out of the stock! How can you keep selling shares without buying more? Stocks still go up even if they pay dividends, I just don't understand how its the same thing. I have 10 shares... if I sell one share each month for a 'dividend' I will only get a payout for 10 months, If they pay a dividend then I keep the 10 shares and also get the dividend... I don't get it lmao

Saying that it’s better to sell off stock to get the same amount rather then get dividends is stupid. A) you still pay capital gains possibly and B) you can use your portfolio to get a loan so it’s an asset, if you sell off you can’t, so dividends are better here. You get income and can still use your principle as collateral. The bigger the principle the better the rates will be.

I was hoping there would be some discussion of stock price stability. With a dividend, three is a more immediate incentive to buy a dip which helps limit how far stock price drops during a panic.

so making 50000 annual from dividend is nothing eh? Sell 50k worth of capitol gains and then you have that much less stock, whereas you still own the dividend stock...

If a company can pay dividends, then it is, most likely, a profitable company. Stock price growth can be achieved by companies which are not profitable, driven by hype for a future that may or may not be achievable. Dividend payouts themselves are not free money, nor are they irrelevant. They are an illustration that you are invested in a functional, profitable, value generating company (much more often than not).

Dividends also provide you an easy opportunity for portfolio rebalancing with out the need to sell shares. They are a net good indicator vs pure growth IMO. That said, they are not a magic bullet, and I agree with your points in the video.

I am a complete moron. With that said, I guess you would not be surprised to hear me say I don't understand this topic. This month I received $628.87 in dividends from tsll. That $628.87 makes a huge difference to me. I am trying to figure out if I will use it to pay some bills, or if I will just go and buy some more dividend stock... Maybe I will set it aside and wait until I get some more dividends from my other investments and then sell a put option on tsll.... Better yet, maybe Ill spend it on women and booze. Either way that $628.97 is relevant to me. :)

From my POV, dividends arent free money but it is a safer way to receive money because stock price isnt constant. If youre not constantly watching the market, you can miss a stock selloff, and ultimately get significantly less money by selling. Dividends give you money consistently and ongoing over the years, once theyve given me a dividend I have already received some miniscule amount of my roi.

To put it another way, there is no way to completely lose your investment in a dividend company but a growth stock can go under and leave you holding the bag.

Hey Richard I agree with you but main thing I would point out is use of word “theoretical” in examples. Which highlights in real world there’s a big difference. As an example once the dividend is received individual investor may be able to generate rate higher than companies growth rate and it may be safer then reinvesting or retaining the earnings depending ofcourse of sector and current macro conditions etc

Yes, the stock price generally adjust downward the day of dividend payment This doesn't mean that dividends don't matter unless you're one of those people trying to game the market by buying on Ex-div date. Don't do that!

stock price is sum of future projected cash flows discounted by cost of capital...including the growth in revenues/earnings and the payouts of expenses, interest, dividends. The cash flow paid today (dividend) by definition is not discounted, so the price of the stock is reduced by the same amount to reflect the reduction of this cash. This dividend day share price adjustment is no different than an earnings surprise resulting in a share price increase. This was all priced in and is priced in every day as an adjustment to the present value of these cash flows.

It's not irrelevant. Stock ownership is simply ownership of a company which entitles you to a claim on future cash flows. Stock prices are the present value of future cash discounted by a risk adjusted rate. We often hear about long duration stocks....stocks that are in growth mode, produce no earnings, much less any actual cash return of those earnings. Dividend stocks can be considered a short duration investment as you are realizing those cash payments NOW and soon with much greater degree of forecasting.

The argument that you could just create a dividend by selling part of your position....well, that works if the stock always goes up in price relative to the amount you've sold for yourself. Otherwise you're simply reducing your share of future cash flows and if the stock price is declining, this reduction in ownership is amplified. A dividend payment is current cash flow WITHOUT reducing your relative ownership of the company...hence share of future cash flows.

A dividend stock simply offers shorter duration and certainty of cash flows compared to growth stocks which generally incorporate greater growth into those present values, and hence the greater general price appreciation, but little certainty regarding the actual realization of those cash flows. The truth is, growth stocks are truly speculative while dividend stocks are ACTUAL cash flow producing investments.

Given the relatively high interest rates, and hence higher discount rate when doing a CF model, the present value of quarterly cash payments may be a stronger investment relative to the long duration asset. Of course this depends on valuation...a 20 PE stock paying 3% dividend at 90% payout ratio and growing 2% per year likely won't see price appreciation as strong as a 20 PE growth stock retaining all earnings and growing at 40% a year and the dividend may not be sustainable. However, a strong stable company trading at a 10 PE paying only half its net earnings at a 3% yield and growing 8% a year is generating current cash AND growing the business...likely growing the dividend and likely to see price appreciation as well.


