Dividend Growth Investing

[@GiantAnteatersRkool]

Ben's first words as a child were "a globally diversified stock portfolio has the most optimal returns over the long run." I bet his parents were shocked

[@mikeandyholloway]

"comprised primarily of low cost index funds or ETFs..." Is the only addition I would humbly suggest

[@BenFelixCSI]

"a globally diversified portfolio of low-cost index funds"

[@MSI2k]

@@BenFelixCSI To name a few?

[@bluenation3838yoohoo]

@@MSI2k search for CCP/dan bartolotti's recommendations

[@thecapone45]

And then he proceeded to destroy the fallacies his parents had about investing.

[@blackfiree91]

Sometimes i get too deep into dividend videos and have to come back here to reset my palette.

[@kawgrath1876]

My idea is that dividend companies typically pay dividends because they don’t rely on investment in innovation. Which means they should hypothetically be more stable. I think it’s more certain that a company like Coca Cola will be able to continue selling the same product it’s made for 100 years than it is that a company like Nvidia will be able to continue to outdo its products indefinitely, which is what it needs to do to keep hitting its sales numbers. I still like growth stocks but I do think dividends say something about a company’s business model.

[@davide7414]

What you are talking about sounds a lot like the investiment factor in French and Fama's five factor theory

[@Bonez1999]

..... Akin to taking money from your left pocket and putting it in your right pocket.(also the inability to control your tax situation w/dividends -- forced income) Diversification is the ONLY free lunch in investing!!!

[@BenFelixCSI]

Phew finally, a comment that gets it!

[@neilgalas1036]

Your channel doesn't have nearly enough subscriptions for the quality of content you provide. Keep it up I can't wait until you're at 1M subs because it will happen!

[@BenFelixCSI]

Thanks for the kind words, Neil!

[@robertmaxwellproduce]

Most people want to hear something exciting, sensational, sexy, as opposed to something rational and scientific. Especially when it comes to growing wealth.

[@kvadratbitter]

The subscribers are priced in.

[@liamgiezen1737]

Ben - I'm just here to say that you're awesome.

[@mistery2628]

A dividend portfolio provides a more reliable income stream than the overall market. A good dividend portfolio with companies with a well covered dividend by free cashflows and preferably less cyclical business models should have a significant lower dividend cut rate in downturns than the overall market. The overall market of course includes very cyclical stocks like mining companies, commodity businesses etc. who do not care much about a constant dividend policy. If one needs to live of income, a dividend portfolio does not require a special strategy to sell shares to generate income, like the 4% rule or something like that. There is a risk in selling shares in retirement and live of total returns. For example the sequence of returns risk. Basically one has to sell shares for example in downturns at low valuations. Also, buying index funds means always buying the whole market, the undervalued, the fairly valued and the overvalued companies. However, a dividend portfolio of course misses growth companies which can reinvest returns internally at high rate. On the other hand, one is flexible enough to buy value.

[@bad_writer]

Receiving a dividend is the same as selling the equivalent amount of your shares. How is it more reliable or less vulnerable to sequence of returns risk? There is literally no difference. On the contrary, if you sell shares you're the one deciding when and how much, whereas with dividends you have no control. If a stock is down 50%, you can choose not to sell $5000 of it that year. If the company, hypothetically, pays $5000 dividend every year on your amount of shares no matter what, then you're locking in those losses.

[@Skilliard]

@@bad_writer I sold a bunch of shares in LUMN last Thursday before the ex-div date, and the stock skyrocketed by 10% after the ex-div. While it's certainly true in theory that dividends reduce value, in reality the market is so volatile that investors pay basically no attention to the dividend.

[@BenCarnage]

I have one property with an attached rental unit, index funds and a portfolio of mostly dividend stock. I'm not chasing the dividend, I'm picking companies with a very long and stable history that aren't overly represented in my index funds. I like the dividend aspect because it doesn't require management. I avoid selling stocks. I avoid paying the market too much attention. Dividends automate some liquidity into the process. I usually use the dividends to diversify further or buy into a dip if I have reason to think it will give better returns. Older, large and quite stable companies often pay a dividend. The dividend also automates the process of cashing out a little of the investment, meaning it takes all aspects of psychology and timing the market out of the process. Sure you could just sell a set percentage of all investments, but that's also not ideal. Dividend paying stock also sometimes adjust their dividend to circumstances. So it's not just the same as selling a flat percentage regardless of current market value.

[@jacobsims]

Dividends are not a factor that explain stock returns. However, some dividend growth indexes naturally have some pretty nice exposure to the value/profitability/investment factors. Value+Quality is a winning combination

[@alankoslowski9473]

But it's better to target these factors directly rather than incidentally using dividends.

[@cedrickerbidi4519]

I respectfully disagree. A solid and consistent dividend grower bought and held for a long time (decades) will provide a yield on cost anywhere between 10 to 20% or even more.The DIvidend-growth investor mitigates the risk of dividend cuts by diversifying between sectors and company sizes. Many companies our there are shareholder friendly and if you know what to look for you can definitely assess how safe a dividend is. And for investors who know what they do, dividend cuts are rarely a surprise. Tax have their importance, however deciding on a strategy purely based on tax is not a smart way to invest. Plus, tax laws change all the time so you can’t be sure that what is true today will be in the forseeable future. In the end my friend, it seems to me that the majority of us mortals out there invest for a very specific purpose: be able to pay for our living at some point in the future, so cashflow is the ultimate goal of any investor. With a dividend growth approach you can have invested $1.5 million worth of assets in dividend paying stocks that will be yielding (yield on cost) 10% thanks to the magic of compounding and, that portfolio will pay you a monthly income of over $10k without you having to worry about market volatility. The bonus is that these $10k/month will keep increasing year after year so that you may keep up with inflation and you’ll rarely have to sell a single share. On your death you’ll even leave some inheritance behind. Compare that with a $2 million portfolio made of stocks paying no dividends: at some point you will need to sell shares to get the income and you will have to do it regardless of market conditions which you have zero control over. If you have the misfortune to withdraw too much when the market tumbles, you may outlive your portfolio, die poor and leave zero inheritance. Dividend growth investing, when done correctly is the surest path to wealth while having peace of mind.

[@BenFelixCSI]

Respectfully, I think that you have missed the point. Dividends vs. capital does not make a difference.

[@williamphillips3375]

@@BenFelixCSI You have said this over and over yet, I cannot see this point. At least not how it applies to a person trying to put their money where they will have income during retirement. Many people have pointed out the difference that dividends make to the individual investor. Your "does not make a difference" is totally focused on overall value of a company. That overall value does not pay bills. Not unless you sell the stock. Frankly, I view stock buy backs as the worst investment a company can make. I have watched the value of several companies whose stock price did not respond at all to the buy back. Their core business did not support the long term thesis that would attract more buyers than sellers of the stock and so the money was essentially wasted! If they had paid dividends at least the owner could have found a purpose for the money but as it is the stock buy back only increased the earnings per share - which for a company that does not pay dividends is meaningless if the price of the stock does not increase. You have yet to reply to the actual return on cost points - that it is possible to have an income stream that is constantly rising and yields 10 to 20% on the initial investment - without having to sell your stocks. In fact, as I look at the various people who have done this they are very diversified in their portfolios and their incomes continue to increase. Finding out the safety of a particular dividend takes a few minutes of research from people who publish the studies. For a DGI the the main point is that you don't have to sell the capital in order to gain the income. I am not impressed with Buffet's analysis because it simply assumes that growth will occur and that the overall value of the holding will grow more than the sale of the position. That point - true if you draw a line over 20 years - does not apply on the month by month year by year scale that retired income seekers work on.

[@juanreyes8564]

@@williamphillips3375 and @Cedric Kerbidi well said!

[@OopsFailedArt]

William, I agree that many companies make poor use of stock buy backs but proper management tends to do well. Look no further than the EMH headache BRK. They only buy back their stock when the stock is favorable based on value factors and hence increase stock returns in a tax efficient if not lumpy manner. We must be careful not to throw the baby out with the bath water. Stock buy backs, in the hands of incompetent managers, are a lost cause. A truly skillful team that uses patience will make great use of this crucial tool

[@seatconnect224]

i think it will be the same if you get dividends or sold some stocks one more explanation here kzbin.info/www/bejne/qquupIR6mZuippo

[@Thomas-pt5si]

Ben, what do you think about the argument that a company's high dividends prevent the executives from pursuing imprudent activities like unprofitable mergers? Or, more obviously, the obligation to pay dividends can play some role in reducing excessive executive compensation. That would seem to be good for the owners (aka stockholders).

[@Skilliard]

Centurylink had a huge dividend yield back in 2018, didn't stop them from acquiring level 3 communications with a massive debt load, and needing to cut the dividend to deal with the debt.

[@robertwright8844]

The answer from many people would be that if this were true, it's probably already priced in.

[@Martin-qb2mw]

If dividends had impact on expected returns it would show in regressions (there would be a dividend factor). Since it doesn't, it has no impact. The end. You can cook up 100 different awesome sounding narratives for why dividend payers are great. But all of them are ultimately false or meaningless.

[@Xirtap17]

The fact that the financial investment industry has for so long withheld the information you present from those who they are meant to benefit is egregious. Understandable, but egregious. How can we make more of a dent in the smoke and mirrors that the financial industry uses and reduce our dependence on them? Ben Felix: Index funds in a fully diversified portfolio. I think it will work.

[@LegionKilo]

6:18 summarized by saying "time in the market is best". Or at least that's what I heard.

[@EDH784]

Thanks... but I think I'll buy more dividend stocks... and add a good measure of REITs at that!!

[@BenFelixCSI]

Hardcore.

[@TomlynAdvisors]

One also needs to consider taxes in a dividend strategy. Sure, monthly or quarterly dividends may sound like a free annuity, but in the US, Stock Sales are taxed at a Capital Gains Tax of 15%, and dividends are taxed at the Ordinary Income Tax Rate . . . which begins a little more than 20%. This tax fact itself should convince investors to stick with stocks that retain dividends.

[@TomlynAdvisors]

@@BenFelixCSI One also needs to consider taxes in a dividend strategy. Sure, monthly or quarterly dividends may sound like a free annuity, but in the US, Stock Sales are taxed at a Capital Gains Tax of 15%, and dividends are taxed at the Ordinary Income Tax Rate . . . which begins a little more than 20%. This tax fact itself should convince investors to stick with stocks that retain dividends.

