7 Costly Dividend Investing Myths

7 Costly Dividend Investing Myths
An entire industry has been built around the myth that dividends are some how a preferred way to generate returns over capital appreciation. The result has led many investors to focus on dividends over total return. The focus on dividends can be particularly destructive during retirement.
In this video we'll cover 7 dividend investing myths, followed by a better approach to investing.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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[@franksatterfield9764]

Buffett loves dividends, he just doesn’t like paying them.

[@az21bob666]

The one time they payed dividends. He said he was in the bathroom

[@jim2404]

From reading the comments below, I think some misunderstand Rob's point in the video, assuming he is advocating non-dividend paying stocks over dividend stocks. That is not true. He says it is more beneficial to the investor to look at total return on investment, rather than just on the dividend payout of the companies. Let's look at some simplified (assume everything is equal except dividends and appreciation) portfolio examples: Portfolio A: Dividends at 4%. Capital appreciation at 3%. Total return at 7%. Portfolio B: Dividends at 2%. Capital appreciation at 6%. Total return at 8%. Portfolio C: Dividends at 0%. Capital appreciation at 7%. Total return at 7%. Now, the dividend investor would advocate for portfolio A, because of the great 4% dividend it pays. They would also steer clear of portfolio C, deeming it a real loser since it pays no dividends. You could then spend the dividends and, if it is enough to cover your cost, you can reinvest any excess. However, to the total return investor, there is no difference in the value of the these two portfolios. You get an equal return on your investment, namely 7%. It is portfolio B, with its mixture of dividend and non-dividend stocks, that gives the best return. If you need the money to live off, you can take the dividends out and sell 2% of your holding, giving you the same 4% cash you received in dividends in portfolio A, but leaving 4% in capital appreciation rather than the 3% you received in portfolio A. You would have the same cash in hand and your portfolio would be worth more. Now, if portfolio A had the same dividend payout of 4% but an appreciation of 5%, that would put the total return at 9%, beating out the other two options, so that would be the most beneficial, but not because it has the highest dividends. Likewise, if portfolio C had appreciation of 9%, it would now be the best choice as it outperforms the first two portfolios. Focusing solely on dividends (or capital appreciation, for that matter) could lead the investor away from the best investment mix

[@SKITTLELA]

Great explanation. Not sure how anyone can disagree with this.

[@carlbook2051]

You also need to look at your total after tax return. Dividends generate tax.

[@Cwilly13ify]

@@carlbook2051 Exactly. This makes a big difference in the taxable environment

[@philw3039]

@@carlbook2051 Equities also generate tax. The main difference is when you pay. Assuming the dividends are qualified dividends, they are basically treated as realized gains and taxed at the capital gains rate. You owe tax as soon as you are paid the dividend even if you reinvest it. However, you don't pay tax on stocks until the gains are realized when you sell the stock or receive a capital gains payout. Either way, you pay tax at some point.

[@carlbook2051]

@@philw3039 I agree, if you sell appreciated stock, you will incur capital gains tax. But you may be able to offset the gain with losses, if you invest as well as I do.

[@johntyy88]

This is why I start as a “dividend investor” and started leaning towards growth. I’m keeping most of my dividend stocks and reinvesting the dividends in the dividend stocks, but most of my new investments are growth stocks and funds. I am more invested in growth funds vs stocks at the moment, because I’m still learning to evaluate a growth stock. But my growth portfolio has out performed my dividend portfolio so far.

[@user-bt9cm7ze4c]

Getting paid and then paying taxes on it and then buying more shares just seems silly. The only reason I'd want dividends is to pay my bills. Otherwise i'd prefer no dividends and no taxes owed until I choose to sell.

[@DDavis0226]

I am really enjoying learning from watching your videos. Thank you for sharing your knowledge. You share knowledge by not only sharing how you see things like dividends, but also the reasoning behind your thoughts! Thank you!!! I am next going to find any videos you have made on the importance of dividends in retirement!

[@sbkpilot1]

thanks for covering this topic accurately... there are still so many people who claim to be investing pros yet haven't the basic clue of how dividends work. Not only are dividends are huge tax drag on a long term portfolio, they also hugely take away from long term growth.

