The True Cost Of Dividend Investing

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[@johndeanconway7931]

My holdings are manageably geared towards capital growth and i’m focused on profitable dividend stocks, index too, it great to see!

[@ahmetnurikedici4291]

It must be nice to see that regular income adding up from time to time.

[@johndeanconway7931]

Absolutely, at the start, during the pandemic my portfolio fell from 630k to 270k, That could scare a lot of people. It did! It revealed a lot, it’s more easy navigating with an experienced prospect.

[@jessicamegan5850]

I’ve trimmed my portfolio in ISA down to 24 stocks, im averaging £550 a month, so steadily growing with low dividend yields in them. I’ve been a victim, I just want to model out what success looks like while also improving

[@johndeanconway7931]

A sound method would always provide more interest no matter what, which is why, despite the concerns of those who have lost money trading, there are those who attain profitable returns. Best possible way, is participating behind top experienced performers.

[@johndeanconway7931]

coach frost hilda takes good care of my holdings giving me an edge to successful interest.

[@davidbarclay54]

Retirees may prefer a steady income source. Imagine needing to convert your “growth” stocks to cash during a slump. Your main point is well made but everyone’s needs can be different.

[@user-si7fj5rh5u]

Dividends can very well be cut or completely stopped in a slump

[@AMACarter]

​@@user-si7fj5rh5uyou clearly don't do enough research into large dividend companies. All quality dividend companies either maintain or increase dividends and have done during recessions (2000, 2008, 2020). This is all public info. Just need to check the companies free cash flow is increasing to supports it's increasing dividend yield.

[@FirstMM]

The effect is purely psychological. The dividend paid out is still the same as would be added to the non-dividend fund, it is not like the dividend stock is staying the same price. If they pay you a 5% dividend, and their stock goes down 15% instead of 10%, exactly the same thing has happened.

[@pvelectronics4291]

@@FirstMM Stock prices don't directly reflect NAV of a company, there is lots of other stuff affecting the share price. Some people may well prefer a bird in the hand, rather than having the company decide to 'invest' that excess profit (metaverse as an example). BTW I am 100% in index ETF's!

[@Andygb78]

If you look at the highest dividend paying companies in the UK, they're usually the large slow growers. The shares of National Grid, one of the largest dividend payers in the FTSE 100, for example have gone from £9.16 to £10.74 in the last ten years with an annual dividend of between 5 - 6% in that time. These are poor returns in anyone's book, you'd be better off investing in an index fund ETF & withdrawing some of the returns every 6 months to give yourself a lump sum passive twice yearly income.

[@rodrain2]

If the company does not have growth opportunities to invest excess cash in like say a coca cola,then distributing it as a dividend makes sense. Also the dividend gives me options. I can spend it on something I want, I can reinvest it in the company, or if I don't like the valuation or there in a better opportunity elsewhere, I can invest it in another company. I get what you are saying but dividends have many benefits. The main one being it gives you options on what to do with the money

[@TobyNewbatt]

Sure which is exactly why I buy the whole market and dont only focus on dividends :)

[@MrPurle]

Nice explanation Toby! I think I'll stick with VWRP...

[@TobyNewbatt]

Index and chill 😎

[@mattsennett]

I agree that the S&P 500 is the proven winner over the long term and is where your core holding should be, or a Global fund. I hold a number of high yielding companies in my "fun" portfolio but have been shifting profit from winners into my core holding. This is more of an active approach rather than passive index investing so you need to find the time to try and make this work. If you can't do that then as you say Toby, index and chill 👍🏻

[@someguy3270]

A couple of things. Explain REITs.And where do you get your index and chill shirts.

[@TobyNewbatt]

I did a video on REITS a long time ago :) And these T shirts I made myself...maybe one day I'll sell them but look out in my next video there might be a little surprise.

[@someguy3270]

Thanks. Found it

[@mehmetersoy7380]

That car analogy hit far too close to home lol great videos as always appreciate what you are doing

[@ericscott6864]

My first few years I chased dividend stocks and ETFs. I had 15 stocks and 3 ETFs with $15,000 invested. I was earning $100 a month from dividends. The snowball was growing but the total return was not keeping up with with my growth, x-US, and S&P 500 ETFs. I stopped investing in the dividend stocks and sold the dividend ETFs. I reinvest the dividends from the 15 stocks into my 3 fund ETFs along with my weekly amount. Now I'm getting somewhere

[@iain777uk]

Also worth noting accumulating vs distributed ETF’s. If you’re going to reinvest the dividends, you might as well choose the accumulative version of the ETF as they are more cost efficient. (VWRP over VWRL) C

[@TobyNewbatt]

Indeed, exactly my plans and how I invest :)

[@leehayden1828]

I think a lot of people pick the dividend paying options because you can 'see' returns. With an accumulating strategy it can appear less tangible because it doesn't always feel like you're getting anything back, it's re-invested for you.

[@commercio3564]

Never seen someone more offended by dividends on KZbin than Toby. My dividend portfolio has been turning 12.5% growth (yes, GROWTH) whilst still 'paying me a yearly salary'. I can't complain. Choose your stocks correctly and you won't be dissapointed.

[@TobyNewbatt]

Well done! :) - you know I own all of the dividend stocks in the world right?

[@tiagosantos680]

Do you see any other youtubers? I can count two full hands

[@AB05-hc7zl]

As someone that's new to investing I've only started at the beginning of this month but I've already made a small return and I do mean very small return thanks to the topics I've picked up from watching your videos, whilst you're not a finical adviser I can definitely see when it comes to investing you're very right in terms of being very careful, I personally believe as a new investor to the world you have to have a very certain level of maturity instead of the gambling mindset when it comes to understanding how to invest and make money, understanding support levels and resistance levels and strategies and most importantly being patient and smart with the stocks you invest in, thanks Toby your videos are really helping the likes of me the (newbies) in our invest journey!