[@alecgalbraith5604]

Thomas Ruden, MBA, CFP While I agree with the overall premise of your statement, aren’t qualified dividends taxed at cap gains rates? The only time dividends would be taxed at ordinary rates is if you’re investing in REITs or constantly buying and selling dividend stocks.

[@xthebluenitex]

@@alecgalbraith5604 you're correct

[@alicemendoza5269]

I started investing in the stock market because of dividends. What matters, in my opinion, is that if you invest and earn more money in addition to dividends, you will be able to live off of dividends without selling. It implies that you can pass that on to your children, giving them a head start in life. I've invested over $600k in dividend stocks over the years; I continue to buy more today and will continue to do so until the price lowers even further.

[@djones7603]

It's always inspiring to hear from a veteran investor who has weathered the storm and come out on top. When your portfolio turns from green to red, it might be unsettling, but if you have invested in great companies, you should just keep adding to them and stick with your plan.

[@BenjaminBeck-tv8uh]

@@harod033 Wow, that sounds great, but how can I contact your investment coach?

[@williamporter5333]

@@harod033 I greatly appreciate it. I'm fortunate to have come upon your message because investing greatly fascinates me. I'll look her up and send her a message. You've truly motivated me. God's blessings on you

[@simonp6339]

another spambot thread

[@jaket5267]

They didnt even list the scam manager this time. Tard bots

[@Xrayaman]

The issue with non dividend stocks is that to make money you have to sell your shares. Also it depends on your goals as an investor

[@tatskamaster]

So? If you need to take money from your portfolio then sell your shares. It is exactly the same thing as taking your dividend and paying your living with it. Besides, you should budget your life in a way that you don't have to touch your investments before you actually want to retire.

[@Thurgor_Supreme]

I've been thinking a lot about investing lately thanks to the Corona Crash and I think it serves as an example that selling capital for retirement income won't work. I think the safer strategy is to get your income stream through short term t-bills, as well as unavoidable dividends, and have the rest of your portfolio in low-cost index funds. Then funnel your capital gains into your t-bills as needed. That way, you only have to sell capital when the market is up. You'd basically be giving yourself a raise throughout retirement (to cover inflation and go on endless vacation) and then you'd have a pretty good chunk left behind for your family. No annuity scams, minimized dividend taxes, and you don't have to expose yourself to the volatility of the bond market.

[@firelordsozin3677]

Ryan Ward he just explained in the video how the fact that you have to sell your shares is irrelevant. You’re essentially selling a parts of your shares with dividends anyway. With growth stocks that money stays in the share and you don’t take a tax hit when it’s paid out whether you want it or not.

[@Kennan_Davis]

@@tatskamaster this is a poor video that is far too oversimplified to display his own biases. If you’re in a bear market, you would be MUCH better off receiving dividend income while still holding onto all of your shares oppose to having to sell shares at depressed values because you bought into the nonsense he says in this video. The problem with this very oversimplified analysis is it doesn’t take into account market cycles for liquidation of shares. You are constantly drawing down your account value with selling shares, whether the market is up or down

[@pran10000]

@@Kennan_Davis it's just a very strong case of the mental accounting bias. getting a dividend = selling a stock. Think of it this way, when they are giving you a dividend the company is making the sell decision instead of you, saving you the effort to make that decision. Although you have the same number of stocks, the value of each stock has fallen by the exact same amount. Had they not paid the dividend the share price would be higher. It's hard to so rational though, we aren't wired that way.

[@samisilverman7272]

the agent 47 of investing

[@GoodComedian2011]

you made my day comrade)))

[@theknightofren]

Lol there is a reason why Warren Buffet is bullish on dividend stocks.

[@DamienTalksMoney]

YES!

[@dakotadak100]

Dividends DO matter since I do not need to sell shares for income in retirement.

[@philf2000]

Why is selling shares a problem?

[@dakotadak100]

@@philf2000 Share prices have higher volatility than dividends

[@dakotadak100]

@philf2000 Dividends experience less volatility than share price. That is why dividends matter.

[@marthvader14]

​@@philf2000 I think you/ your heirs could run out of shares to sale so I feel better with distributing funds

[@khafreahmose8768]

@@philf2000 because you get to keep the shares and pass them down. Plus, if the account is large enough, you can borrow against those shares to diversify into other asset classes. This way, you get income from the dividends, and use the underlying as collateral for other investments. If you sell, you forfeit the ownership of the underlying thus decreasing your investment power. Look up the buy, borrow, die strategy.

[@jeremycain5482]

It struck me that it's far better to keep the wealth in value of the stock than in a dividend payment, because the latter situation triggers a taxable event and the former gives control to manage taxes at time of sale (not withstanding the gains over time from compounding).

[@BenFelixCSI]

Assuming that the company is using the cash responsibly I agree. Dividends are important to returns, and dividend policy is important to companies, but dividends should not be a means of identifying a good investment.

[@michaeloconnor1068]

The academics like Schiller say that ultimately the only reason to own stocks is for the dividends. He says people think you buy stocks because the price goes up, but the price will only go up if there are more dividends coming. The price is the expected value of the future dividends. I read a study to say that the accumulated wealth in retail investor accounts in the US, as of some time in the 1990s, was attributable almost entirely to dividends.

[@patrickalegria7620]

If you’re reading this, I think most people following you would agree on how underrated your videos are to investors (and/or traders). The way your videos start from a high level overview then goes into the details of the whole market philosophy thru data research conclusions in my opinion is an art on itself.

[@gcollins1992]

@Ben Felix, I'm completely new to investing and not trying to come for your throat when I ask this question. Company A pays me nothing in terms of dividend, and company B pays me something, but company A reinvests and my share price goes up. If company A makes a poor move that doesn't result in growth, didn't I come out on top with company B? I guess the same could be said for company B making a poor investing decision, except to my way of thinking I pocketed or reinvested and increased my stake. It also seems like with dividend companies, maintaining my ability to add semi-immediate cash flow when I see financial trouble on the horizon rather than selling my shares could be attractive in times of financial distress. While it sounds ideal to never have to touch dividends so they can reinvest, I'm just an average Joe who might run into trouble in the future. With a few years of dedicated investing, I might be able to significantly decrease my burden in times like these. I apologize in advance if I misunderstood your video or have misconceptions due to being new. Thanks in advance for your input.

[@SnowcrasherLP]

Concerning the second part: You shouldnt rely on dividend companies to pay you any through times like this. Many dividend companies have already cut their dividend and some will follow. Their cash flow right now is negative, which results in the cut or they continue to pay out a dividend and take on debt, which certainly isnt helpful for the future of the company.

[@theoriginalwasa1006]

Serious question. I subscribe fairly strongly to Ben's assessment of the market, it appeals to me as a mathematician. I was thinking about dividend stocks and a potential tax advantage they may have for some people. So consider two companies with equal performance and one decides to distribute dividends and one does buy backs or invest in capital etc. In both cases this is earnings and so tax has to be paid. Not sure how this works elsewhere in the world but for Australian companies that pay Australian tax, the dividends are franked, which basically just means that when the dividends are distributed they come with credits for the tax office so you don't pay tax on that (the company earnings aren't paid twice, once from the company and then the investor). In this situation, if you pay less tax marginal rate than the company, you end up getting paid out the difference. So when all is said and done, the tax that is paid on the earnings is taxed at your tax marginal rate if it's placed into dividends and at the company rate if its left within the company. So, with that in mind, if you pay no tax because your under the tax free threshold, and then you get your dividend and reinvest it, my thoughts are that in total this would offset the lack of diversification etc mentioned in this video. Can anybody comment on that? I'd really like to know if I am thinking about this wrong.

[@seanlynch8869]

Ben I love your videos they're very helpful, insightful & interesting. However I have to disagree with you on your buyback vs dividend argument. Increasing dividends over time rises the stock price as the market will keep the dividend yield the same. However buybacks are done very inefficiently for the most part (All you need to do is look at when buybacks are mainly done & the strong correlation to when the markets are priced highest) this in my opinion can destroy investors returns due to management buying back shares above intrinsic value & quite often taking on leverage to do so. Management can't mess up paying a dividend whereas management can overpay for their own stock. Also reinvesting dividends leads to much greater returns in the long term than share buybacks (Look at Altria which I believe is the best performing stock over the past few decades - I'm willing to be corrected on this.) They are just a cash flow machine and give it all to shareholders through dividends. The dividends increase every year & become a compounding machine over the long term. Plus at a 6/7% yield reinvested you are building up portfolio value much easier than trying to buy back 6/7% of the company's stock at a fair price. On the contrary I do agree dividends are negative from a tax POV versus buybacks. But buybacks are just done so poorly, dividends are better IMO. I also agree with your point though that trying to select dividend stocks for the long term is very difficult, but I believe that the S&P Dividends aristocrats ETF would be a good idea for all balanced ETF portfolio's as they have outperformed the broader market with less standard deviation over the long term - which you have eluded to in this video. Disclosure: I'm not a dividend investor I just believe you have got this argument wrong.

[@SatoruBob]

Thank you for this. I'm relative new to investing (a little over one year), and I'm reading as much as I possibly can about the subject. It's always refreshing to hear two different points of view. That way, I don't have to pick sides, but learn from both of them and use it for my own portfolio. It's very interesting. For what it's worth, I (also) do believe that if you use the dividend to reinvest, it's in most cases better than buybacks, especially is my case: I'm 24 and every euro I can spare is invested. Off course, I have to pax taxes for my dividend (the Netherlands), and I have to pay a (very) small fee for every transaction I do, but I strongly believe that in the long run it's for the best. I'm not a dividend investor as well though. Actually, around 75% of my portfolio consists of aggressive stocks like biotech, technology and water related stocks. But still, I do receive some dividend every quarter and I reinvest it as much as I can. So, to make a long story short: both Sean and Ben: thanks for the insights and helping me out.

[@MrVirkMedia]

Well covered Sean.

