So long term capital gains rates (23.8%) applies to gains when you sell your shares, or dividends. But when you sell your shares, you get to offset the gain with the amount you paid for the shares. Not so with dividends. So yes, I would argue companies paying dividends is foolish, so long as they have SOME reasonable possibility of earning just an average (or better) returns employing that capital. If they have $100 of free cash, they can invest all $100 in a current or new venture. If they pay a dividend, the holder can only invest $76.2 in something. So the investor is starting off materially behind (plus is probably worse off in the sense that he has less capital overall to employ in some new or existing venture, and economies of scale can be helpful).
Isn't buying dividend paying stocks for chumps?
- Thread starter Saltynuts
- Start date
So long term capital gains rates (23.8%) applies to gains when you sell your shares, or dividends. But when you sell your shares, you get to offset the gain with the amount you paid for the shares. Not so with dividends. So yes, I would argue companies paying dividends is foolish, so long as they have SOME reasonable possibility of earning just an average (or better) returns employing that capital. If they have $100 of free cash, they can invest all $100 in a current or new venture. If they pay a dividend, the holder can only invest $76.2 in something. So the investor is starting off materially behind (plus is probably worse off in the sense that he has less capital overall to employ in some new or existing venture, and economies of scale can be helpful).
Dividend Kings