[@Nova2Yung]

Toby newbatt, james Shack, damien talks money are true heroes by saving the common man on investing, they seem to be the very few honest youtubers that arent selling me a course or some ponzi scheme

[@AB05-hc7zl]

@Nova2Yung I haven't seen any of James Shack infact I didn't know about him until your reply, it would be amazing if Toby and Damien did a collaboration not sure If they already have, complete newbie to all this but they definitely made it much easier to understand

[@CharlesTriesToRetire]

That same 10 year period has been great for growth stocks and not so great for value stocks. I would like to see this back tested to see how many 10 or 20 year periods this holds true for. While it is true that dividends are irrelevant to total returns, in general they represent a company that is profitable and could possibly skew favorably to growth stocks at times. No one knows the future and I'm bad at evaluating companies, so I tend to index with most of my money. However I do throw some dividend, small cap, and international ETFs into the mix.

[@TobyNewbatt]

Happy to help :) - the point of the the video is to make people think and realise that chasing dividend investing carries with it enormous risk. Exactly as you say - why pick and choose based on whether they pay a dividend...its pointless :) buy the whole market and if you want some fun on the side do that. Here's some more data for you :) (only have data going back to 2004) of total returns: Mcdonalds: 1,573% - well done if you got this one! SPY: 571% Exxon Mobil:412% JNJ: 381% Coca Cola: 344% Let me know if you want any other doing.

[@jabberwockytdi8901]

Feel like "Finfluencers" consistently fail to distinguish between accumulation and draw down phases. If you are in drawdown phase you have to mitigate for sequencing risk , either keep cash back from being invested and get low interest on that ( a bit better at the moment than it has been) or be more fully invested and have a mix of income generating investments and accumulating investments. You can skew the yield of the income generating part according to your risk profile. That cash flow can be a big help in not having to sell investments at the "wrong" time.

[@TobyNewbatt]

I invest in the whole market :) For retirement I will be invested in the whole market, and for my living costs I'll have 2-3 years worth of cash. Changing a portfolio completely and neglecting 'growth' when you have 20-30 years left to invest could be a big risk. Why make things so complicated. Just to be very clear, my channel is here to help people get started investing. Most of the UK population have no idea how to do it, and most of my audience are here to accumulate :)

[@AlanDixon-nl9fk]

Where can I get your Index and Chill Tshirt? I need one in my life.

[@TobyNewbatt]

In the next video up tomorrow…there might be a special treat

[@soupercol0166]

Great video and good points well put. If you zoom out a little further, The average yearly return of the S&P 500 is 11.3% over the last 50 years, as of the end of February 2024. This assumes dividends are reinvested. Adjusted for inflation, the 50-year average stock market return (including dividends) is 7.18%. So 11.3% is the bench mark. What’s the return for the 4 companies you’ve chosen as a comparison. Also within the S&P tracker the magnificent 7 make up a large proportion. Nvidia is very high now, Tesla is a blagged stock and Musk isn’t to be trusted. If you strip out these companies I’m sure the S&P hasn’t performed that well at all. Just a thought. Keep up the good work

[@TobyNewbatt]

This is why I don’t pick and choose and own all companies using low cost index funds. Only a fraction of all public companies have delivered all of the total value of the stock market 👍. Good luck to those who try and time it, pick the bad stocks and let us enjoy the market returns. 😀

[@steve6375]

You forgot to talk about tax. If the dividend stocks are not inside a tax free wrapper, you pay tax on dividends every year. So when you say you re-invest the dividends, you need to deduct the tax that you will have to pay (and if you are a high rate tax payer you will pay more tax - over 30%!). So your Total Return calculations assume a tax free wrapper which you should point out. Also there may be reinvestment charges when buying more shares.

[@bob1234881]

Yes. So even worse to do.

[@TobyNewbatt]

Yep of course I’m assuming you are using a tax advantage account here like an ISA or a SIPP but yes of course it’s a taxable event 🫡

[@ChrisShawUK]

Regardless of investment strategy, you should always max out tax wrappers first. But even inside tax wrappers, dividend investing will underperform passive investing

[@NookySu]

how do you change away from dividend stocks if that's all you are living off , when do you sell your sp500 stocks to create income , sell monthly ?

[@TobyNewbatt]

That’s up to you 😎. That’s the whole benefit to owning everything and just selling what you need.

[@ChrisShawUK]

What I do is keep 4 years of expenses in cash and then sell slices of shares to top that up at appropriate points. Selling monthly would be a lot of admin and very prone to market volatility. As an example, for the last year or so I've been holding about 2.7 years. That went down to 2.1 years recently after I bought a car. So in the new tax year, I made a significant sale to top up my cash buffer back to four years. But I don't expect to have to do that again for quite a while.

[@carlosnorris352]

Try selling cover calls of SPY maybe.

[@ChrisShawUK]

@@carlosnorris352 there's a general perception that investing is hard and so people reach for more and more obscure principles in the hope that will deliver their dreams. My experience of becoming financially independent was to just keep everything as simple as possible.

[@minimad8793]

Thanks Toby for the video. worth watching. one question i have though, what is your take on the s and p 500 vs the us equity index fund? is this sort of the same fund? and playing devils advocate for active funds, if everyone was in passive index funds, would this not distort the market and then only further consolidate the fund managers out there to the big corporate companies?

[@TobyNewbatt]

Great Q - so the US equity fund contains all of the stocks in the US - it's got 3,500 or so companies so is a really nice fund if you want more than just the S&P 500. On the second question this comes up all the time - there will ALWAYS be an active market that sets pricing. WHY? Well, because the stakes and the rewards are just so high. The market rewards those who want to take those risks. Also, even passive investors need someone to buy from, there will always be sellers and buyers in the market :) - If anything the move to passive more should help weed out the bad active players and just leave the best of the best....people will ALWAYS be greedy don't worry about that :)

[@minimad8793]

Hahaha fair point that, money talks for greedy folks 😁

[@jaistreet230]

Love the videos and lots of great points. I personally have invested in both and can attest to alot of what you have said The only thing I would say is total returns is *mostly* what matters For some people, having a simple mechanism of paying an income which can then help people invest in other things may outweigh the total return over time Eg. A 50k investment at 7% is 3.5k per year (yes tax and other factors) In 10 years time the total return may be different, however this income over 10 years and the opportunities this may bring may be worth more to someone than ending up with more in the pot

[@petebannister3]

I follow you and I think this is a good insight. As a result I've looked at my trading 212 and sold BAT for example cos unless I was going to invest big in it, its prob not worth it. Picking stocks is kind of exciting compared to ETFs but I think im re balancing in favor 😊

[@TobyNewbatt]

I enjoy some stock picking, but I also have the majority of my money in index funds.