[@notdoneyet7785]

does the tax drag conclusion depend on whether you have dividend payers in a trad ira vs in an after tax portfolio? it seems that dividends from an after tax account could give a very low tax rate if they are qualified dividends. particularly if you're a middle income sort of couple in retirement you could have 0% tax on those dividends if your income is in the 80k area. but if the earnings come from interest bearing accounts you'd be getting hit with your ordinary income tax rate.

[@dougb8207]

Thanks for trying to clarify the matters!

[@robertpolk5406]

Well done. It’s hard to move the needle on entrenched divided bias.

[@Mr.Mister96]

What about the fact that dividends allow you to purchase more shares and thus have more votes whereas if you were to sell share to create your own dividend your amount of shares would decrease and you'd have less votes in the company

[@jpturner171]

As always thank you very much for your insight! Semper Fi

[@DSonBlue]

I really like your videos. Thanks for sharing, and in a way that people can understand.

[@Sean-jb5gi]

A portion of Berkshire Hathaway's earning come from Dividends and I bet they reinvest those. So ya they compound

[@lawrenceiuso5069]

In the first example-the dividend is being paid to the old owner, which is not what happens with stock as I see it. When I own a piece of the business, the business pays me the dividend. In order to pay me the dividend, the company must, in normal circumstances, generate excess cash. There are alot of business out there that show a profit on paper or none at all, yet people buy pieces of those businesses.

[@DavidEVogel]

In order to pay me the dividend, the company must, in normal circumstances, generate excess cash. Nope. A dividend paying company must make a profit. The portion paid out as a dividend is the "dividend pay pay ratio." The remaining portion is "retained earnings."

[@lawrenceiuso5069]

@@DavidEVogel Nope. Dividends are paid from cash- not "profit" A company can have excess cash to pay the dividend, or even borrow money to pay the dividend, and have an account "loss" A firms's profit can be the result of accounting manipulations, but be unable to pay the dividend because they do not have the cash. That's the way I see it.

[@georgesontag2192]

In my opinion, Rob is correct about dividends. Years ago, i targeted stocks that paid 4, 5, 6 % dividends. It was a mistake because i could not keep up with the sp500. The long term share price of the dividend stocks kept dropping over time. Look at the 10 year chart of a high dividend paying stock, they all drop. I now take the small 2 and 3% dividends and track the sp500. I should have done what this guy says.

[@hulenbryant5637]

I agree with a lot of what you said here, Rob. And I think some who have a longer time horizon should definitely look at overall returns over dividend yield. That being said, when entering into retirement, this is where I disagree with you. I do want stocks/ETF’s that pay higher dividends due to ‘sequence of return’. You made a statement about the 2008-2009 market when dividends dropped 23%. It took the market approx. 2+ years to recover. Stock prices fell approx. 51% (more than twice what the dividends did). So if someone is using the sale of stocks to supplement their retirement, imagine the cash that would be needed to wait out that 2+ year market down turn. In addition, many of the dividend stocks I own, and are owned in my dividend ETF’s , are dividend aristocrats or kings. So those stocks have been increasing their dividends for the past 25 or 50 years respectively. In other words, their dividends did not drop in 99-00, 07-08, 15, 18 or 2020, when the price (value) of most stocks and the overall markets did drop.

[@northerncaptain855]

As a late 60’s new retiree, I see a need for regular cash flow. Given the choice between buying an immediate annuity throwing off about 5% per year with no residual value on death or hanging on to my old Chevron stock throwing off about the same 5%, I’m pretty comfortable spending the dividends and with any luck leaving the stock to my children and grandkids.

[@mgcarr61camaro91]

This guy doesn't need money from his investments like us !

[@travis1240]

Not a bad idea, though I think it's likely there will be shrinkage in the oil industry over the next 30 years.

[@franksatterfield9764]

@@travis1240 I would think a well run company will transition. Doesn’t Chevron own solar farms, etc.

