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Today, I’m going to channel my inner “RDQ” and raise some peoples ire:
About one month ago, there was a post about dividends. It contained quite a bit of what I will politely call, “magical thinking”. Despite my linking two excellent articles which debunk the dividend myth, clearly subsequent posters did not bother to read either of them and persisted in posting the dividend dogma that commonly persists. I even resorted to asking Jonathan to chime in (which he kindly did) as too many folks seemed to still not be “getting it”, to my dismay.
In an effort to never give up the good fight (LOL), a new post dropped this morning elsewhere, and I have attached the link above, in an effort once again at dispelling the false ideas people have about dividends.
Please feel free to use your down arrow votes aggressively and make my day !
All fluff and stuff. Dividends serve a valuable purpose and I can use them, but I can’t use stock appreciation unless I sell the stock. I like both. I subscribe to the bird in the hand approach. The value of dividends to a person may increase with the age of the investor too.
Most of the shares of my one individual stock were acquired at about $45 a share (excluding those from reinvested dividends). They are now at $84.00 a share and pay me $25,000 a year in dividends. That’s all I care about, a growing asset and cash when I need it.
I don’t care if the stock price would be higher without dividends, but I sure care if dividends were stopped.
I read the article you mentioned at the top of your post. I learned some things from it, the biggest one being to think carefully when you are wanting to buy individual stocks b/c the ones without dividends you just sell shares and they are taxed at capital gains rates vs the dividends, which are taxed as ordinary income. I knew this, but the way he laid it out was common sense to me. We don’t have a lot of individual stocks, so this topic is not really too relevant to us. I am not sure if it would be better to hold individual stocks in a retirement acct vs a taxable one. Hopefully someone knows more than me. Chris
My only comment on this is that I see dividend-paying stocks as a portfolio stability tool. They are normally well-managed, established businesses with less volatility, and they perform better during market drawdowns. I hold a portion of my portfolio in accumulation-class dividend trackers for this reason, but certainly not for income. They’re sort of like a supercharged bond alternative.
Companies often reduce or stop paying dividends during a market drawdown.
Much less likely if you are in a dividend growth index fund.
I’m not contesting that. Still doesn’t distract from the central theme of my reply