[@fcaldwell2911]

This is all anecdotal evidence, but I think it is worth considering. You are talking as if comparing a portfolio of 100% dividend stocks to a portfolio of 100% growth stocks. But remember in the real world most portfolios have an allocation of bonds, this allocation usually increases as you get closer to retirement. You touched on this in the video, but dividend stocks tend to be "robust and conservative" meaning an investor that has spent their entire working life building a dividend portfolio are likely to have a much less volatile portfolio than those who invest in growth companies (even the S%P 500 has approx 20% of its assets in the extremely volatile FAANG's). In my experience dividend investors seem to hold a negative view of bonds and have smaller allocation than growth based on the rock solid nonvolatile nature of there dividend portfolios. Example: Lets take you at your word and saying dividends make no difference to a stock portfolio. Lets say both stock portfolios return 8%. The retired dividend investor with the steady portfolio only has 20% allocated to bonds. vs the growth investor might have 50% (or more) allocated to bonds. Although the stocks return the same, the dividend investor has less bonds to "weigh them down" so to speak when compared to the growth investor. Meaning the dividend portfolio delivers a higher return. This is a common theme that I have noticed among dividend investors, they have structured there portfolios in a way that having a high bond allocation is less important than it is for the growth investor who likes a high allocation of bonds in order to steady the ship against the volatile nature of growth stocks. Just my 2 cents. I enjoyed the video, it really got me thinking.

[@AppletonPermaculture]

The proper measure of what you are describing is beta, not dividend growth.

[@Valdur26]

@Ben Felix: I agree with everything you've said in the video. Matematicaly you are correct. Rationaly you are corect. But the markets are not rational (on the short term at the very least). That how bubbles are created. IF markets were reasonable and rational no bubbles will ever exist. And there is one more thing that you haven't considered. In a normal market environment you are 100% corect BUT in an irational market environment, when everybody is panicking and markets fall as a rock, any investor is dependant on other investors to buy his stocks if he needed to sell to cover expenses. If nobody is willing to buy at a decent price you are being forced to sell at a discount (large or small) your stocks to get the money that you need. The diference is that the dividend investor doesn't care about market irationality because he is being paid directly by the companies that he has invested his money through dividends. So this is the main reason I see for dividend investing. Stable income no matter what markets are doing. Yes, dividends can fluctuate also but way more less then stock prices. Do you agree? Thanks.

[@user-ne6gm8zq2k]

I do follow the capital appreciation somewhat because it indicates the health of the company but it's not my main focus, dividend growth is . I mostly buy dividend aristocrats like JNJ , that have been increasing their dividends for for decades, especially when i put in my tax-free Roth IRA . I loved the market volatility in December because I could pick up stocks cheap while sleeping good at night . My wife and I are looking forward to our tax-free retirement . I appreciate your views because that make us different kind of investors . The best path is the one that makes the most sense to each of us . Can you imagine a world where we all invested the same ?

[@BenFelixCSI]

This is an all around excellent comment. I agree, we can't all have the same strategy. The best investment strategy is having one that you can stick with, which it sounds like you have.

[@jugjitdhillon5326]

I really appreciate all your video's. I am new to investing (have not yet started, will do in 2 to 3 months). However, your channel has made me realize as a young investor (early 30s). Best thing for me to do is go the Index route. I was going to go the dividend route, but decided to do more research (glad I came across your video). Currently my only asset is a rental property that I am Cash neutral on (still owe 150K) on it. I have even decided against paying anything extra into it. I think I rather invest the money into index funds, when the time comes and I am ready to buy my next rental property (10 years time),-only want one mortgage at a time-is better to cash in some of my index funds and pay it off.

[@jackjia8773]

To me, the best return is never the goal. I know I can't get that. I want a good return. This "good" return can be less than the market average, because I know I can't do VFV all the way. That strategy just won't work for me. The illusion of money coming in from dividends keeps me in the game. That is more important than a few percent of return to me. Without that, I'd been out of the game a long time ago. My money is growing at an acceptable rate with acceptable volatility. That is good enough for me.

[@jaybones29]

"good enough." Love it and I agree 100%. Too much time and energy is wasted on optimization.

[@roglSimpson]

This is one of the primary reasons why dividend investors tend to be more successful - it's easier to stay in the game and it also potentially means less tweaking.

[@napalmG-wy1rx]

It would be nice to have an updated video on this where you address the most common defense of using dividends even *after* hearing the arguments made in this video: "Well that may be true but im just at a point in my life where I want stable cashflow into my account" This is obviously irrational and would be cool to address. I know you have made a lot of videos about dividend irrelevance. Really appreciate all you do and I send people to your channel allllll the time. Thank you sir.

[@o_felipecarvalho]

Hi Ben! Felipe from Brasil. I must confess I do love dividends(here they are still free of taxes). But I am always eager to learn and my current exposure to USA market is through an ETF that is the return of the S&P500 + Dolar Variation. Questions : 1) What book do you recommend to learn more about Factor investing? From what I understand from your videos, even if are identical characteristics (factor) even then you should not buy individual stocks based on those parameters? Greenblat Magic formula is a type of Factor Investing? What do you think about his track record? 2) I understand that the dividend cames out from the stock price. But the thing is : a) Dividends are less volatile than asset prices; b) If the asset(that has a price of 10) pays me a dividend( of 1 dollar ) drops its price to 9. But after that initial drop, then the price is not predictable. I mean, after day, the asset price can be lower than 9 or even higher than 10. But the dividend in my account remains 1. If I did not have receive that dividend I was more exposed to this variation. c) I can pay bills with dividends, not with stock buybacks. Of course, you call to sell the asset to make money, but what happens if the market is down? I get a lower return. Sure maybe if the market is down the dividends will be reduced, but remember that dividends are less volatile then prices? And if I sell the stock, it is gone... If maybe I don't get dividends for this year, I can still expect to receive them along the line... Great content!

[@BenFelixCSI]

This book has the answers to your questions www.amazon.ca/Incredible-Shrinking-Alpha-2nd-successful/dp/0857198246/ref=sr_1_1?dchild=1&keywords=incredible+shrinking+alpha&qid=1599186322&sr=8-1

[@engpds]

When a company pays dividend, the value of the company decreases proportionally to the dividend paid. Once one understands this, it gets easier to grasp the equivalence between receiving dividends and selling shares, regardless of price.

[@chongli297]

I find dividends annoying, to be honest. I haven't figured out a way to automatically reinvest my dividends so I find them sitting in my account for a while until I manually order some more ETFs. Dividends are like a little mouse who sneaks into my account and sells off a small fraction of my equities every now and then.

[@BenFelixCSI]

Great perspective.

[@ueharajohji3607]

drip ?

[@Kennan_Davis]

Ben didn’t have to comment here, but the fact he said “great perspective” instead of informing this person on DRIP investing should be all anyone needs to read for the major red flag and biases. DRIP is simple and easy and is a one time turn it on within your account. This is a terrible video misinforming many people and he clearly shows his own biases with replies like this. Terrible

[@abie5873]

@@Kennan_Davis Well he was never hiding his bias. He has the same massage in many of his videos.

[@Acein141]

@@Kennan_Davis DRIPS are horrible in a taxable account and not recommended. There's a reason swap ETFs were so popular that the government had to step in.

[@thill6771]

Ben, Thank you for your work. You knowledge is impressive. As a long term investor, I disagree with you about dividends stocks, especially dividend growers. The income from dividends is indeed taxable, but if I control the amount, I spread my gains out over many years and can keep some of it "off the table". This also allows me to avoid trading, and keep the capital gains taken to a minimum. As you pointed out, the reduced volatility also is a little easier to live with. My hugely successful MidCap ETF has indeed beaten my dividend bearing ETFs, but it is much more volatile. Thanks again.

[@atableinthewilderness680]

I could be wrong here, but it seems like the reason dividend etfs like SCHD, DGRO,VYM, etc do so well is because payouts artificially lower the price. This means that over time, the equity stays undervalued for longer, and therefore sees consistent gains because it never gets bloated. You're also using 3% to buy back 3.1% of the share. But honestly, index trackers like SPYG either match or beat the market they track AND they pay dividends without going out of your way and potentially sacrifing returns.

[@BrandonTran]

I love dividend stocks. I love other stocks that don't have dividends. So I think it's safe to say I just love investing. This did help clear something up for me. Is this an accurate interpretation? Getting a dividend is not a free pay check. Getting a dividend is, the company force sold 5% of my shares for me and gave it to me in cash. I then had to pay some taxes on that 5% cash because it is income.

[@Joe-jc5ol]

After experimenting for around 5 months in the market. I realized how much emotions are important and are often hard to ignore. I was going to go the rational route of buying a market index and dollar cost averaging through bad times as well, but the last December downturn taught me that it is not easy to do, I knew I should buy, and I did not. Point is, I am going for dividends now, no it does not make sense, no it is not mathematically optimal, especially considering I have to pay taxes every time a dividend comes in then repurchase. But I feel better seeing money coming in no matter what, and so I will do whatever keeps me actually putting money in investments, in the long run a suboptimal investment strategy is better than not investing (which is what has happened to me from January till now)

[@BenFelixCSI]

Fascinating. Thank you for sharing your experience! Edit: thinking more about this, 5 months may not be long enough. You know yourself better than I do though.

[@daniellizarazofuentes2946]

@@BenFelixCSI Isn't this psychological part of dividends comparable to the psychological strategies of paying off debts? With that, I mean mathematically speaking paying off the highest interest loans first makes sense but most of the time people are better off paying off high emotional burden loans (like from family etc.) first. I'm still young and learning about investing so correct me if I'm wrong!

[@GhettoFabulousLorch]

If it helps, dividends are just a form of asset allocation from your investments. If you set up a DRIP you basically turned your dividend stock into a non-dividend stock. So as a thought experiment if you remove the dividend from your stock, ETF, or fund, then why else are you investing in it? If you can come up with good answers then the truth is that it is a good stock/fund overall and it happens to pay a dividend. However, I believe you can sell fractional shares today which means you can sell 2-3% of any equity and it is as good as a dividend.

[@independentc4348]

Ben, this could be reduced to just philosophizing. I see what you are saying but would it also be fair to say that when Company X pays a dividend that it has the effect of discounting the stock and thereby attract new investors who are willing to pay a higher price/earning multiple? What choice if any do investors who want an income have but to rely on dividend seeing that good companies can sit for years in an undervalued state.

[@40goose40]

I am afraid I am seduced by the notion of passive income in the form of dividends replacing my actual job someday. You are absolutely correct about that notion keeping me focused on disciplined saving and investing (and reinvesting). Your videos are fantastic - I'd be curious about your opinion about US-based REITs, as that is where I do most of my dividend investing.