Go check out the charts. Look at good old General Mills. If you bought 5 years ago, you paid $37, collected $10 in dividends and could sell today at $65. Doubled your money with far less risk/variance than most growth stocks....and really, you should have sold at $80-90 assessing valuation vs growth.

It comes down to investor strategy/needs and buying with discipline in regards to valuation. An investor may have no tax on qualified dividends and need income during retirement....for such an investor General Mills may make a lot more sense than buying Crowdstrike and ThermoFischer!

My analogy with my limited knowledge is dividend is like taking apples off an apple tree. Without dividend you’re taking off the branch to eat the apples.

Honest question. Theoretically speaking, what is the point of holding a stock if it doesn't pay a dividend or have the potential to pay a dividend in the future? I understand that the stock price can increase but why should investors keep buying the stock at higher prices if they are never getting a dividend. Company profits can be through the roof but with no dividends, the investor isn't seeing any of it. What keeps stock price tied to company profits in this case?

They sound pretty irrelevant to me, at least where it matters 🤷‍♂️

While I don't choose the companies I invest in based purely on if they have a dimmer than or not. I do like having some percentage of dividend paying stocks because it allows me to acquire some realized gain and use the free capital to purchase an additional investment if I don't have any asset that I want to sell at that time

Dividends should be considered as a minimum return, hence tend to be more conservative and less hyper growth. There are exceptions I like VALE for its high dividend and cyclic growth. I can buy low and sell high pretty easy.

If you're younger than 40 buy VGT, if you're over 60 change all of it to JEPI.
No need to pay me for my financial advise

The best way to build wealth is to start at a young age. A Teenager’s Guide on how to Invest Like Warren Buffett and Charlie Munger is a great investing book for teens.

Dividend irrelevance is a theoretical concept that has no relevance to ordinary people because ordinary people are not perfectly rational and don't behave the way financial theory says they should. If dividend investors a) save more money because they like dividends and b) avoid small cap growth with weak profitability, they will end up with superior returns and a higher savings rate compared to most other retail investors. This is a fantastic outcome.

Dividends are great for those of us who want to set it and forget it. I don’t want to be constantly buying and selling shares and making that choice.

with selling off you might need to sell at good times but also at bad times.
dividends tend to be less volatile, than stock prices

The question is improper if it doesn’t end with “TO WHOM?”

Disclaimer: I am not an investor. That said...

Conceptually, the value of a stock is what it would return to you over an unlimited amount of time, adjusted for time preference. In practice, there is some speculation because how a company will do is never a guarantee. But if there are no dividends, that conceptual value is necessarily zero. You are only speculating on what someone else might pay for the stock later. And if he pays more than zero, he is overpaying.

Eventually, the company will cease to exist. At that point, the stock is obviously worth nothing. Any remaining investors lose their investment. They overpaid. If you work backward from there, the stock was never worth anything. It's value was never tied to the company. It's value is only what the company will pay back to its investors.

I’d say dividend investing is more of a beginner or passive way of securing wealth. Like to passively put in a couple hundred a month in into a solid dividend stock gives you not only value if it increases and decreases but monthly,quarterly and yearly revenue. And if you start from 20 buying doc stocks till you’re 60 you could be pulling in more money along side your 401k if you have one. Honestly I tell all my friends new to sticks ti buy dividend stocks.

I disagree because in order to realize the capital gains of a non0dividend stock, you have to sell the stock, making your future possible gains on that stock lower. You would have to then turn around and buy more of that stock to receive the same gains at a point in the future. This becomes even more punishing when you assume steady rising of stock value. You would have to spend more in the future.

Since the sap 500 gives %10 yearly average, then whats the point having a %7 dividend yield, no company has a %10 div yield

Hypothetically, if stock prices drop after dividend ex-date, does that mean anyone can short the stock from the ex-date?

The value of a stock is quite literally equivilant to the expected future dividends. If a stock never pays a dividend, can someone please enlighten me to what the value would be to owning that stock?

Dividends got me into investing in the stock market. In my opinion, if you're investing and have income other than dividends, you can live on dividends without selling. That means you can pass this on to your kids to give them a head start in life. I have over $600,000 in my portfolio which include some covered call etfs for dividends and other etf`s for growth; (SCHD, DVY, VIG, SDY & JEPI)

This is really dumb because a lot of the time not handing out dividends will cause companies to malinvest and over-expand due to the retained earnings tax rules necessitating that they earnark it for particular uses

I get all this but I haven't come across anyone who has been able to consistently sell shares and derive income amidst the price volatility. Even the financial planners will put you on some fix income and conservative path in years counting to retirement.

No dividends represent the difference between investing and speculating. An investment pays dividends, a speculation requires you to sell to gain capital.

Stocks are so fungible and dividend rates are so low in the scheme of things, that it really amounts to more of a philosophical difference, but it’s still something.

It's interesting to see there's a tiered system in Canada based on your income.