[@smashschool6747]

Isn’t the dividend fund safer? One reason to hold a dividend fund

[@howardsmith8723]

Not sure about the SCHD comparison. SP500 has out performed SCHD in the last year or so, but taking that out of the equation then performance more equal. SCHD has limited fund overlap with VOO and lower volatility. I don't hold SCHD myself but I can see why it may suit some and could even be complimentary to VOO as part of a portfolio.

[@TobyNewbatt]

But why would you choose to buy stocks/ ETFs that specifically pay a dividend? That's missing out on a huge part of the rest of the market? Hopefully you see my point :). I choose examples like SCHD has investors get sucked into this dream of passive income and early retirement not looking at total returns.

[@Tinsoldier85]

I think it's more not about picking the best but rather about not picking the worst. In my country, for instance, 10% (yes, 10%) of the S&P analogue belongs to one company which has not been profitable in the last year, with stocks falling by about 30%. Why on earth would I buy an index fund with 10% in that now? Yes, it's a huge company (hence it takes a large part in the market cap weighted index), but that's not a good reason to buy a business that's losing billions as part of an index fund. Avoiding bad businesses really doesn't take much and does not rely on guesswork - an unprofitable company is an unprofitable company.

[@salopstocks8667]

Interesting thought experiment regarding accumulating vs distributing ETFs and funds. Imagine a stock could be bought as an accumulating stock. So Realty Income offers a second class of shares where the ‘dividend’ is automatically reinvested for you - O acc . I wonder if anyone would actually buy it over the regular distributing Realty Income?

[@TobyNewbatt]

I would say that many people chase stocks like Realty Income (O) because it pays a dividend and they know that this entices people in. Want to know how badly O has done over the past 10 years in total returns? O - 107% S&P 500 - 227% It's throwing money away because it pays you a dividend - it might outperform during short timescales, but why bet the house on mone section of the market? :)

[@nothreewords]

Great watch ! Thank you :-)

[@Simonpocarroll]

Nicely put!

[@valerienewbatt9678]

As always great video Toby.

[@chankinwah1963]

Hi Toby, I have been following your videos for almost 2 years now. Very informative indeed. I am a Malaysian doctor working in the UK for 1.5 years. I have a question which I hope u could kindly assist me with. I have about £10000 in isa in invest engine. I am contemplating to work in Australia for a few years. Could I still continue to make monthly investments into my isa portfolio from Australia. In other words can I still maintain my isa acct even though I am no longer residing or working in the uk. If I do come back to UK for a visit, can I then withdraw and close the isa acct in future if I choose to. I am not a UK citizen. I will not close my UK bank acct when I work in Australia Tqvm in advance for your help.

[@Velocentric]

I'm glad you mentioned dividend ETF's but NOBL and SCHD are rather simplistic, low cost funds. (I have a large percentage in SCHD but it is in my "safety" category) What are your thoughts on NEOS products SPYI and QQQI for a retirement aged person?

[@versaceviper9798]

Recently opened my SS ISA. Only two investments - VWRL and VHYL. Looking to drop feed over a period of 30 years with a 75/25 split.

[@NookySu]

did much the same thing with those two etf's but i did 50 50

[@versaceviper9798]

@@NookySuI was thinking to do that, but thought the growth from the all world fund would be better and then utilise the divi’s from that to throw it into VHYL 🤔

[@Abdul_Rahman86]

That’s exactly what I do

[@MATIvmr]

So you like losing money wink wink VHYL

[@smalfable]

Very interesting topic! I appreciate this different outlook on dividends investment. It's definitely true that the overall earnings are less, but i think it's important to take into consideration the psychological aspect of things. Dividends will give people some sort of satisfaction, a rush, and it's easier to take the dividends and spend it than it is to sell a few shares to spend the money, even if its pretty much the same idea.

[@TobyNewbatt]

Indeed, the psychological effect is very important and if this helps to motivate people and keep them invested then off course this is a positive thing. I just want to make sure people are aware that a psychological benefit will not likely get them the best result, so they need all the information to make the best decision.

[@smalfable]

@@TobyNewbatt it definitely opened my eyes regarding dividends! I'm a first time viewer, and I quite enjoyed the topic. Index & Chill is definitely the way to go.

[@krisclements6040]

Does that total return include the dividends?

[@pleiadi666]

Obviously

[@022100bmlotus]

2:25, fantastic and leads me to this question....So, now I have these shares (not larger or pieces of pizza), but "Shares." So tell me what are these shares actually? PLEASE tell me.

[@TomsPersonalFinance]

Great video, Toby. Keep on banging that drum. Unfortunately, it's one of those things that no matter how many times you put the facts in front of people, they'll still insist you're wrong!

[@user-wl7jy9wu9m]

Tobys also reaching out to new viewers as well..the subject is continual...people who are well educated financially should know this..

[@AMACarter]

Because it's a misleading thumbnail, title and topic. Dividend investing is not "bad" or "costing you money". The actual video topic is fine, but it's complete clickbaiy

[@TobyNewbatt]

I'll die on the hill that all that matters is total returns and I'll make sure that everyone knows :P

[@TobyNewbatt]

yes this point is 100% worth remembering for those people who say I talk about the same topics. I reace a new audience every single day and some people have never watched an investing video. It would be like saying to a cooking program, sorry you've made a loaf of bread video already, you can never make one again. Or telling a fitness influencer that they keep making videos about themselves at the gym :P

[@samr8603]

You are implying that dividend investing is the only type people do. Take me for instance I have my pension in Index funds, Dividend ISA for paying the bills, wife has her pension and a Vanguard Index ISA. Each investment has there place in my planning.

[@BelleDividends]

This is why I consider total-return investors, long-term traders.

[@BrianWheeldon]

I think if you are young this is a complete no brainer . I go for BRK instead of S&P which gives a similar result .

[@TobyNewbatt]

Interesting! Now do you think BRK can outperform the market moving forward I’m not so sure anymore. It’s not the same when you’re a giant compared to a much smaller organisation

[@BrianWheeldon]

I'm confident it won't be far off . Apart from Crowdstrike its the best 4 year return I've had.