[@Pieter2360]

REITs in the US are required by law to pay out 90% of profits in the form of dividends. This makes the argument against using dividends as a criterion to invest in a particular REIT even stronger (at least imo, curious how Ben sees this?)

[@Klayhamn]

Even if dividends are "irrelevant" from a return-on-investment point of view, don't you think they offer some sort of a different flexibility than market appreciation? For example, why do people choose to receive a salary from their employer, rather than just receive more and more stocks of the company, instead? In the end of the day, stock isn't currency - because it is too volatile - and if you use stock to fund your expenses (the everyday expenses or sudden big expenses like medical bills, etc.) - aren't you exposing yourself to the inherent risk in the volatility of the stock? Fiat currency is much less volatile, and it is why people choose to receive their salaries in the form of currency. It is also has other benefits like having maximal liquidity (you don't need to go find a buyer for your currency, anyone would accept it) So, why would receiving income from your stock portfolio not be equivalent to pulling off a salary from the company you own or work for? How is it any different? Do I have to actually "work" and get a "paycheck" in order for me getting dollar income to make sense? Why can't I get income just for owning profitable companies (i.e. - owning stocks), while sipping margaritas? I'm not saying that stock income should be the ONLY income one relies on, if one is capable of work, then work typically yields much higher returns on investment, is much less volatile, consistent, etc. it also serves to diversify one's sources of income/value - as you might still have a good income even when the stock market is experiencing a downturn. I agree that for the purpose of re-investing, it is somewhat less efficient tax-wise, but -- it also gives you the FLEXIBILITY of re-investing in what you choose to re-invest in, rather than all re-investments automatically going to the same place. For example, if Coca-cola doesn't have a lot of useful things to do with its extra-profits, I might be able to make a better use of that extra cash - and re-invest it in things that are expected to have a better return or lower risk (i.e. - other stock, bonds, whatever). I'm also not saying that one should cherry-pick companies just because they pay dividends, but - I do think that a world in which enough companies do pay dividends for it to yield a steady stream of income, is better than a world in which no company does so. In other words, I think that dividends are good, even if one shouldn't try to "maximize" them by altering their investments. What am I missing?

[@sosuapimp8449]

Dividends are still good if you are retired like me and like the extra income to supplement my police pension and social security. I get about 3400 in dividends every 3 months from all my stocks and mutual funds,I'm not complaining.

[@TechnoBacon55]

This video is just EMH in a nutshell. Whether you live by that or not, it's up to you. He said "dividends do not matter" not in the sense that they're useless, but in the sense that they're equivalent to share buybacks. He also said there is no evidence of picking dividend stocks and consistently beating the market. That is absolutely true, just as with any other groups of stocks bearing the same properties. Overall good video, and I take its message as "dividend investing is not superior" instead of "dividend investing is vastly inferior". Remember, the stock market is not solved. Educate yourself financially, and stick to a strategy that you can get behind the most in terms of mindset and risk tolerance. Whether it's growth, value or dividend, do your DD and diversify to an optimal extent.

[@tofutrader]

Dividends do matter....most growth investors end up being swing traders because they see gains in their appreciation. However, dividend investors don’t sell and hold for long term.

[@grf73tube]

Well, in that case, what really matters is discipline not dividends. That is exactly one of the points highlighted in the video.

[@tofutrader]

I like having extra cash in my pocket every month. Extra income is always nice.

[@robinson1194]

What about if you utilize DRIP with dividend stocks? If you have a substantial amount, you could receive more shares than what you originally paid for if the stock’s value grows consistently.

[@johnmcclane2401]

i have no bank acc and only $35 in my pocket...WHY AM I WATCHING THIS?

[@danielmcpherson9062]

You can invest with that! I believe in you!

[@hm4456]

@@danielmcpherson9062 we need more daniels in the world

[@danielmcpherson9062]

@@hm4456 Thank you so much!!! We need more Hs in the world!!!

[@emielbonty2173]

While this is very nitpicky, there is actually a slightly different impact between share buybacks and dividends related to the implied tax effect on a company's share price. This can be either a positive or negative to an investor, depending on whether their effective tax rate is above or below the effective tax rate of the market as a whole. This due to the fact that a dividend is paid out of the retained earnings while share buybacks are paid from a mix of retained earnings and share premiums. As returning share premium to shareholders is usually not taxed this means that the remaining equity of the company after a dividend payment should be worth more than the remaining equity after a share buyback, as the theoretical tax burden that would materialize when the company is wound down would be lower in this case. Therefore, if your tax rate is lower than the implied effective tax rate of the market you would make a small arbitrage during a dividend payment, conversely, when your tax rate is higher your yield is slightly lower. That being said, the impact this has on stock prices has been reducing over the last decades due to more efficient tax structures applied by market participants, reducing the overall effect taxes have on stock prices. That all being said, the impact is rather irrelevant when making investment decisions.

[@vitaali]

We can talk about theory all day long without coming to a clear conclusion. We can say such things like: dividends are just moving money from one pocket to another, or money can’t be created out of thin air, or stock price always drops after a dividend payout. But those are just pretty sounding words without a practical example and comparison. If we are going to talk about dividends, we have to compare apples to apples. Let’s first look at how dividends are created. When a company pays a dividend to it’s investors, the stock price drops by the same amount. We can assume then that the company is taking out the money from stock’s price to pay it’s shareholders. The company has the ability to basically perform a riskless trade every time dividends have to be paid. The analogy would be the following: A stock is priced at $50. The company wants to pay a dividend of $1.00 to the shareholders. So they sell short a stock at the market price of $50. Then they tell the market makers to lower the stock price to $49 on the ex-dividend date. The price is lowered by $1.00, which is the dividend amount. After the price is lowered, the company buys back the shares at $49. They now have a profit of $1.00 without taking any risk, which they pay as a dividend. In essence, a company bought low and sold high, only in reverse. They can do this riskless trade every quarter. Now lets compare this dividend generating method to the capital growth investor. Let’s say he seeks a continuous income stream from his stocks and wants to match the performance of the dividend investor. If we were to assume that dividends are irrelevant, then we must also assume that a capital growth stock investor, will also have that perfect ability to buy low and sell high with a 100% consistensy. Basically, he must be able to perform the same riskless trade, as the dividend paying companies do, every quarter or every month, for as long as he owns that stock. This investor has to be able to sell short a stock at $50 and buy back at $49 consistently. He must have a divine skill to buy low and sell high for as long as he wants to have that dividend. Is that realistic to expect of him? We all know that no investor has a crystal ball. No one can predict the future. So, a capital growth stock investor will always be at a disadvantage when it comes to dividend income. And finally, let’s also assume that both types of investors bought their respective companies at $50. For the next 5 years the prices of their companies fluctuated randomly and then ended at $50. Capital growth investor will have nothing to show for. But a dividend investor will have accumulated a lot of free shares or income during the 5 years. Essentially, he will have automatically pocketed those profits because his dividend paying company was always buying low and selling high every time a dividend payment was due. If dividend paying companies have the ability to engage in riskless trades and share the profits with us, I say let’s be their partners. If anyone thinks I’m biased towards dividend stocks because I’m a fanboy, I do not hold any dividend stocks.

[@ueharajohji3607]

we have the same thinking my friend.

[@grf73tube]

Vitali Your reasoning here is flawed, of course. If a company does that, it changes nothing from an investor perspective. After the first dividend is paid, the investor will have $1 in cash and a share valued at $49. All things being equal, after the second dividend is declared, the share will be valued at $48, and so on. If, after a certain period of time, the share is valued at $50 again, it means that the company had made some real profits. If it hadn’t paid any dividends in that period, the shares would be valued at much higher than $50. So, there’s no difference between the dividend stock and the growth stock here, before taxes, of course. In relation to your risk-free trick, the non-dividend paying company could do the same: just issue more shares in the open market which will increase the number of outstanding shares. All things being equal, that action will lower the price of each share. When that happens, the company could just do a shares buyback, at a lower price, making a profit. As usual, money don’t grow on trees. If it makes you happy to believe otherwise, then so be it.

[@yuvalgilad47]

I think this channel is a must for every investor, not only Canadian ones. I told all my friend from Israel to subscribe :)

[@GenXstacker]

OK I'm a noob to investing but another video mentioned that income investing provides liquidity during downturns like 2008, which you can use to take advantage of opportunities by buying up oversold stocks, etc. If my capital was all tied up in an index fund, I might miss out.

[@BenFelixCSI]

Capital and income are directly related. If you get income, it means that you have lost some capital by nature of receiving the income. That is a tautology (it has to be true). The idea that you can use cash flow to buy undervalued securities in a bear market is the same as the idea that you can sell securities in a bear market to buy undervalued securities. Those two actions are identical. The biggest problem is determining what securities are undervalued.

[@GenXstacker]

@@BenFelixCSI Thanks for the response. I guess I'm struggling with the notion that there is a direct 1 to 1 correlation between capital and income as you define them. Stock prices are not simple reflections of the company balance sheet, right? They fluctuate every day based on news, speculation, investor sentiment, etc. For instance, semiconductor stocks plummeted when the US banned sales of chips to Huawei, though they recently have been on a hot streak as the trade tensions have cooled a bit. In either case the stock price (how much I would get if I sold at that moment) was not a straight reflection of the balance sheet or shareholder equity, right? I get less if I sell when it's down on bad news on Monday, and more if I wait until Friday when it rebounds. On Investopedia it states: "One of the basics of stock market investing is market risk, or the inherent risk associated with any equity investment. Stocks may go up or down, and there is no guarantee they increase in value, but while investing in dividend-paying companies is not guaranteed to be profitable, dividend stocks offer at least a partial return on investment that is virtually guaranteed. It is very rare for dividend-paying companies to ever stop paying dividends, and in fact, most of these companies increase the amount of their dividends over time. Many investors fail to appreciate the huge impact dividends have on stock market profits. Since 1926, dividends have accounted for almost half of stock investing profits in the companies that make up the S&P 500 Index. This means the inclusion of dividend payments has roughly doubled what stock investors have realized in returns on investment as compared to what their returns would have been without dividend payments." www.investopedia.com/articles/investing/091015/5-reasons-why-dividends-matter-investors.asp

[@BenFelixCSI]

@@GenXstacker there is an important distinction between the current price and the value. The value (book value + discounted future cash flows) must fall dollar for dollar when a dividend is paid. The price will change day to day based on expected future cash flows and the discount rate used. You will never (almost never) see the drop in value from a dividend reflected dollar for dollar in the price due to the volatility in the other half of the valuation equation (discounted future cash flows). Rest assured, though, the value of the company dropped, which is reflected in the price, even if you don't see it directly.

