Isn't buying dividend paying stocks for chumps?

[srinir]

You are taking a tax hit, so you are losing every time you rebalance, no? I.e. if you get a div, first you pay regular income tax on it and only then re-invest. On the other hand, if you sell a stock after holding it for a while, it's taxed as capital gains, so you get better reinvestment rebalancing/treatment. Not sure, TBH.

Exactly. Dividends are inferior in taxable accounts. Investor cares about total returns. Also dividends are riskier in the rising rate environments.

https://www.elitetrader.com/et/thre...perceived-to-be-superior.318446/#post-4610366
It was taught in Finance 101, but dividends are superior perception doesn't go away.

https://personal.vanguard.com/pdf/ISGADOS.pdf

 

[DTB2]

You are taking a tax hit, so you are losing every time you rebalance, no? I.e. if you get a div, first you pay regular income tax on it and only then re-invest. On the other hand, if you sell a stock after holding it for a while, it's taxed as capital gains, so you get better reinvestment rebalancing/treatment. Not sure, TBH.

I do it within IRA and actually do not rebalance. DRIP is a big part of the returns

 

[DTB2]

Exactly. Dividends are inferior in taxable accounts. Investor cares about total returns. Also dividends are riskier in the rising rate environments.

https://www.elitetrader.com/et/thre...perceived-to-be-superior.318446/#post-4610366
It was taught in Finance 101, but dividends are superior perception doesn't go away.

https://personal.vanguard.com/pdf/ISGADOS.pdf

Please, many of my underlyings have increased dividends through rising rates, the financial meltdown , wars...you name it.

Not worried.

 

[srinir]

Please, many of my underlyings have increased dividends through rising rates, the financial meltdown , wars...you name it.

Not worried.

Maybe I should've worded properly. Dividend stocks are riskier compared to total market during rising interest rates because :

1. They are not very well diversified (80% of stocks don't pay dividends, so you are playing with 20% of the market)
2. Dividends stocks returns are more inversely correlated with interest rates,
3. It is indisputable that capital gains are more preferred than dividends because of tax structure. It might be wash in tax-deferred space.

 

[DTB2]

I do not buy high yield divvy payers. They do become high yield after a period of holding them so interest sensitivity is not a big concern.

https://www.forbes.com/sites/ericer...ortfolio-ready-for-rising-rates/#271cae3f59b7

 

[ZBZB]

http://readingthemarkets.blogspot.com/2019/04/bond-t-rowe-price.html

Growth outstrips the Dow 2,600% to 600% 1934 to 1972.

 

[viruscore1]

If you're not buying a dividend stock, you have guessed the right direction. Trade on sucker ...

 

[sle]

If you're not buying a dividend stock, you have guessed the right direction. Trade on sucker ...

You do realize that the stock will drop by the dividend amount, so in order to retain your status quo you still need to be guessing the right direction?

 

[srinir]

From the article in upthread.

Inverse relationship with the interest rate.


Most of the performance in the forbes article can be explained by factors, Dividends is not one among them. Investor can get exposed to these factors much more in tax efficient way than dividends.

 

[srinir]

I just took a look at the performance of DVY (dividend ETF) vs SPY in recent instances when interest rates rose. Red is SPY and blue is DVY. Below is the 10 year interest rate.

First during "Tapertantrum" era in 2013.

Second during last year just before Feds succumbed to Trump.

In both cases DVY underperformed.