In Germany since 2009, both dividends and capital gains are taxed with the same rate of 26.375%, independent of your income and where the companies reside. So from a tax perspective it doesn't make any difference if you get your share of company profits via dividends or selling shares of profit retaining companies.

Before 2009 you didn't have to pay any tax on capital gains if you held the stock for more than one year, but dividends were always 26.375 %.

Dividends provide me gains in a stagnent market. While no dividend on a stagnent stock provides no increased value… and with inflation stagnent investments are a net loss.

The stock market just isn't efficient or fairly priced. It is run on emotion and sentiment. Will there be a recession? Will the fed cut rates? Assumption #2 wilts in the real world

It's a stupid argument. Yes it's moving money from one pocket to another...from the companies pocket to your pocket. If they retain earnings, they can just blow it all one day, like Facebook with the metaverse or Ford and GM making the shittiest electric cars conceivable. Once it's in your pocket, you can pay rent and buy food with it. "Blawrghl but capital gainz." There is no assurance the market is going to price your asset highly.

Thank you bagel for actually board this topic taking many dimensions as a whole, not like Ben taking just the logic. investing is a big psychological activity and removing that from investing arguments is completely misleading.

It is really really sad if dividend is dead.

Dividends and gains are only the same if we assume a company can grow forever. That’s just not always true, and it’s worth an investor’s time to either buy more of the company or invest returns elsewhere for more growth.

This is what a vicious fight looks like in Canada. Bagel really went to town on this Ben guy, but you got to know what to look for.

Im a beginner to this entire field of investments and finance but it sounds to me like it's another situation of investor preference and Risk and higher reward vs Stability and less reward, beacuse if you are paid through dividends it's like a payout fixed by the company every quarter so it's more stable, or you could sell your share at a higher selling point and up cashing more than if you were paid through dividends but you really need to be knowing what you're doing so the risk level is higher.

It's very interesting to learn about this. To summarize, it all depends on the context and where you invest. In Brazil, dividends are not taxed, but there is a tax on capital gains. Therefore, a dividend strategy seems more advantageous in this scenario. Additionally, Brazil has something akin to REITS, known as Fiis, which are funds that invest in real estate and are legally required to distribute 90% of their monthly income as dividends. This is similar to buying and renting an apartment, but with the benefit of requiring lower capital and avoiding typical property management issues. Some of these can offer dividend yields ranging from 8% to 14% annually.

Cardone being pro-dividend is enough for me to know they aren’t that relevant.

I think there are a couple other arguments for dividend stocks:
* a stock can go up and down in price in ways that don't reflect the state of its underlying business, in this sense a dividend stock gives some protection to their holder from fluctuations in the stock price that are a result of other investors psychology.
* S&P 500 yielding higher returns over 10,15,20 years, might not suit all people, it's reasonable for older people to hold into stocks that are more stable in price, but provide some yield in the present. empirically dividend stocks seem to fall to this category (also see first argument)

These are my 2 cents, personally I'm somewhat young so I just hold S&P 500, but I can see how dividend stocks can make sense


@ThePlainBagel

My biggest complaint about the "dividend irrelevance" argument is that its proponents -- primarily economists and active traders -- ignore the needs, limitations, and mindsets of a huge number of dividend investors. My mom is 87; she gets a small but welcome amount of dividend income every year. And what does she have to do to get that dividend? Nothing! She doesn't have to sell any stock, decide what to sell, how much, when, etc. These decisions would daunt her, especially as her mental acuity weakens over time. She is often afraid of running out of money, a fear that would be greatly heightened if she had to sell some of her stock each quarter to receive an equivalent amount of income. Knowing her, she simply wouldn't sell, which might lead to terrible tradeoffs like not buying the $500/m heart medicine she already feels guilty about spending so much on.

There's a reason why passive investing strategies -- like monthly contributions to a 401k -- are the best option for most investors. The incorporate smart strategies like dollar cost averaging without forcing investors to make choices, which tends to prioritize emotion over rational decision making and leads to worse outcomes. For these active traders, yeah, dividends may be irrelevant. Not for most investors!

"Dividends Are Irrelevant" , sure , thanks to MMT , this is peak croney capitalism

I kinda figured that dividends are a semi-secure way to invest; a middle ground between average stocks and bonds. If a stock returns 3% per year then I just need it to increase in value by 4-7% to meet or beat the market (7-10% per year). If the market or stock goes down but doesn't cut dividends then I can still gain 3% and just not actualize my losses.

Just for the record:
They didn't win the Nobel Prize. The Swedish National Bank created a prize which she named after A. Nobel.
It's just marketing.
Even it wasn't just for marketing: some of the "regular" NPs massively declined in reputation, over the past decades.

dividends to me is way better .

It all depends on the context: if the company has growth opportunities, it shouldn’t pay a dividend. But it’s interesting to see some institutional investors pressure companies into making the wrong decision on this.