[@GenXstacker]

​@@BenFelixCSI OK I think I get it. What if my securities are under-priced (priced below true value) due to a sell off in which panicky investors dump everything? At that point I can't really sell my securities to buy up the hot deals, right? Wouldn't it be better to use dividend income to buy the deals while holding on to my under-priced securities until they recover?

[@bangbanggg1]

i just read in Ontario you can make 50k per year in dividends tax free if you have no other income source. i love the idea of living off your dividends and not paying taxes. can you please do a video explaining this. many thanks

[@BenFelixCSI]

There isn't much to explain here. When a big company pays a dividend it is doing so with after-tax dollars, so when you receive the dividend you get favorable tax treatment because the company has already paid a bunch of tax on the dollars. While the tax efficiency is attractive, there are many drawbacks to investing for income. Some of them were covered in this video (that we are commenting on) and others were addressed in this video kzbin.info/www/bejne/b5uZdXykdrKAl68 I may do a video on this because I think there are some serious misconceptions that need to be cleared up.

[@CalmerThanYouAre1]

Great video! 100% spot on. However, I would add that while growth investing or basic broad-market index funds should be the focus during the accumulation phase, switching to an income-focused strategy as you approach retirement could have merit. It's much easier to weather the storms and uncertainty in retirement if you can comfortably live off your dividends, interest, options premium, rental income, etc. vs. being dependent on selling shares when the market is undervalued. A portfolio of dividend stocks may eliminate or greatly reduce the sequence of returns risk, allow the investor to sleep better at night, and also provide a stable foundation for establishing generational wealth.

[@alankoslowski9473]

_"A portfolio of dividend stocks may eliminate or greatly reduce the sequence of returns risk,"_ No, diversifying with bonds is a much more effective hedge to reduce volatility. Since bonds aren't necessarily correlated with stocks and bonds usually have better returns during market turmoil. While dividends might make some investors feel better, mathematically they're otherwise practically irrelevant. There's no reason to avoid or target them specifically.

[@yasnogor]

A hypothetical scenario: Company "A" is trading at $100, an identical company "B" is also trading at $100. "A" pays $5 dividend while "B" does not. Now "A" is trading at $95 since the price got adjusted by dividend amount paid. All of price sensitive ratios of Company "A" are now lower than company "B". Price to earnings, to book, to sales, to anything. Let's assume that both had earnings of $10 and therefore P/E of 10 prior to dividend paid. After dividend "A" has a P/E ratio of 9.5 while "B" still has the P/E ratio of 10. This leads to more demand for company "A" from value-oriented investors that pay attention to these ratios and evaluate stocks at least partially based on them. How would you characterize this scenario?

[@chubbs6684]

I would first ask what company B is doing with the $5 it didn't pay out. It should be reinvesting that money into the company which should lead to higher earnings, which reduces the P/E ratio. If it can't find a good use for that money, then it probably should pay a dividend.

[@heniewessel]

Hi Ben, i agree with the most part of your points in the video, but there´s one part that bothers me, so i give it try to change your mind. I think there can be true value in dividend investing. Not by the height of the dividend yield, but in the fact that a company can increase their dividend for more than 25 years. You show in your video that everyone can acknowledge that a company is "Rock Solid", but I think the power of these compannies is underastemeted in the stock market. Why is it that the S&P 500 Dividend Aristocrats index beats the market? Its not a naive factor, it shows that a company can increase their dividend in multipile crisises. They give away dividend and stil have a solid market position and do great r&d what keeps them growing over the years. Like you say it means that they're conservitavie, good in value and robust. Ofcourse I agree that a company can have the same good factors and just buys back their shares. But i think the robust part is really hard to screen in companies and being a dividend Aristicrat shows that really easy. So I thinks it does matter that companies can increase their dividend over more than 25 years and it can give you a good reason to invest in them. Cheers, Ben.

[@alankoslowski9473]

But what if a companies increases it's dividend for several years, then it makes more sense to reduce or eliminate the dividend? Dividends are incidental to total return which is all that matters.

[@XInfinity2024]

@@alankoslowski9473 What is the point of companies that have grown so large that it would be far more expensive than what its worth into R&D a new product when they can just pay a dividend. Coca-Cola sure doesn't have much use with the money from the dividends that they could eliminate.

[@user-ne6gm8zq2k]

A true dividend growth investor doesn't care MUCH about capital appreciation because they are never selling !

[@Joe-jc5ol]

But that does not make much sense, you can buy 100 shares of something, and each time the shares appreciate by 10% sell one share, that would be the equivalent of you getting a 10% dividend. And you get taxed more efficiently doing so.

[@ojjunior4579]

Joe Elyahchouchi but the share can drop in price too! So if one is counting on capital appreciation only then than won’t work. I think it just depend on which style one want to implements. Dividends have psychological impact, knowing you re getting some cash that’s all.

[@Joe-jc5ol]

@@ojjunior4579 I know but dividends can be cut as well. Unless you are buying a preferred share (which I actually am a fan of) a share that does not pay dividends is less likely to drop in price (assuming it is a solid company)

[@ojjunior4579]

Joe Elyahchouchi Yes get cut all the time that why one invest in different div stock if chooses individual stocks. Personally I can’t invest in any stock that doesn’t pay dividends. 80% of my portfolio is broader diversified ETF and 20% is for speculative stocks for swing trading!

[@mistery2628]

@@Joe-jc5ol Depends what companies you buy. You buy a part ownership in a company, not random shares which just represent an asset class, which go up and down in price.

[@qtcollect4608]

Correction, Dividends do not matter ONLY if you want Capital Appreciation. At the end of the day, they're both just money you make. Capital appreciation can't go on forever. Sometimes the directors just invest in stupid things. Better to return capital to shareholders unless you're a company that can truly reinvest the profits properly.

[@alankoslowski9473]

Your last statement is correct. if you companies don't have a better use for it, returning capital to shareholders might make sense. But that doesn't make dividend companies inherently better investments.

[@XInfinity2024]

I would also like to say during a bear market, dividends can be very nice to have vs having to sell your capital appreciation etfs. If dividends doesn't matter than fixed income investments wouldn't exist for people that want a more stable portfolio imo.

[@roglSimpson]

Exactly, every time the argument is BuT tHe COMpaNy CaN InVeST TheIR ProFitS iN MoRE GroWTh, as if the success of that investment is guaranteed.

[@captainawesome9380]

A lot of your comments, while possibly not intentional, come across as insults. If you say option A) is not rational, people hear you calling them irrational. People hear naive and feel as if they are being called stupid. Additionally, dividends are not always a cut from a share price, actual value or what one paid long term, when scalpers are thrown in. Last year a certain $7 stock offered a $5 dividend. The price skyrocketed to $15+ as news spread. Some people thought it was a $15 stock offering $5, while others were aware it was worth around $7-8. Some held and did nothing, got their dividends, watched the value return to its original value with a little extra. Some sold at 100%+ profit, before the ex-dividend date, waited for the price to drop back down, and doubled their holdings. Long term investors, or anyone who wasn't simply dividend hunting, made off very well. Some people are also very emotional, and dividends are comfortable, to them and stops them from buying high and selling low. Let me put it this way, imagine a model telling their overweight friend "Bro, just go talk to her. Always works for me." Your perspective isn't their own, and you're using your logic that they can't translate towards their self. You could go back in time and say "Buy Bitcoin at 0.001 and wait, it will reach $19,000.00." Some, unfortunately, would sell at $35.00.

[@BenFelixCSI]

This comment was so irrational and naive I can’t handle it.

[@yuvgro]

I'm between two worlds now. What about the fact that by reinvesting received dividend i'm able to buy more stocks. If what you say is correct, take your example, if i have 1 div stock that gives me 10% yield after a couple of years i'm able to buy one more of that stock, at that point i have 2 stocks giving me 10% a year where the second investor has only one stock 1 (with higher / lower value). Also not talking about the ROI where i buy the div stock at a lower price because it gave the dividend. Am i getting this wrong?

[@rumpelr]

I think you are getting this wrong. Dividends are not extra money. If you get paid dividends, value of your shares will drop by the amount of dividends paid to you (example: you own stocks worth 100 USD. Company pays 5 USD dividend. You now own 5 USD cash and 95 USD in stocks). So reinvesting the dividends would actually be buying shares to get back to the point, where you were, before companies paid the dividends and so caused their value to drop (example: you reinvest the 5 USD from dividends back in to shares...now you have shares wohth 100 USD. Just like in the beginning, before the company paid the dividend).

[@christianpoonwah5760]

@@rumpelr Yes, completely true from a value point of view, but the whole point is, dividend investors want share volume for dividend payout volume. In a retirement scenario, the dividend investor would have a (according to your point) a value neutral portfolio which has grown to the point where it pays a proportionally larger volume based on the investment/reinvestment frequency. -- Or have I missed something?

[@rumpelr]

@@christianpoonwah5760 I am not sure I undestrand what you mean. I think it doesnt matter if you are young investor or retired investor. Investing based on dividends is rationaly meaninigless, because it is irrelevant if company pays them or not. If it does, thats fine. If it doesnt and keeps the profits, than is also fine - you own more valuable company. And if you need income in retirement, you can sell small portion of yout stocks based on the 4 % rule (or make it 2,5 % rule as Ben explained in different video). With this withdrawal rate it is unlikely that you will run out of money. Your stock porftolio will growing faster than you are depleting it and you are the boss of your dividend payments. Not the companies.

[@mdc8223]

So, ¿What do you recommend for INCOME?

[@Magic_beans_]

Bonds, preferred stock, REITs, & BDCs are more directly income focused, and would provide some diversification (emphasizing dividends would create some concentration in the common stock of already-mature companies.) Another approach would be to just sell some fraction of your holdings as needed. Here in the US, qualified dividends and capital gains are taxed the same.

