Are dividends mainly horsepoop?

S

SoyUnGanador

Over the past say year or so I've tended to buy mostly dividend paying stocks (and funds). But I read the other day how they drop the stock price by the amount of the dividends. I guess that makes perfect sense - simplifying here, but if a company has $1000 and 100 shares, each share would be worth $10, but then if it paid a $100 dividend and thus has $900 left, each share logically should only be worth $9. So if you owned the whole company and got to keep the dividend, you might be indifferent in the company paying the dividend or not. But you don't get to keep all of the dividend, you have to pay tax on it (if its in a taxable account). That seems like slippage to me - that tax would not have been paid (by you or the company) if the company had just kept the money.

So, for taxable accounts, should one trying to be buying stock and funds that pay NO dividends?

I think I've been doing the exact wrong thing in the last year or so LOL.

Thanks.
 
Are dividends mainly horsepoop?

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Are Investing in dividend stocks mainly horsepoop?


Simply stop investing.
And start trading.
And if you are paying taxes, you should be very happy
because the majority of the investors & traders are not qualified to pay taxes.

 
SoyUnGanador said:
Over the past say year or so I've tended to buy mostly dividend paying stocks (and funds). But I read the other day how they drop the stock price by the amount of the dividends. I guess that makes perfect sense - simplifying here, but if a company has $1000 and 100 shares, each share would be worth $10, but then if it paid a $100 dividend and thus has $900 left, each share logically should only be worth $9. So if you owned the whole company and got to keep the dividend, you might be indifferent in the company paying the dividend or not. But you don't get to keep all of the dividend, you have to pay tax on it (if its in a taxable account). That seems like slippage to me - that tax would not have been paid (by you or the company) if the company had just kept the money.

So, for taxable accounts, should one trying to be buying stock and funds that pay NO dividends?

I think I've been doing the exact wrong thing in the last year or so LOL.

Thanks.
More...
Some companies grow their dividends and this causes the price to grow.
It's said that companies can manipulate their numbers to show increased earnings but you have trouble manipulating a cash dividend.
You have to ask yourself why are you investing? Trading?
 
Yeah I've never gotten excited about dividends,it's basically just giving you your own money. Kinda forcing you to take profit in a tiny way. There's probably traders out there who have built successful dividend capture strategies but I bet it takes a lot of work.
 
Dividends are carry you get to hold the asset. If the carry is greater than what you can make on IG then it could potentially be interesting, but the total return on the stock still needs to beat your hurdle rate.

e.g. market return is 10%, bond yield is 4%
Stock A: 5% Div yield, 6% cap gain, beta 0.8
Stock B: 0% Div yield, 20% cap gain, beta 1.8
Stock C: 11% Div yield, -4% cap gain, beta -0.4

Stock A and B have a role in a portfolio. One could argue that stock B has a greater return so is relatively better. On a beta adjusted basis, Stock A looks as attractive if not more so than stock B. Stock C always looks the worse, but total return 6% with negative beta can actually be attractive if there’s no risk to a div cut.
 
deaddog said:
Really?? Seems like poor advice when most traders can't outperform the S&P 500 index .
More...

most investors don't pay taxes too.

Between investing, day trading, and swing trading, I'd recommend day trading.

Anyway, my usual advice is not to be an investor or trader.
Be a hitman, surgeon, doctor, lawyer, gardener, worker .... but not an investor or trader.
 
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It's been my opinion the last few years that dividends are mainly horsepoop. Even if a dividend amounts to something, a negative move in the stock price wipes out the value. Thus I'm a trader and not a buy-and-hold investor (except in my IRA).
 
Dividends are deceiving for most people. Eg a friend told me recently she is going to get some stock because it pays 4.95% dividend. I looked at the chart, company lost 25% YTD, so dividend could not possibly a reason to buy it, and yet, that argument is often presented. For the same type of people who are looking for dividends the best thing to do is find stable profitable companies that made it thru few market downturns and held up better than the most in the previous recessions, with price appreciating better than the market.
 
Dividends sometimes make sense for long-term buy-and-hold investors, especially if they want current income, i.e., they may want to use the dividends for actual living expenses, or possibly to invest that money in something else, e.g., dollar cost averaging into some other stock... or use the dividends to pay the debit incurred on a collar or protective put.

I would agree that in general, dividends are not something you look for as an active trader.

But you do need to be aware of them LOL

With options, you have to be very careful because a dividend can cause an early exercise, i.e., on a vertical bear spread, you can get assigned on the short leg before expiration on the ex-dividend date, and if the long leg OTM, you end up short the stock overnight. By the time you find out, it's too late to cover the short, and you have to pay the dividend.
 
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