[@markwilliams4312]

Really enjoy your output, keep it going. My Wife and I stick to various Vanguard index funds and we have linked our funds so we can see how each others are performing. By doing this we find it's added a bit of fun to the process.

[@TobyNewbatt]

Thanks Mark :)

[@quokkapirquish6825]

What actually happens is that the share price increases up until the ex-dividend date as investors calculate if there’s any scraps to be gained, they then hold for a day, qualify for the dividend, and then sell it immediately causing the stock’s price to fall- usually the same amount as the dividend. There is money to be made for day traders here, and they ride these little predictable swings for fast profits. I’ll let you know how I get on.

[@TobyNewbatt]

There's always traders looking to make money but everyone is trying to do this at the same time :P...some winners but lots of losers. Good luck!

[@ChrisShawUK]

That's not really what happens at all. But sure, if you want to give it a go, let us know how you get on.

[@BobDoe_69]

This video makes lots of assumptions and doesn't take into account tax implication of the two value extraction methods (dividends vs capital gains).

[@TobyNewbatt]

I assume you are using a Stocks and Shares ISA :) - I'm not going to make the video 30 minutes long going through taxes :)

[@TobyNewbatt]

@@domb5513 you are welcome to make your own video if you like 😎

[@Dunk1970]

Great video, and during the pot growth years, I avoided dividend paying funds as I wanted the growth to stay invested. However, I've just retired, so I'm now at the point where I need to draw from the piots. I'm 53, so can't draw my pension yet. This leaves me with £12570 of unused tax allowance. Therefore, I'm now considering dividends as an income source. I presume this is the perfect time to do this in order to prevent CGT on £13070 (£12570+£500) of fund growth?

[@stayloxHD]

I am aware of the Risk, but i have an explanation for it beong worth. I am living in Germany, and by law i am alowed to earn 1000€ a year tax free on Kaptial Investments returns, this includes Dividens from stocks and that is why i am currently bulding a portfolio where i can gain the 1000€ each year of tax free gains. When i have accived that i build up two or three ETF's

[@jjp_corner1968]

Thank you for another informative video Toby.

[@TobyNewbatt]

Thank you!

[@alexmac2010]

A great video and I totally agree with what you’re staying. But … I still get a motivating fuzzy feeling in my stomach when I see a divi hit my ISA acc. My strategy is to do a bit of both with over 115 VUSA but also 340 O… mixing it up to keep myself motivated

[@pickashole]

I'm the same. My largest holdings are all market etfs but I do have a few individual div stocks that keep me motivated.

[@lifeisagame2023]

I find dividends conforting against the companies that don't give a dividend and you look at your 5 year return and its -25%. Dividends feel like I haven't wasted my time with a company, even if it's largely motivational and symbolic

[@TobyNewbatt]

They play a huge psychological effect, and I fully understand the motivational part behind it. BUT they come at a cost of long term total returns - so long as you realise this (which most people do not) then that is fine :)

[@markduffy5945]

​@@TobyNewbatt is it not more fair to say dividend investing could come with a loss of long term, since we don't know what the future holds? Your comparison with the S&P500 over that last 10 years has been a pretty strong growth period, when growth stock thrive. But if this was back tested for every 10 year period since the 1930s, would we get the same answer every time? I think it would be interesting (and a more balanced view) if you also ran the numbers for 10 years starting in 2020.

[@TobyNewbatt]

@@markduffy5945 Of course this 10 year period is just one point in time. The point of the video is to really show that picking and choosing stocks (based on any single attribute) and excluding the rest of the market is a dangerous way to invest. Like my car analogy, just investing because something pays a dividend is pointless unless you focus on total returns :)

[@matthewfarrell317]

The biggest problem with this, is for example the S&P 500, when it comes to retirement, you have to sell the stocks to fund that retirement, that's an issue. For a start it means selling off inheritance, and also limits ability as the market goes up and down. There needs a balance, a 40/60 split or a 60/40 split of growth and dividend. If you retire and your dividends can't fund the retirement, you have issues.

[@TobyNewbatt]

A dividend has the same effect as selling investments - EXACTLY the same :) When you say 'selling off inheritance' - what do you mean? When a dividend is paid the fund/ stock drops by the amount of the dividend. If you limit what you buy based on whether it pays a dividend or not you are actively seeking to underperform the market. You do not need dividends to retire. Genuinely confused here as to where you have been told this? :)

[@davidbettney785]

Good call

[@MichaelCorey-yt9qu]

I honestly don't see why people buy stocks for dividends. The only companies I have that pay them are low amounts. When I researched all the biggest names. The higher the dividend the more the stock is losing money per share on a yearly basis. Like a 20 percent dividend on a company going down over 20 percent a year. Or companies that pay 5-10 percent and the stock only climbs about 5-15 percent a year. Meanwhile the actual good stocks increase by 50 percent to 100 plus percent a year some of these also have a 0.3-2 percent dividend. These are the only companies I like with them. Let's go P-Tir! Buy the dip and let it rip! Let's take back $25 and make the push towards $30! Whoever buys now will have massive profits this year!!

[@adamasimolowo8285]

Agreed

[@fikonfraktare]

Wow why doesn't everyone just put all their money into these 50-100% stocks?

[@chrismunt8443]

Get your point. Probably sound advice. But I just know for me personally I would be unenthusiastic about 100% passive index fund investing and might not stick at it. My aim is to have 80% invested in a passive all cap, all world global index. 15% in dividend stocks/etfs. It’s fun and stops me playing with the main index fund investment plus keeps me engaged. 5% in speculation like cryptocurrency.

[@FirstMM]

You got to do what works for you, but investing and fun shouldn't really go together; that is called gambling, which is fine if it is only, as you say, a small part of your portfolio.

[@TobyNewbatt]

100% and hopefully if you watch my channel you will know that I preach this. First and foremost find something that works for you - it's way more important to find something that you can stick with even if it involves a bit of speculation and fun. I do exactly this - mostly index funds but I have individual stocks as well :)

[@BrianWheeldon]

Out of interest does the S&P roughly climb by this percentage ever decade ?

[@TobyNewbatt]

No not every decade exactly. But not too far off. Last 50 years it has averaged 11.29% a year as a compounded growth rate. Just slower than the last 10 years on its own at a rate is 12.65%

[@BrianWheeldon]

Thanks that's a good return . I'd have loved to have had this info to hand in my 20s and even adding modest amounts would stand you in good situation .