[@mdc8223]

@@Magic_beans_ thanks for your reply. Happy new year.

[@mindofmikedre]

Best benefit of dividends is you get to not have to manage selling shares or "timing" the market. You get to stay invested in the market and do not put a cap on your growth by selling the shares. It is not free money but it is a simple way to stay invested in the market and still to get to actualize at least portion of your investment growth in a rather automated idoit proof manner. Can't time the market, why try? Stay invested and let the chips ride on quality S&P 500 companies of course.

[@Spider_aaaahhh]

Then, just admit that dividends are purely psychological for your monkey brain and that they're nothing special. Ben never mentioned that dividends are irrelevant. Dividend chasing and investing in dividend funds are irrelevant at best. Suboptimal at worst.

[@DamienTalksMoney]

You are just great.

[@bythemountain]

I see that your point is that if we compare returns, dividend are indeed irrelevant. So, do you suggest a growth strategy with ETFs, and then when retirement arrives, to sell those shares and replace them with dividend stocks? That way, since they are less volatile, you get the (taxed) income, but kind of keep your wealth preserved for the long run. Does this sounds like a good strategy?

[@azhp42069]

His strategy is probably to reduce your exposure to stocks as an asset class by increasing the bonds in your portfolio if you want to reduce volatility. He doesn't advise tilting away from total market index funds except to get exposure to factors. He has never talked about a strategy that involves purchasing dividend stocks.

[@janplonka7143]

if you like plain crackers and vanilla ice cream, then you may be an ETF investor

[@wread1982]

What are your thoughts on the ETF VGT? Thank you 🙏

[@samanthasanchez139]

ben I don't think you truly get what dividend investing is its not about capital appreciation or the share price dropping after a dividend is paid out its not even about achieving the highest returns its just simply cash flow thats it. we keep buying dividend payers eventually over time you own enough to support your bills like rent and food stuff like that I personally don't care if the stock price drops at all lol as long as I keep getting paid while I sleep then its all good !! the stocks I own pay quarterly but they all pay different months so I get a few checks per month and I love it ! plus the strong names I buy have been raising their dividend since even before I was born !! plus the good cash flows the have means they will probably continue to do so getting paid while I sleep plus getting a raise every single year for sleeping count me in !

[@maxsahlinlarsson8585]

The exact same thing could be achieved by selling some assets in an index fund each month to gain the same income, assuming there is no fee for selling fund assets (there isn't for the bank i'm using).

[@samanthasanchez139]

@@maxsahlinlarsson8585 but again your missing the point I don't want to sell every month I rather just get a check like I'm doing now passive income is the whole point of dividend investing do pretty much nothing and get a check and a dividend raise each and every year ! people just don't understand it fully thats why everyone shits on us dividend investors

[@maxsahlinlarsson8585]

Samantha Sanchez If the goal is to have the income completely passive and not have to lift a finger (even though selling shouldn’t take more than a couple of minutes each month) then sure its better! If you would like to reinvest the dividend it is conversely more time consuming than an indexfund that does this for you. Many people believe that they will gain more money from dividend funds, and this is discredited in the video. Nobody is trying to ”shit on” dividend investors and I’m not arguing to ”win”. I believe we all just want eachother to succeed as much as possible?

[@samanthasanchez139]

@@maxsahlinlarsson8585 I don't like index funds I like to pick my own stocks. That part is fun and enjoyable to a lot of dividend investors so an index fund takes away from that. I like to buy stocks when they drop as well and an index fund wont really allow me to get in a stock at the valuation I want to get in . There are times my stocks go on sale and others go up and become overvalued. So I like to put money where I want to put it instead of buying a whole index. I also like getting a check from these companies it makes me feel proud it makes me feel like I'm more involved with the company. I also get to reinvest my dividends where I want to. This is what I mean people don't really understand dividend investing at all. its more than just investing its a lifestyle HAHA Why is it so wrong that us dividend investor just want to sit back collect a check and live our life its not about being the most successful or even beating the market returns we just want a check bro

[@GoodwalkSpoiled]

Dividends are very relevant indeed. Dividends provide cash to live on. Dividend stocks are like little machines that generate cash quarterly, or monthly. It's like owning a vending business that pays reliable income. And you can take that to the bank! Increasing market value is not spendable until you actually cash out by selling shares. I say cash is king. The stock market is a secondary market. Stock prices rise because of the demand and perceived risk of management continuing to generate a reliable cash flow stream, and risk premium over bond yields. Savvy investors compound their return by reinvesting some, or all of the dividends received into more and more shares, getting very wealthy over time. Dividends matter a whole lot.

[@greybeardbass]

No, I don't think you are crazy, Ben. What you say makes absolute sense. The statement you made about keeping focus and discipline rings true in my case though. I started my dividend push a few years ago to supplement retirement income rather than capital appreciation. This led me to become very focused on risk reduction, goal setting and diversification.

[@BenFelixCSI]

Good insight. Thanks!

[@dlb2490]

Ben is right on a lot of points, this money come from the company itself meaning that it's not something that appears from nowhere. I think that the dividend stock should not be a major part of your portfolio because most of your money won't be coming from this if you diversify and invest logically. As a student in psychology i'll be honest chasing the dividends is kind of complex to explain how people react but to put it simple, a lot of people don't tolerate losing money or seeing they're hard worked money in the red, having dividend make them feel comfortable and motivated and what you dont know dosen't do harm as they say. It think the points here is that the real problem is a lack of logic and composure when you look at your approach in how to invest logically AND the most important point is they're financial situation, if you look at the % in canada or USA people are full of debt (yes even people who are investing).They lack financial discpline, they get a new job more money = more spending for them whitout even realising it, a house, a boat,a brand new car, a family etc... they cant afford to put they're money in something they are not 100% sure of having an income out of it, in a way its a self defence tactic because a lot of people are financialy insecure because of they're spending behavior.

[@streettrialsandstuff]

Dividend is not an income if the stock performs poorly and if that continues, eventually they get less than they paid for + taxes. If they are so loss averse they should know that anyway so this looks like a poor self defense tactic really 🤔 What's even worse, if you sell a dividend stock at a loss, you paid dividend tax and lost money. If you sell a growth stock at a loss you pay zero tax. Which makes a poor performing growth stock a better option than a poor performing dividend stock.

[@orestispalampougioukis6043]

Loving you content man... This is by far the best and most rational explanation/comparison I have found about dividend/non-dividend paying stocks.

[@BenFelixCSI]

Thanks! I am covering the topic again this week. I like the new video more than this one.

[@orestispalampougioukis6043]

@@BenFelixCSI Great! Will be waiting for the new video.

[@cp-5628]

@@BenFelixCSI Where is the new video!? Can you link it?

[@netherworldpost]

I frequently find your videos challenging to what I have conceived as "this is how it should work," which is to say, I greatly enjoy them. Thank you.

[@Skilliard]

Ben- I agree with you that in theory, a dividend itself does not provide value, because the company loses the assets it pays out. However, couldn't you make the argument that dividends increase liquidity by providing a bit of shielding from short term fluctuations in the market? For example, suppose you have $1 million in stock, of which you need to pull $2,000 a month from. A severe stock crash happens, and the market panics and drops 75%(ie tech bubble of 2000), but dividends are barely down. At this point, it doesn't matter if the company is technically worth more because it reinvests its cash, if the current inefficiencies in the market reduce market price below its fair value. So rather than selling off .2% of your portfolio per month, you're selling off .8%. A dividend is less vulnerable to the panic of investors flooding the market with sell volume. Historically, you could argue that if you need short term liquidity, or a hedge against stocks, or income, you would buy bonds that pay interest. But with interest rates below the rate of inflation, is there a place for a dividend portfolio to fill this gap in the market?

[@kylejulius9596]

Man, Ben- you really are the best!!!

[@georgemanka]

In Australia, as I have stated, dividend tax imputation makes dividend investing extremely attractive. Income portfolios here are always sold as tax beneficial if they are weighted with dividend stocks, which means most of our blue chips.

[@BenFelixCSI]

It is very similar in Canada. We have a dividend tax credit which makes dividends extremely tax efficient, especially for lower-income investors. Below $47,630 of taxable income, eligible dividends (dividends from Canadian companies that pay tax at the general business rate) have a negative tax rate.

[@robinhaneyyt]

This video packs a lot of information and I think anyone that wants to get started with dividend investing should watch this video. Overall I do love dividend investing but I also think high growth stocks are important as well. Building a portfolio that does both I think is something that a lot of investors should consider doing. Thanks for the well informative video Ben, I appreciated it as a fellow Canadian.

[@swampykips3381]

It's full of misinformation on how dividends work.. this is a terribly misleading video.

[@Jakuzziful]

Whats wrong about it?

[@marcoz326]

I like writing covered calls on dividend stocks. Capture some premium for time decay.

[@darhurian]

The size and value factors are fairly straightforward to target directly, but how would you recommend targeting the profitability factor seeing as many factor specific ETFs leave a lot to be desired. My current approach (open to change) is a small portion of dividend growth and high yield ETFs (VYM & VIG).

[@michaelioffe3196]

Does this same logic, however, apply across all dividend payers? Namely, are REITs unique in this regard? Typically when one invests in real estate, one looks for capital appreciation and rent. Wouldn't getting a good REIT at a good price be an excellent investor as real estate tends to always appreciate?

[@MrEnjoyBeats]

The whole dividend vs capital appreciation discussion is nice. But I'm not planning on selling shares. I don't want to fund my expenses by selling shares. For me, the point of dividend is getting cashflow because of my ownership in companies, and then reinvesting all the dividend to increase ownership until I'm satisfied. So I'm not planning on selling shares.

[@FarfettilLejl]

This is exactly my approach too. I still don't understand why he says dividends don't matter. They do matter to many people.

[@pran10000]

@@FarfettilLejl Of course they matter. But it's just a case of the mental accounting bias. getting a dividend = selling a stock. Think of it this way, when they are giving you a dividend the company is making the sell decision instead of you, saving you the effort to make that decision. Although you have the same number of stocks, the value of each stock has fallen by the exact same amount. Had they not paid the dividend the share price would be higher.

[@joelthorne7434]

I had mistakenly thought that dividends were free money “paid” by companies in appreciation to shareholders for owning their stock. I had no idea that shares drop by the amount of the dividend. There is no free lunch. I don’t think I was alone in this incorrect thinking.