[@jeannoel1069]

Bob, would you buy a company (out of the stock market) generating amazing cashflows if the contract was stipulating that you will never have access to any of that cash? Your only option would be to sell it to someone else who would know that he will never have access to the cash …. Nobody would, so why is this wise on the stock market then ?

[@739jep]

Don’t worry about the comments Rob , what you’re saying makes perfect sense and is backed up by most - if not all of the academic literature. There are of course some behavioural issues related to dividends but there’s no clear way in the data an investor can exploit it. Some people just have a really hard time letting go of their strongly held beliefs no matter the evidence. Take the comments as a compliment.

[@Mr.Mister96]

What about the fact that dividends allow you to purchase more shares and thus have more votes whereas if you were to sell share to create your own dividend your amount of shares would decrease and you'd have less votes in the company

[@739jep]

@@Mr.Mister96 what about it ? This video addressed 7 costly dividend myths. Retaining common stock voting rights wasn’t one of them.

[@nvt6781]

Rob, you did a great job presenting your argument! I finally saw the big picture…

[@MrNodeee]

There is not an absolute on this. For investors who are looking to more established companies with lower risk, dividend stocks are great. If you are looking toward growth companies, then yes- dividend stocks are not the best bet. Good examples are McDonalds, Proctor&Gamble, Intel, etc. If you are looking into company growth and value, then you really should be looking into Market Cap just as much as the issue with dividends.

[@marctrottier3732]

...love your work...

[@Bluponi]

Would you apply the same philosophy to dividends that are paid by REIT's ??? I'm trying to decide if its better to own rental houses or REIT's

[@frankofva8803]

You are really awesome, Rob. I am learning so much.

[@joshraces]

10:10. I'm dying hahahaha!

[@jmcm152]

I like the analogy 👍

[@jw8578]

Rob, 29 minutes into your video you make the most important point, a company's book value decreases by the amount of the dividend payout which reduces it's share price.

[@TheBoringLameInvestor]

You receive the dividend and you can reinvest that money at a lower price. Compound interest

[@Magdalene777]

No matter if the stock price is up or down you get a dividend and if you reinvest when the market is down you can increase your worth when it goes back up.

[@randyeverson8296]

I really like the way you explain it here. As an accountant, I am aware of the adjustments made on the books when dividends are paid. I am shooting for more growth stocks but a small amount of dividend stocks. I don't trust the videos that are saying you can live off the dividends.

[@ianboyd9723]

I have both, it’s nice for some cash to hit your account, especially if the value of your growth stocks has been hit my the macro economic head winds, which will turn around, but the dividend cash is just a little boost to the ego, and keeps you going.

[@BryanColliver]

Do you know who says he is not a fan of dividends but is a huge fan Warren Buffet the cash flow from just about every company he invested in is what gives him so much cash to spend. Kevin Oleary said it best I want the company's I invest in to return capital for me to redeploy. so for me they are very important it talks to the health of the company.

[@rob_berger]

It's funny. Warren Buffett loves his dividend paying stocks yet refused to pay a dividend. I actually that's 100% consistent. He loves great companies at good prices, and these types of companies tend to pay a dividend. His 2012 letter to shareholders is really worth a read.

[@BryanColliver]

One of the best things I ever read on him was do as he does not as he says.

[@Bezuidenhout474]

I would not worry about negative remarks but believe in what you say and explained. They are not on the same page. I am so glad I found you as I totally believed in dividends but now understand what you are saying. You have totally given me another level of thought I never had. I am coming up to Retirment and need to understand as much as I don’t believe in trusting some one else to invest my Retirment pension Neely Willy. You have given me food for thought and shall listen to all your Videos now. I got what you are saying and am stupid when it comes to the language of investing but though listening and learning makes you wiser. Thank you

[@Mr.Mister96]

What about the fact that dividends allow you to purchase more shares and thus have more votes whereas if you were to sell share to create your own dividend your amount of shares would decrease and you'd have less votes in the company

[@tverbrig1]

Can I just ask something? Not arguing. Just curious. Say you have a REIT that pays 10% dividend. The value doesnt go up at all or very little in a 10 year period. However, you did collect the 10% per year. Are you saying that I didn't make any money off my dividends?