[@leesimpson30]

As a newbie investor what do you think of etf isf toby

[@TobyNewbatt]

It's just the FTSE 100 right? A tiny part of the overall global market so for me it stays that way in my portfolio. Nice and simple :)

[@leesimpson30]

@@TobyNewbatt iv got two etfs S&P 500 and isf like you said uk one for dividends witch I want only simple for me

[@Zeus_1983]

Can you explian more on how VWRP actually works in term of reinvesting for you?

[@TobyNewbatt]

When a dividend is received - the fund manager uses that dividend to reinvest back into the fund - thats it :) You never see the dividends from all of the individual companies inside the fund as they never reach your account. It's as simple as that I hope this makes sense :)

[@Zeus_1983]

@@TobyNewbatt thanks, I think I'm failling to understand how that benefits the individuals who hold VWRP.

[@laurawalker6431]

Thanks. Could you tell us about warren buffet’s Berkshire?

[@plasticcreations7836]

I may have missed something but If I understand correctly 'total return' would be total dividends received plus the growth in value of the shares? The growth is only on paper until you sell the shares and if you sell some of the shares then you potentially water down your return. I ignore the growth because I dont intend to sell the shares, I'd rather have an income from the dividends.

[@TobyNewbatt]

So total returns is correct yes - dividends + price appreciation (or depreciation). But a dividend being paid has the exact same effect that selling a share does...that is the point of the video :). If you only invest in shares because they pay a dividend, you exclude all of the companies that don't pay one and this will likely lead to you suffering in the long run for the sake of getting a dividend...just worth letting you know :). Yes all gains in any asset are always on paper until you sell them...but a dividend doesn't change that.

[@myfyrmadocjones]

I use dividend paying investment trusts so probably not as bad as at least I get diversification.

[@richardwhite1120]

Me too. Decades of increasing dividends and the opportunity to buy assets at a discount. What's not to like?

[@TobyNewbatt]

Invest however you like but I hope you saw the video and understand the concept of total returns. Everything else is costing you in the long run and I am genuinely worried many people are chasing those dividend passive income dreams without realising the results :)

[@myfyrmadocjones]

@@TobyNewbatt I agree with you. My ISA is a mess with 47 investment trusts. My SIPP is 50% HMWO and 50% VWRL. I will eventually simplify the former, but the passive income is good and used to buy more of them.. I am retiring next month. 🍾🎂🥂🎉 ISA … Aberdeen Asian Income Fund Ltd. Aberdeen Diversified Inc and Grth Trust Aberdeen Standard Equity Income Trust Aberforth Smaller Companies Income Trust Alliance Trust plc CT Capital & Income Inv Trust CT UK High Income Trust Bankers Inv Trust Blackrock North American Income Trust Bluefield Solar Income Fund Limited City of London Inv Trust Diversified Income Trust Dunedin Income Growth Inv Trust Edinburgh Inv Trust European Assets Trust Foresight Solar Income Fund Greencoat Renewables Henderson Far East Income Ltd. Henderson High Income Henderson International Income Ltd. JPMorgan Asian Investment Trust JPMorgan Global Real Assets JPMorgan European Income and Growth JPMorgan China Growth and Income JPMorgan Global and Income JPM Global Mkts Emerging Income Trust JPMorgan Claverhouse Inv Trust JPMorgan Japan Small Cap Growth and Income Law Debenture Corp. Lindsell Train Lowland Investment Co. Majedie Investment Trust Mercantile Inv Trust Merchants Trust Murray Income Trust Murray International Trust North American Income Trust Primary Health Properties Schroder Income Growth Fund Schroder Oriental Income Fund Scottish American Inv Company Shires Income Trust STS Income and Growth Temple Bar Inv Trust The Renewables Infrastructure Group Greencoat UK Wind Witan Inv Trust

[@porschecarreras992cabriole8]

Vodafone cut their dividend for next year to half so no more 11% next year. I really don’t think anyone will buy these shares anymore as they own more than the company is worth and there is so much to sell to pay back your debts.

[@TobyNewbatt]

I think people will still chase that dividend though... :P

[@porschecarreras992cabriole8]

@@TobyNewbatt I am loaded on Vodafone as I was working 11 years there but I only bought late last year so not big losses and the dividends covered that already. But I won’t buy more now

[@ChrisShawUK]

It could still be 11% though if the share price halves next year. Dividend bros will be willing the price to go down so they can keep their yield up.

[@sneakyquick]

The only thing you can control is fees paid so always invest in low fee or no fee index funds.

[@nicobass1966]

Good man and thanks

[@TobyNewbatt]

:)

[@robertsmith6408]

Do index div funds like QQQY, ULTY, JEPQ and PDI. 10 TO 60 percent divs. Pay my mortgage and bills in retirement. Those ETFs are good but who wants to wait 20 years for them to go up!

[@billowen7585]

Using the vodafone/bat comparison is slightly flawed on the fact you are using current dividend to make the point, whereas if you are focusding on a 10 year time period, then arguably you should say 10 years ago the dividend was x amount, and the total returns in that period are y. Personally i wouldnt invest in either as you say, but the investment case for the stock 10 years ago would be different to what it is now,. Yoelds get pushed up by sinking share prices which i suspect has happened to both these shares, hence whyvreturns have been low and yoelds now high.

[@TobyNewbatt]

I said in the video this is just an example :) All that matters are total returns. Forget about yields...if t company gives you bad total returns you are literally giving away your money for nothing :)

[@zen1752]

Well said

[@istvanpraha]

The real issue is market sentiment not logic. A stock can be “growth” but totally overvalued and keep skyrocketing. Another company can be solid and make loads of money and barely move. So in retrospect it looks bad to invest based on logic but in the moment no one knows the “growth” stock will go into a bubble. This hasn’t always applied but has applied since maybe 2018

[@AM2K2]

What is that screen at the top of your wall monitoring?!

[@TobyNewbatt]

I have it for a few Indexes like the S&P 500, FTSe 100 etc it’s called a Divoom Pixoo 64 👍

[@BVisa]

nice video - the only part I don't understand is how does ones company share price drop when they pay out a dividend? As I understand the company pays out their profits, however isn't the share price based on what people/investors buy or sell the stock at i.e. uncorrelated..