[@johns4651]

You were no alone here buddy.

[@ueharajohji3607]

where do you think all that money is coming from?

[@CT-O]

Yea they don't

[@minasmina2700]

What is your opinion on market cap weighted dividend ETFs, like Vanguard All-World Dividend Yield? Could it be used to reduce volatility in a portfolio or used by people towards retirement?

[@mhmhmmhmhm5162]

I have my mom on a dividend retirement plan for a few reasons in my country the taxes on capital gain is a lot more than dividends. We also pay taxes on the retirement money we take out here. In total my mom saves a total of 20% on taxes. So even though the high yield dividend stocks and REITS, might grow slower over time. she is still gonna get more for her money by doing divided investing. So dividend investing is a strong tool depending on your situation. Every single situation is different. I believe the vanguard ETF you are talking about is a good ETF. However don't be fooled by the idea that dividends is the strongest force in the universe. a lot of people are fooled with this idea. Things are not that simple! It's also not as simple to say that dividends are bad!

[@minasmina2700]

@@mhmhmmhmhm5162 Thank you for the lengthy reply. I know that dividends is not the strongest force in the world - personally I invest in an accumulating all-world index fund. I am interested in dividend ETFs as a stream of passive income and possibly reduced volatility for my parents.

[@Fabian9006]

@@mhmhmmhmhm5162 "in my country the taxes on capital gain is a lot more than dividends." Where are you from?

[@pran10000]

Awesome! Why does the share price fall by the exact same amount though? Is the market discounting the dividend immediately? Is the market so rational?

[@azhp42069]

The share price is the market value of the company. if a dividend is paid by the company the share price must by definition drop by the amount of the dividend. You can't create money from thin air.

[@pran10000]

@@azhp42069 Isn't share price the perceived value of a company. I mean loss making companies with huge debts can also have an increasing share price if market participants bid it up. How is giving a dividend linked to the market value?

[@azhp42069]

@@pran10000 look up dividends on investopedia. There are specific dividend payouts in history where you can see it happen. 2004 microsoft payout of 3 dollars dropped the share price from 29 something to 27. The market behaves as you would expect if it were mostly efficient.

[@pran10000]

@@azhp42069 Yes I know it does happen. No doubts there. I'm just surprised the market is that efficient that's all!

[@philipebarcellos]

There are people who believe the market is efficient... thank God!

[@CompositorArmonicoEnFuga]

I have a theory about dividend investing on my country (ARG) vs invest in savings and then rent a second house. Here a 2nd house gives you round a 1.5% of its value. Non liquidity. And you have to invest all the money togheter. The rent depends of the volatility of the argentinian salaries... Im an average investor, i know it, maybe less than that. With the inflation problem, the impossible access to other currencys here (here we have taxes to bouy currencies), i can bought shares that gives me a rent superior to a bond and safer than a argentinian bond. And linked to a dollar. That is safetiness here. Investing low pe (or reasonable at least), sustainable payout ratio, and long term growth revenues, some years, then i will get a safe dividend compare to rent a house here, and better business than that. I have the idea of not sell my shares never (except if they fall down 25% with revenues problem on the stock) Beat the market its just for others. 1% or less. Who cares. Its a good business wait more than 5 years with a good company. For now its ok this. What do you think Ben?

[@miked412]

You're definitely not crazy. You touch on it, but you may fail to grasp it. If someone has a passion for real estate and is well researched, knowledgeable in markets/trends, able to DIY the repairs/updates (correctly); investing in rentals should be a no-brainer for that individual. If a person hates real estate and "unclogging the toilet at 3am", then stay 100 miles away from buying rental properties and rent for your life. If someone gets excited about dividends showing up in their account, are passionate about dividend investing, enjoy reading financial statements etc, have a dividend investing account. If they are truly passionate (and well researched) not only will they likely be successful, they will also enjoy it too. Neither the rental investor nor the dividend investor should put all of their eggs into that basket. But, for it to be their hobby investment provides meaningful returns and joy - and happiness is far more important then a $$$ on a screen. One important part you did touch on, was that people who pick an investment strategy [they are passionate about] are more likely to save & invest more than if they are indifferent to it. Which is important, people finding ways to cut unnecessary costs and invest the difference. Passion and happiness are being under-rated here. And again, if the investor sucks at something or has no passion for it and it is only a means to an end; ETF investing for the win.

[@pchan4267]

You change my mind instead of I change yours. Highly recommended video.

[@JB-ef6wt]

Ben, you're absolutely right. I've researched this issue over the last few years and have arrived at the same conclusion, that dividends do not matter. Unfortunately I have found that most dividend investors don't believe the key point that a stock declines by the amount of the dividend payment resulting in zero net change. It seems to me that daily random price noise plus the presence of a bull market obfuscate all of this. Many dividend investors really believe that the dividend is free/new money, and refuse to accept that cash withdrawal via dividend is equivalent to withdrawal via selling shares. Based on this core misunderstanding, many people think that taking out just the dividends (perhaps living off dividends in retirement) means they are "not touching principal". This is a very popular idea as I'm sure you've seen in the KZbin channels. This misconception can then lead to unsafe withdrawal rates as people pick higher yielding stocks, thinking the dividends are free. Without realizing it, the investor might deplete their capital due to withdrawing at say 5% instead of a sustainable 3.5% to 4%. And that's assuming the investor can successfully pick individual stocks over many decades, already a herculean task. When people talk about Dividend Growth Investing and dividend based portfolios, I'm actually more concerned about the stock picking part.

[@AIRpursuit]

id say put 50% money in dividend ETFs and 30% money in LEAP options calls for growth companies and ETFs. 20% money stay in cash so when the growth companies go into dips or corrections, you put a portion of them in puts. This way, dosen't matter what the market is doing, you are making money regardless.

[@kyro1979]

How about the carry factor? doesn´t it related to dividend?

[@anothercrappypianist]

Ben, when you said "dividends are neutral to your wealth before taxes are considered" I thought you were setting yourself up for a subsequent segment of the video to talk about the after-tax views. I haven't done the math myself, but at least in principle, since Canadian eligible dividends are taxed more favourably than capital gains, I can vaguely see an argument that at least a Canadian dividend fund could come out slightly ahead. It's possible the forfeiture of diversification could wipe out this tax advantage though. Curious to hear your take on that.

[@cupdrums]

anothercrappypianist don't mean to steal Ben's thunder here but think about it this way...if a company pays out a dividend the company at some point paid tax on it at the corporate level, and then you pay tax on it (personally) hence the favorable tax treatment of dividends. it's a way to try and "neutralize" double taxation.

[@anothercrappypianist]

@@cupdrums Right (for eligible Canadian dividends anyway). But my question was about whether the *after-tax* view of a dividend-heavy portfolio vs non-dividend was much different for the very reason that eligible Canadian dividends are taxed less than capital gains are.

[@cupdrums]

@@anothercrappypianist I don't believe Dividends are taxed less than capital gains are. Cap gains have a 50% inclusion rate. So even at the highest marginal tax rate of 53.53% (in Ontario at least) you're effective tax comes out to like 26.77% compared to eligible dividends of 39.34% ish. I have not run the numbers but my knee jerk reaction to this would be that, assuming all things equal, non-dividend portfolio would return greater because it does not have the tax drag as the dividend portfolio has, thus the non-dividend portfolio will retain more money within allowing more to compound.

[@BenFelixCSI]

There's a lot to unpack here. Nick and anothercrappypianist you both raise good points. Thanks for starting a good discussion. Canadian eligible dividends are taxed more favorably at lower levels of taxable income. For taxable income above $95,259 in Ontario in 2019, eligible dividends are taxed at a higher rate than capital gains. That piece is situation-dependent, so there's no way to make a blanket statement. The other important point that Nick mentioned is tax drag. Even if we are talking about a situation where eligible dividends are taxed more favorably than capital gains, the important difference is that we are comparing tax on dividends received *every single year* to capital gains which may be deferred for many years. It becomes a present value problem. The longer we can defer the capital gains, the lower the effective annualized tax rate becomes. I'd rather earn deferred capital gains than any kind of taxable dividends, assuming that I have a long time horizon. The only exception might be low income situations (sub $47,630 taxable income) where eligible dividends have a negative tax rate due to the dividend tax credit. However, in that case I would expect that there is ample RRSP and TFSA room available, making this a non-issue. Lastly, we have to keep dividend yield in mind. Canadian stocks tend to pay a higher yield than US stocks. I ran the numbers on this a while ago, and found that the higher yield of Canadian stocks negates the more favorable tax treatment (at the highest tax bracket at least), making Canadian stocks no more tax-efficient than US stocks. You're paying a lower % of tax on a higher % of dividend, and I observed it to be pretty close to a wash. I dig into a lot of this in an upcoming video on swap-based ETFs which convert all returns (including dividends and interest) into capital gains.

[@redsoxfan5240]

Could you please explain or clarify the following: Re compounding: is it correct to say that if you own and hold onto a non-dividend paying stock for 20 years, there is no compounding occurring? Or is it inherently happening behind the scenes, just not obvious to us.

[@BenFelixCSI]

Compounding does not require dividends. Say you always earn 10%. Start with $100,000. Year 1 you make $10,000. Year 2 you start with $110,000 and make $11,000. That is compounding. The math does not care where the return came from.

[@Dave004]

Feel like when the market is over valued like it is now investing in index funds will give little return vs looking for good value stocks and even some dividend payers that will whether the storm like a REIT. Also, if you find a good dividend payer like a REIT or strong financial company like MFC and can earn a 7-9% yield, aren't you basically beating the market each year just with your dividend, let alone what the stock does? I know they can cut the dividend in down times, but stocks will get lower in downtimes so you might lose half your dividend for the year but if the company is solid it will bring it back after. I dunno, you're the professional lol i'm just grasping. I have about half my portfolio with strong dividend stocks and half in growth stocks that pay no dividend.

