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https://www.morningstar.com/stocks/stock-buybacks-are-booming-2025-thats-bad-news-dividend-investors?utm_source=eloqua&utm_medium=email&utm_campaign=MorningDigest&utm_content=None_68062&utm_id=35352
The link above from Morningstar discusses dividends vs stock buybacks and how they affect investors.
Been a dividend growth investor for over 20 years. I reinvest all dividends and am very happy. I’m 52 and will be retiring in the next few years with over 300K a year in dividends and a portfolio worth a good amount of money. I started with almost nothing, and didn’t do very much.
When companies increase their dividends every year for over 50 years no matter what happens in the world, it’s a good sign of a good business. If your boss handed you a 4-15% raise every year, you’d take it, right?
When the share price gets crushed, the money from the dividends buys more shares. When it goes back up, I get the capital appreciation, and the increased dividends payments every year.
When I die, my kids will get a step-up in basis on a TON of stock because I never have to sell it. I never have to take the large capital gains. When I retire with my wife, the first 150K (by then the standard deduction + exempt amount of dividends will be around that), will be tax-free. Also, in WA State, dividends are exempt from the 7% capital gains tax (over 250K) they passed in our state.
I think you just have to do what makes sense for you, and dividend growth investing made sense for me and my kids are already doing it. Get rich slow.
I don’t like dividends because I get enough income without them and don’t like paying the extra taxes. By the way, there is a new S&P 500 index fund XDIV that pays no dividends by selling before the X date and rebuying after. I will keep an eye on it and may buy some if it makes sense.
Thanks for the note on XDIV. I just had a quick look: it invests in 4 EFTs that track S&P 500, with 99.97% in IVV at present. The prospectus seems to say that it would sell all IVV shares before the published ex-dividend date. To announce the trade ahead of time seems to be an invitation to all “Flash boys” to come for free lunch. Unless the Roundhill management has another fund to buy them without going through an exchange, the strategy does not make sense to me. But then again, I’m not a professional trader, and the trading machinery is a black box even for the pros.
My take from this Morningstar’s article:
1) Stock buyback vs dividend: a game played by corporation’s board of directors, too complicated for retail investors to evaluate – best to ignore such games. If interested, pay attention to total shareholder yields
2) Dividend investors: there are many ways to get regular incomes: safe withdrawal rate from investment, share dividends, interest from bonds, annuity payments: talk to your financial advisor.
Thank you, David, I will read that. MIL has a bunch of dividend stocks. We have a position from a former employer that they are buying back shares. The stock has grown a lot this year. I am thinking about selling some shares b/c the position is getting a little too high for my comfort level as a percentage of our assets. I will see if Spouse needs to read also. Chris
I’m not a dividend investor myself. I create a “synthetic dividend” by selling a fraction of shares each year. As for companies repurchasing their own shares, I prefer Buffett’s approach which is to consider doing so when the price makes sense, but suspend if the prices are too high.