[@TobyNewbatt]

Correct - so in short the share price gets dropped by the market as a whole. It's just done by supply and demand. There are many players in the market who are trying to play the market and on the date the earnings are paid out, the market prices this in. As you said though the market can also do whatever it wants, as there is more than just a dividend to consider. This is why total returns are so important to consider when looking at the returns of a stock :)

[@BVisa]

@@TobyNewbatt interesting - so what we are saying is that there are plenty of people looking to buy the shares before the ex-div date and once collected the dividend they exit the market or the expected dividend wasn't they actually paid so the demand drops etc etc The next interesting thought is that there must be a lot of people reinvesting the divs on payout so creating demand on the price.. I've always wondered why it drops because it always does on payout

[@ChrisShawUK]

It's because the price of a share is calculated as cash on balance sheet plus valuation of future earning divided by number of shares in circulation. If you pay a dividend from cash reserves, the valuation of future earnings doesn't change but the numerator of that equation is smaller (because there is less cash) That's why the share price falls. Sometimes you hear analysts using the phrase "backing out the cash". That means they are comparing the share price to earnings ratio excluding the cash element. It helps to normalise things

[@BVisa]

@@ChrisShawUK so essentially it's.. Share price = (cash on balance sheet + future earnings) / total issued shares..

[@BVisa]

How about demand surging higher than supply? I.e. Billion people want to buy 1 Nvidia shares each

[@alfieseddon7910]

BAT is a great investment currently though. The share price is down 35% in 10 years yes, but earnings have doubled in that time. The dividend yield was 3% 10 years ago but is 10% now and that's sustainable. Profits grow literally every year and dividends increase every year also

[@ChrisShawUK]

Are people going to be smoking more over the next ten years? Or do they have an alternative product that will power growth?

[@alfieseddon7910]

​@ChrisShawUK It's mostly due to the massive moat and profitability, smoking is on the decline for 20 years yet earnings and revenue are strong and very consistent. It's a great recession stock due to its addictive nature

[@ChrisShawUK]

@@alfieseddon7910 that's right. But all that information is baked into the share price today. What I was wondering was if you bought today, is there anything else you can expect other than a return of capital through dividend? Don't get me wrong ... A significant portion of my net worth is BAT via my index holdings of FTSE100. I just don't get why calling this one out has a better chance of total return than the index as a whole.

[@timlodge8267]

I have been watching your channel from the early days and you seem a genuine person, however this video is just another rehash of previous episodes, it is clearly to me way you don’t like dividend stocks and you keep given your opinion on the issue that is why you made so many videos on the topic. If you want an objective view you should look at why people buy dividend stocks and make a video on that, i don’t no what your core audience is however if you want to appeal to more seasoned investors you should look at two sides of the coin, i will treat your channel with a large pinch of salt as always.

[@TobyNewbatt]

Thanks for the support as always Tim. The reason I make these videos and why I keep banging the drum is that people get hurt chasing the dream of passive income with dividend investing. If people truly understood the idea of total returns, we'd see a lot less people get hurt :)

[@ChrisShawUK]

I'm a seasoned investor. I started investing in 1998 aged 30 and stopped work in 2019 age 51. I achieved that solely by investing in index funds with dividend accumulation. I don't think it's correct at all to say that Toby dislikes dividend stocks. He actually owns all the dividend paying companies in the world. What he's saying is that if you choose to only buy companies that pay a dividend, then you are seriously jeopardizing your long term total return. And he's correct. There isn't a single item of data or research that says dividend stock picking beats market over long time periods.

[@shaypatino2268]

Great insight Toby. Thanks for this.

[@TobyNewbatt]

My pleasure!

[@malcolmbirkett1347]

Luckily i sold out of vodafone at a profit but that was years ago😊 i like to hold individual companies and investment trusts. Looking into etfs now😊

[@adrianl5899]

Though my hairline and online ranting suggest otherwise, I'm firmly in the accumulation (pre-retirement) phase of life. I have absolutely zero interest in building a dividend stock portfolio and, even in retirement, I'll likely have a couple of years' cash buffer, global indexes and gilt/bond allocations to reduce general choppiness. And a yacht. Definitely a yacht too. The Manchester Ship Canal won't know what's hit it (literally). Have a good week, Toby. 👍

[@mundungo5586]

Dont invest in individual dividend paying stocks.Just use investment trusts that have a long history of dividend increases.And amazingly their (net),(total return) after fees often beats the all poweful index.Even the S&P 500 in some cases.

[@ChrisShawUK]

Have you got an example of a dividend investment trust that has beaten the s&p over the last ten years?

[@mundungo5586]

Jp Morgan global growth and income.Ticker JGGI

[@mundungo5586]

Jp Morgan global growth and income.

[@ChrisShawUK]

@@mundungo5586 nice. how did you go about selecting this one ten years ago? Did you put all your contributions into this fund each year or just a one off lump sum?

[@carlosbarros4456]

Thanks

[@TobyNewbatt]

Thank you Carlos 👍👍

[@JC-welliz]

Reminds me of people who get some form of cashback on purchases, and proclaim good value because of the cashback. They however conveniently forget to mention the artificially inflated prices they have paid in the first instance 😂

[@Suburb957]

You also need to consider a company’s dividend cover, which should be more than 1.5, when investing in a dividend paying company. This reflects a company’s ability to continue paying a high dividend.

[@TobyNewbatt]

Sure, many things to consider which is exactly why I buy the whole market and don't worry about it. If it was easy to pick a stock, beat the market, and get paid everyone would do it. Todays dividend growth stock is tomorrows dud :)

[@Suburb957]

@@TobyNewbatt It’s a very good point you make. Great video.

[@mjwmontgomery]

I prefer regular cash flow to growth, even if i have a lower return.

[@josephuchennaugwu3796]

the Invest engine ETF portfolio you own has no dividend paying securities

[@TobyNewbatt]

That’s not true 😀. The ETF doesn’t pay a dividend but the companies inside the ETF pay dividends. All dividends are reinvested automatically. I own a share of more than 3,500 companies 👍

[@Sam-ue4rv]

Just a caveat didn't the stock market go up because of Dividends? Something I once heard was most of the returns came from Dividends?