[@pipebliss]

You seem to be in Canada, so I will propose a way to show that dividends do matter. If I'm assuming a scenario with a husband and wife who want to retire off dividend income and live in Canada, only owning Canadian stocks that was eligible dividend payers. Most financial planners suggest a 3% or 4% rule. The problem is, when you sell to withdraw your 4%, you trigger capital gains and taxes have to be paid. With eligible dividends, a husband and wife can be paid $57.300/each per year in dividends and pay $0 in federal taxes. That's an annual income of $114,600/year or $9,550 a month. That means on a $2,865,000 nest egg yielding 4%, there is zero tax burden. The fact you are paying virtually zero fees and zero tax in this situation makes dividends matter. I agree with you, you still need to consider value when you are investing, and you definitely need to consider the durable competitive advantage of the businesses you are investing in, but Canada is filled with about a dozen oligopoly businesses that are not going away in our lifetime, at least that's my opinion.

[@BenFelixCSI]

I get the argument, but how did this couple accumulate the $2.86m in their taxable account? Why were they not using their RRSP and TFSA? I used this example in another reply, but it applies here too: Example: Let’s say you have an income of $100,000 and assume your marginal tax rate on income is 40% and on eligible dividends its 30% while you’re working. At the end of the year you could choose to max out your RRSP with $18,000, or you could invest $10,800 ($18,000 minus 40% tax) in a taxable investment account and buy dividend stocks. Say the RRSP and the taxable account both earn a 4% dividend and 2% capital gain each year, but in the taxable account we lose 30% of the dividend to taxes. By year 20, the RRSP is worth $58k while the taxable account is worth $28k. Now, the RRSP still has to pay tax, but rather than the 40% we were deferring when we made the contribution, we are only paying 20% based on a taxable income of $59k (which after 20% tax = the $47k of dividends that could be earned tax-free in a taxable account). Even if we take off the 20% in taxes, the RRSP is worth $46k vs the $28k in the taxable account - and I didn’t even take off capital gains tax from the taxable account. So, if our investor used their taxable accounts to accumulate in lieu of the RRSP with the intention of living off of dividends, they shot themselves in the foot.

[@pipebliss]

@@BenFelixCSI There are many ways. a) some families own a business and don't take a salary, instead being paid in dividends which don't give you RRSP room. b) some people get win falls from the sale of a business and need to invest the proceeds in order to fund the rest of their life. c) Many people get large win fall from Inheritance, which they can't put inside an RRSP or a TFSA. There are also flaws in your argument above. a) There is no 2% a year in capital gain if you are a long term buy and hold investor. b) You assume only 20% tax on the RRSP. Most people that are maxing out RRSPs for 20-30 years and compounding at good rates, are going to have pretty large RRSPs. I doubt they will be in a 20% tax bracket when withdrawing them. I personally know many people in this scenario. c) If you pass away with a big RRSP, what happens then, how much tax is owing? You ask why wouldn't you a TFSA? I would. But that is limited to $6000/year, which is a very small amount of annual saving/investing.

[@BenFelixCSI]

​@@pipebliss ​Thanks for the ongoing discussion! I agree with you regarding the windfall examples. Keep in mind, though, that if the person receiving the windfall already had a maxed out their RRSP, they will no longer be able to take advantage of the zero tax rate on dividend-only income. They will have CPP and RRIF minimums to deal with, eroding the benefits of a dividend-only portfolio. I think the idea of having an investor with a magical $2m taxable investment account with no other income or assets is unrealistic. Even if this is a realistic case for some people, the relative tax efficiency of a dividend-only portfolio is only marginally better than earning a mix of dividends, and unrealized and realized capital gains. There is no question that Canadian dividends are tax efficient, but not by that much compared to a mix of capital gains and dividends. The question is whether or not the marginal gains in tax efficiency outweigh the lack of diversification inherent in owning dividend paying stocks. On the flaws that you pointed out: a) I assumed that the gain was never realized, so it's a non-issue for the example. b) We are not discussing most people, we are discussing someone who needs $47k of after-tax income which they can either get from tax-free eligible dividends, or from $59k of regular income from an RRSP/CPP/OAS. The tax rate on $59k of income is less than 20%, so I was being generous. c) If you pass away with a big RRSP you pay tax on it (unless you have a living spouse). If you pass away with a large taxable investment account you pay tax on the as-yet unrealized capital gains (unless you have a living spouse). We cannot ignore the unrealized capital gains. The RRSP will pay tax at a higher rate on death, but that is only because the taxable dividend investor paid more tax tax earlier.

[@pipebliss]

@@BenFelixCSI Your points are not wrong, but there are scenarios where dividends are definitely better. If one doesn't contribute to RRSPs and then comes in a win fall, especially inheritance which is very common, dividends stacked on top of other CPP will be tax beneficial. I discount capital gains because achieving them requires much more skill and timing that dividends, on an ongoing basis. I know people that have simply owned TD or RY or BNS for 30-40 years and have done extremely well just collecting a growing stream of dividends and either reinvesting them or Dripping them. The beauty about dividends is also that you don't have to transact to generate income and you don't have to eat the principal. In the USA, it's even more tax beneficial because you have the step up cost rule for estates, so there is no taxes owing when you inherit stock. We could definitely go on all day, I simply responded to play devil's advocate and say that I believe dividends do matter and are especially beneficial is certain situations. I enjoy your videos, I can tell you have a lot of investment knowledge and you are a bright guy.

[@BenFelixCSI]

@@pipebliss Thank you! I don't agree that capital gains require skill. They require diversification. The market has to go up. If the companies paying dividends are going to keep paying dividends, the market as a whole has to go up (long-term). We will only know 30-40 years from now if companies that have increased their dividends for the past 60-80 years do well over the very long-term. Warren Buffett did a fantastic job discussing dividends in his 2012 letter. It's on page 19 if you care to read it. www.berkshirehathaway.com/letters/2012ltr.pdf I truly enjoy the discussion - thank you!

[@papabear4066]

Always a smart and make sense analysis. How about adding 10-20% of technology index to total market index?

[@sleepless2541]

why would you want to add idiosyncratic risk?

[@vahidsaberinasrabad7757]

Thank you Ben! I love the fact that you refer to literature and data. Keep it up!

[@BenFelixCSI]

Thanks Vahid!

[@jrwardle1]

@@BenFelixCSI I second that Vahid. Great videos Ben, I watch them all and appreciate your work. It must be hard reading all the irrational & confused comments but just know that some of us do "get it" ... I'm guessing the silent majority.

[@perfumedeath6042]

Hi Ben Felix! could you make a video about momentum Factor? It would be great 😂😂😂

[@mossbergmaniac1947]

I max out my IRA and 401k and invest 100% in index funds. I also have a taxable brokerage that is my "fun" account and I play with dividend stocks in. It's my hobby and I know full well that it probably won't beat the market.

[@brucew4545]

In a taxable account, say over a 10 year period, wouldn't you be better off with a dividend ETF compared to a pure growth equity ETF because dividends are taxed less that capital gains? 10 years down the road with the equity ETF will have a large capital gain as compared to the dividend ETF. Assuming you reinvested to the dividends, you might not have the growth but you will have more shares of the dividend ETF and less of the capital gains.

[@firelordsozin3677]

This is the only video of its kind worth watching

[@benjaminm39999]

Another great video Ben. For investors with a higher risk/volatility tolerance, what do you think of using dividend index funds as a bond like substitute? For example, 70% market weighted index funds, 30% dividend growth index funds? I know that unlike bonds, dividend stocks will likely fall with the rest of the market, I'm thinking more for the yield. Sure, dividend payouts will likely get cut, but they are unlikely to fall as much as the share price, meaning a higher yield percentage. These dividends could then be used to rebalance and buy low.

[@BenFelixCSI]

Good question Benjamin. Keep in mind that dividends reduce the value of your shares, so receiving a dividend does not benefit you. The idea that you can hold your dividend paying stocks for the yield ignores the fact that each time you receive a dividend, your capital is being reduced. If you receive a dividend when shares are down, your are effectively selling low. The capital of the low stock is being reduced an increasing amount the higher the yield is. Selling low (through the dividend) to buy low does not end up being helpful. If you want a diversifying asset class for a portfolio of total market stock index funds, I think your options are bond index funds, small cap index funds, and value index funds. Each of those introduce an independent risk factor. Dividends are not an independent risk factor. If the goal is to increase your risk in order to increase expected returns, then small cap and value stocks are going to be more helpful than dividend stocks.

[@williamphillips3375]

@@BenFelixCSI "each time you receive a dividend, your capital is being reduced." Yet, you are still holding the stock and the increasing dividend is funded by the increase in the earnings of the company. That increasing earning capacity more than makes up for the theoretical reduction in the capital price. Theoretical because actual market price of a stock has more to do with the ability of a company to exceed their projected quarterly earnings by a small amount on a constant basis. Failure to meet earnings expectations often drops a stock by 5% or 20% in a short time. This is true even when the company is actually growing earnings and has a long term growth potential. So, your point while true in theory is blasted by the psychology of a market. On the other hand, growing dividends that are based on growing earnings are not blasted by psychology. They are supported by actual sales.

[@DerekRAustin]

3.37% outperformance seems pretty significant, even if yes you can probably get better results from 100% small cap value tilt. Dividends beat the total stock market at least, even if the source of return is equivalent to capital gains from stock buybacks.

[@TofuInc]

The market rarely prices a company fairly, thinking it will fairly account for dividend payments is false. Dividends directly correlate to a companies profits.

[@BenFelixCSI]

Oh really? Please, tell us the basis for this information, which is clearly at odds with how financial markets are understood to work.

[@TofuInc]

@@BenFelixCSI Over time yes, the market prices the stock, but entire sectors can spend years over or undervalued. Selling undervalued stock of an otherwise profitable company for income makes no sense. This is where dividends come in. Companies in these positions provide income through dividends and are generally able to increase their dividend regardless of what the share price is doing. The section "Dividends are a guaranteed source of returns" in this article: bit.ly/2E3xXuu better explains my point. ( This is actually how I ended up on here) In the end purchasing undervalued stocks with consistent dividends provide both growth and income and is my preferred strategy. Each to their own. Thanks for responding.

[@averagejoey2000]

if it directly correlates, why isn't the earnings to dividend ratio a constant? some profitable companies don't pay, some unprofitable companies do pay. there's no law stating that a percentage of your net income or profits must be paid in a dividend, so there's no correlation

[@josephcourtright8071]

Dividends/buybacks are the end game of all stocks. That's the profit sharing is the fundamental promise of buying a stock. Flipping growing companies is all well and good. Eventually every company matures and pays dividends or buybacks or goes bust and pays nothing. So every good stock is a future dividend stock.