Isn't buying dividend paying stocks for chumps?

[DTB2]

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?

Not an absolute by any means

 

[viruscore1]

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?

tell msft that

 

[murray t turtle]

i had the same question for years which i also posted on this forum before.
i still think there's an irrational tendency for some to prefer div paying stocks. they have these illusions:

1) "they're safer" - generally true but thats because stable div paying companies are usually mature companies. No real value for being high div imo. and high beta can be managed by small sizing.
2) "you keep the stock, AND gets cash back" - obviously flawed illusion because as you said, div is net out by drop in stock price. it's surprising how many people can't see that dividends are a zero-sum (or negative because tax) action.
3) "these companies generate great revenue" - but i see this on the negative side. That the companies don't have enough investments opportunities hence extra cash leading to divs. again no real value for being high div.

i think if all else equal, a company that pays div is worse than one that doesnt.

i could be wrong though - would love to hear what others think about my points above. thanks.

%%
Mostly true;
div ETFs tend do much better. FFTY does not pay a div, tends to domuch better than SPY.Your point #2 , again is mostly true,but HCC was a 300% gainer/+. So plenty of exceptions to your rule.Not long or short those or bitcon. ,

 

[DTB2]

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.

1. A dividend investor can certainly be well diversified within the 20% of the market. Even within 10% of the market (the premier dividend payers). That's the market I prefer to be in.

2. Stock prices will fluctuate but the quality divvy payers keep increasing their dividends.

3. Do you have a near guaranty of what capital gains you will have with stock XYZ? I can pretty much know what dividends I will receive from stock ABC.

Let's compare a portfolio worth 500K that pays 20K in annual dividends to one that has no dividends.

Both portfolios take a hit of 20% down to 400K. My portfolio still pays out 20K or more, I'm still happy and I've now reinvested those dividends with a 20% discount. Market swings back for both of us, only now I have more shares that are moving up and paying dividends which also have grown.

I like it.

 

[Saltynuts]

counter point on my 3) above:

if a company generates huge revenue in surplus of investment opportunities then it make sense to return capital to shareholders, instead of hoarding cash or splashing them somewhere outside of their expertise. maybe in this case div paying is correct decision and indication of good management. or maybe stock buyback works too but thats another topic

So, it makes sense to pay the dividend is you think the people who you pay the dividend to have 31% better expertise/ability to make more money on that than you the paying company does (thats 1/(1-.238)) for cap gain and NII tax. I'd guess that, realistically, is VERY rare lol. If you think that, take a poll of your investors and invest what they say to invest in, but save the 23.8% tax lolol!!!

 

[believezz]

Preference in dividend stocks make sense in countries with capital gain taxes.

But I'm from a place with zero cap gain tax, yet i still often hear investors here buying stocks based on "high dividend" which i don't agree with.

Similar example with stock advisers on television. One of the first questions they alway ask is "at which price did you purchase the stock?", and they'd recommend buy/sell/hold decisions based off that. I always argued the purchase price is irrelevant, since only the current price and future prospect matters, but not the past. Except if we're in a country with cap gain tax, then strategically realizing gain/losses for tax purposes make sense.

 

[Saltynuts]

Preference in dividend stocks make sense in countries with capital gain taxes.

But I'm from a place with zero cap gain tax, yet i still often hear investors here buying stocks based on "high dividend" which i don't agree with.

Similar example with stock advisers on television. One of the first questions they alway ask is "at which price did you purchase the stock?", and they'd recommend buy/sell/hold decisions based off that. I always argued the purchase price is irrelevant, since only the current price and future prospect matters, but not the past. Except if we're in a country with cap gain tax, then strategically realizing gain/losses for tax purposes make sense.

"Preference in dividend stocks make sense in countries with capital gain taxes."

What? Tax on dividends in U.S. is generally at least equal to capital gains tax rate...

 

[believezz]

"Preference in dividend stocks make sense in countries with capital gain taxes."

What? Tax on dividends in U.S. is generally at least equal to capital gains tax rate...

ah sorry I'm not familiar with the actual tax rates.
If that's the case then doesn't it make dividend stocks really bad investments in the US?

 

[777]

I just mean generally. Sure, sometimes a stock might be a great buy, and it just happens to pay a good divvy, so, sure, go ahead and get it.

But generally, does it really make sense? Divies are in a best case scenario taxed as long-term capital gains. And when they are declared, you have to take them and pay the tax, whether you need the cash or not. Plus, whenever they pay the divie, the stock price drops by the amount of the divy (maybe a short-term thing, but logically long-term this has to be borne out as well).

Why not just buy non-dividend paying stocks, then if you need cash just sell shares from time to time?

Thanks.

No.

Look at the history of large cap dividend stocks vs the market.

 

[Saltynuts]

No.

Look at the history of large cap dividend stocks vs the market.

Got a link? I remember looking for things that DID NOT plummet in 2008, and I remember looking at dividend stocks and seeing they got totally flattened as well from what I could tell. I.E. at a time when you REALLY needed them to hold up the most they did not.