[@TobyNewbatt]

So the stock market doesnt go up 'because of dividends' - they are just part of the return of the overall market. If you don't reinvest them over the long term, yes they have a big effect. But if they were never paid in the first place, the end result would be exactly the same - this is why total returns matter and many people sadly do not understand them. :)

[@Gee60711]

Dividend investing is not for the lazy or for those who lack time and analytical skills. If you are diligent and have good analytical skills, I am sure you can make more money than with index funds in a short time. For young people, buying index funds or ETFs and forgetting about them is the best option. On the other hand, if you are retired or want to make some money in a short time, dividend investing can be fun and lucrative, provided you do your homework well. I personally enjoy dividend investing. I have a very diversified portfolio consisting of a 50:50 mix of ETFs and individual stocks (all within the ISA)

[@ChrisShawUK]

What's been your average annual total portfolio return over the last two decades?

[@TobyNewbatt]

While I understand what you are saying, are you suggesting here that if you somehow spend time looking at stocks you know the future and can beat the market? Isn't this what professional fund managers do for a living and still fail to beat the market? So just do your homework and you know what will do well?

[@Gee60711]

@@TobyNewbatt I am also a finance professional (CIPFA). I don't trust any of these so-called fund managers. Several of them are sitting there to take your money. I can't believe you vouch for them. I am more than 100% sure that, although you can't always beat the market, you can definitely beat the professionals.

[@Gee60711]

@@ChrisShawUK . First of all that's a dumb question. You clearly know about the dip during the Covid. Also I started trading after I left the job in 2020. Since then I have a total average return (includes P/L from trading and dividends). of 90.7%

[@garywilliams9810]

Another informative Video Toby but I’m confused. S&P 500 Vangaurd I’m investing in this and put all my dividends back in asap. Is this a good call?

[@TobyNewbatt]

Yes if you want to focus on growth, all dividends should just be reinvested. I prefer to use funds that do this automatically :)

[@garywilliams9810]

Thanks Toby

[@user-gd5pr3tu9v]

Dividend stocks pass on most of the money earned from the assets because by law they are not allowed to keep all of the profits the must share with the stock holders. You don't make sense. Pick a good company. Some companies have been paying dividends for years. You must stay abreast. Nothing last forever and. You will have ups and downs.

[@TobyNewbatt]

I have no idea what you are saying here but I know you didn’t watch the video 😀 Which law is the one that tells a company they have to give out their profits as a dividend? You might be getting confused with REITs. I showed you in the video just how irrelevant a dividend was using total returns please watch this part and understand it 🙏🙏🙏

[@Abdul_Rahman86]

I’m a big fan of growth stocks but when I start approaching my retirement age, provided there’s not a correction I may start selling it and allocating it into a dividend fund. For example VHYL: pays a pretty good dividend and it appreciates at the same time.

[@TobyNewbatt]

This is a very popular idea - however I would say that VWRL/ VWRP has all of the same stocks inside of it. Personally I will just be selling what I need rather than rely on a dividend as you could miss out on future growth :)

[@tonybronze7459]

Sorry I disagree. The examples you gave were US companies and the US market does not pay good dividends. The best companies to invest in for dividend income are UK companies. I have 10% of my investments in a UK dividend portfolio and it has outperformed all my other investments. Just wish I had invested more into it. Also, a lot of companies that pay good dividends are well established companies that don't need to invest anything for further growth. Take Barclays Bank for example. Over £6 billion in profit last year and they have no need to invest anything for growth (in fact the opposite, they are closing branches and laying off staff). The payment of a dividend does not affect their value.

[@TobyNewbatt]

So please do whatever you want, and thank you for commenting but in your example: Barclays over the last 20 years total performance (includes ALL dividends): 42% S&P 500 - 571% I could go through every FTSE 100 stock and the most of them would not have beaten the market including all dividends. Please be careful :)

[@ChrisShawUK]

I think your error is picking one part of your portfolio that has outperformed the rest of your investments. Maybe you chose terrible investments in the rest of your portfolio and it made the dividend portfolio look good. What you should do is compare your total return from your portfolio with the total return from a market index and see how relatively well you have performed.

[@omydiddy]

is this a re-upload?

[@philjames3748]

It's the fourth time he's made this video in just over half a year.

[@TobyNewbatt]

Yes! How did you know, it's a video about dividends on investing channel :) You must be a loyal viewer of the channel :)

[@gavjlewis]

Many dividend investors are more old school. My dad is a dividend investor and likes to tell me how much he makes on his dividends. Considering he has and would have only invested in UK stocks dividend investing doesn't look too bad really. Its somewhat different now with Vanguard and T212 etc. When my dad first started you had to phone up to buy or later you could do it by fax! 😂 How times change. I'm sure if i had come home from school 30 years ago and said to my dad he needs to look into global equity funds I would have been sent to my room for being a lunatic! 😂

[@TobyNewbatt]

I don't doubt that at all and you are totally right that this was quite an old school way of thinking. My dad would have also been the same way of thinking, we are lucky now to have access to the global market in index funds and cheap platforms etc. However - for you and me, now that we have the tools and the data, we have to look at total returns otherwise we'll be missing out on a huge amount in gains.

[@Pieter2360]

Excellent explanation of a topic so ill-understood by many retail investors. I wish someone would give me $1 for every person on earth who thinks chasing dividends is the holy grail of investing 😂

[@jd1338]

Okay, but what are you suggesting ?? Concretely what is investment all about ? I have listening hoping to hear:" this what you should do..". You have kept your knowledge to yourself, you certainly know something which you don't want to share

[@TobyNewbatt]

If I haven't made it 100% clear already. I don't pick and choose stocks based on whether they pay a dividend or not - I buy the whole global market using low cost index funds. This strategy has, and is likely to, beat most retail and professional investors over the long run. Simple :)

[@ChrisShawUK]

Toby nails his colours to the index investing mast in pretty much every video, including this one if you watch until the end. I do exactly the same. For me, investing is all about financial independence. That's the only thing that matters. I started investing in 1998 aged 30 and stopped work in 2019 aged 51. Index investing enabled me to achieve my investing goal.

[@ChrisShawUK]

Dividend investing is just active investing by another name. The chances of you beating the market as an active investor over the long term are about 20%.

[@TobyNewbatt]

no Chris it's free money!!!!

[@ChrisShawUK]

@@TobyNewbatt sign me up ... I'm all in on free money

[@tacocruiser4238]

As long as the payout ratio is less than 100%, you are still experiencing a net gain. Sure, the dividend is subtracted from the stock's value. But there is still extra profit that was not paid out.

[@98password]

You always disregard the fact that some people intend to build passive income without having to sell any shares from their portfolio

[@TobyNewbatt]

I don't disregard this at all :) If you want passive income, sell what you need. Are you seriously saying that some people hate selling so much that they are happy to underperform? This is why videos like this are very important to show people the concept of total returns. Sorry I'm not going to stop going on about it - dividend chasing passive income strategies are harming people :)

[@98password]

@@TobyNewbatt By dividend investing you can build passive income without having to sell. Just because one strategy produces less capital by the time you of retirement age, doesn't mean that it is harmful to you. Especially when passive income can build throughout your life without you having to reduce your portfolio at anytime. Selling stock all the time in order to emulate dividends seems more like trading, whereas prudent dividend investing can still achieve good long term capital gains alongside passive income that does not require one to reduce their hard built portfolio at n ay time. The idea that someone might make more money following one strategy, does not mean that this strategy is best for everyone and their individual goals. Thanks for another interesting but one sided video :)

[@TobyNewbatt]

@@98password Thank you as always for the support :) - as always it's just important for people to invest however they like.

[@ChrisShawUK]

@@98password I'm not sure you really understand what "reducing your portfolio" means in practice. Capital is capital is capital. The value of your portfolio is exactly what matters. When you need cash, you sell a small slice of capital. I suspect you are early in your investing journey. I started investing in 1998 and admit to having exactly the same outlook as you about dividends in the early days (except that we didn't have KZbin so you were on your own in your thoughts) Once you have built up a portfolio that is 20x your annual lifestyle spend, I promise you that you'll have a completely different outlook!

[@johnB11ify]

You should also have shown ETFs that did badly not only the good ones. That would have been a more balanced view.

[@FirstMM]

The S&P500 and Global All World are what they are. Compare to 60/40 & 80/20 managed funds for a balanced view, if anything.

[@TobyNewbatt]

That's short term performance chasing :) The balanced view is - what investing style gives you the best total returns. If you want to pick and choose you run the risk of chasing like everyone else and missing out on the long run :)

[@johnB11ify]

@@TobyNewbatt that answer did not address my point. If you are going to show stocks that did badly stocks that did well. But only the ETFs that did perform well, that is not a balanced view. It's not about the style of your investing as you put it but about ETFs that fail too.

[@TobyNewbatt]

@@johnB11ify so just a tiny fraction of all stocks beat the overall market on their own? The evidence is overwhelmingly against picking stocks 🫡

[@johnB11ify]

@@TobyNewbatt NRDG :micro sectors big oil index 3x inverse 5 year return -77.32% SOXS: direct daily semiconductors bear 3x shares.5 year return -75.98%. This is just two. To show that ETFs are still a big risk.

[@jamesclark6257]

Wasn't there a decade when the S&P fell in price? Would of been better to have the dividend then

[@kw8757]

Hindsight is a wonderful thing and crystal balls don't work.

[@user-si7fj5rh5u]

If a recession comes, where does a company get money from to pay dividends?

[@kw8757]

@@user-si7fj5rh5u Just because there’s a recession doesn’t mean that they won’t make profits, if they still pay a dividend they won’t put money back into their business, if they don’t make profits no dividend.

[@donnahall-kumar333]

Got it 👀👂👂✨

[@patwalker9616]

Dividend stocks has out performed the Dow and S&P for the last 50 years, you listen to this guy you’re gonna go broke

[@TobyNewbatt]

What??? XD you must be having a laugh. I hope you watched the whole video clearly not :)

[@user-si7fj5rh5u]

Dividend irrelevance theory

[@FreaksSpeaks]

Only thing for me is the artficially low interest rate greatly helped s&p over the last 20 years. Soon as IR returned lomg term average all the growth companies are paying dividend, like google and meta as they see their share prices will be affected by lower profitability due to normal IR. Apple doing massive buy back as thye all see growth is coming to stall. I may be completely wrong, but only time can tell.

[@blacklist4502]

I'm only 2 minutes in and I'm already thinking. Fuck dividends. My comprehension is impeccable eh?

[@TobyNewbatt]

I would say quite that 😂😂. But they aren’t something I’d be chasing or focussing on.

[@steveywonder1990]

Are the monitors behind you 27 or 32 inches?

[@TobyNewbatt]

27 :) I'm looking for upgrades at the moment, would love a 4k 32 inch OLED for editing but my god are they expensive!

[@ChrisShawUK]

@@TobyNewbatt there's no such thing as free inches. It's total picture that counts.

[@Dr.JubairsFinance]

Toby, when is your Ex-Div date?

[@TobyNewbatt]

It’s today. I’m giving out 100% yield and taking a rest 😂😂. Congrats on your 7k subs mate! 🥇

[@marton349]

I have 6k in the snp when do they pay dividends?

[@Cosmo38436]

Every 3 months

[@jonbacon6664]

@@Cosmo38436usually, but some of them are different such as bi annually. If you search online it usually tells you the frequency or dividend dates

[@yesno9834]

Not sure the Scottish National Party pays out dividends.

[@Neaskemenna68]

Ask their new leader

[@sublimebeauty1]

@marton349 It will be with all the other “missing money” 🤣🤣

[@timlodge8267]

The must stupid thing you said was buying a electric car😂

[@zielak1465]

What about VHYL?

[@TobyNewbatt]

VHYL is a fund that only invests in dividend paying companies - it is well diversified BUT the issue is that you are missing out on all the worlds companies that DONT pay a dividend :)

[@zielak1465]

@@TobyNewbatt Invest in that one quite heavily , have been thinking to switch into VWRL. The thing that concerns me about VWRL is that mostly driven by a few stocks.

[@bruce7244]

S&p500 in last 20 years is crap

[@TobyNewbatt]

So crap that most people failed to beat it :)

[@ChrisShawUK]

What has beaten the s&p over the last 20 years?