[@MikeHoncho826]

I don’t know why no one says this in comments. If a stock is 10 dollars a share and they pay a 1 dollar dividend, the stock price drops by one dollar and you now have a 9 dollar share and your 1 dollar dividend . Plus if it’s not a qualified dividend then it incurs tax and qualified dividends also are taxed if you make a certain amount of income.

[@thisdyingsoul76]

I feel that Dividends are an income source. The share value is what increases net worth. If you want passive income, it’s best to find stocks that pay a dividend that is low enough that it doesn’t negatively impact the stock price. This would usually be a company that is paying out less in dividends than it’s total profits. If they are managing it in the right way, you’ll see both the passive income (which obviously can be reinvested if you chose to) benefit and increasing share values affecting your net worth.

[@morpheouswarlord]

I still have 5 years before I want to start drawing dividends from my investments. So until then the dividends from say, SCHD would be reinvested back into the ETF. It is also compounding, growing and even beating the S&P 500 in some cases until I need it to be an “annuity-like” vehicle where the principal stays intact and I can sell it anytime I want and or pass it on to my heirs. How am I wrong?

[@rob_berger]

I don't think you are wrong. SCHD is a good ETF IMO, and reinvesting dividends is a must while you are saving for retirement.

[@morpheouswarlord]

I did more research and changed my mind on dividends. I sold them all out of my taxable accounts and now focusing on growth and returns. I’ll revisit dividends later when I’m closer to retirement and within my Roth.

[@paulthorpe766]

It's just about the opportunity cost...that is all. Here is an example. If I said to you you can have : A) $100,000 dividend income from your $2 million stocks and you didn't have to sell any shares and they would be worth $2,100,000 afterwards or (the opportunity cost) of B) $100,000 income from ($25k dividends and $75k selling shares) and afterwards your portfolio was worth £2,150,000. Question 'ceteris paribus' what would you plump for? Most people would say B) but their irrational loss aversion bias (hold what you've got whatever the cost/remembering of parable of golden goose) and in some cases seeking of a quiet life means they have a blind-spot and just can't see that!

[@charlesjames4956]

@@rob_berger So then, in this instance at least, your premise that 'Living off dividends is a bad idea' is incorrect. Way too broad to make a statement like that. Totally depends on the specific scenario. If an investor is collecting good monthly dividends, and the stock price is going up over time, like SCHD has, I am sorry, that is an ideal situation, that is having the cake and eating it too, that annihilates annuties. Need I continue?

[@Mr.Mister96]

@11:20 I'd rather own 100% of a nine million dollar company rather than 90% of a 10 million dollar company because all things being equal I would have greater authority/control/say-so

[@matthewharrigan3568]

Good video. One point to add is that the price of a stock and the number of shares you own are arbitrary. A company could just do a 2 to 1 stock split, doubling your number of shares and halving the stock price. What is not arbitrary is the total value of the company and what fraction you own. I think this highlights that selling shares vs using dividends to fund withdrawals is irrelevant. What matters is the amount withdrawn and total return.

[@Mr.Mister96]

What about the fact that dividends allow you to purchase more shares and thus have more votes whereas if you were to sell share to create your own dividend your amount of shares would decrease and you'd have less votes in the company

[@canpin]

Like anything i diversify. I have dividend investments and growth 50/50 actually

[@koufax174]

Are dividend ETFs (VIG or SCHD) less volatile than VTi or VOO? Another KZbinr said that. Thank you

[@johngass1441]

Thanks

[@robsalvv5853]

LOL the YT algorithm recommended the previous dividend video earlier today (where the bank analogy was clearly flawed) and now the response video. Interesting. Putting dividends in the “right” perspective is clearly dependent on one’s starting position. It is interesting stuff though.

[@davidbrooks8809]

Confused!!

[@Eisbaerch]

I am missing a psychological aspect in this debate (total return vs. dividend payout). I think in a bear market or crash people who receive a dividend from a stock are less likely to sell this stock than when they dont.

[@rob_berger]

Agreed. And these psychological considerations are important.

[@jasonparrott2912]

Great analogy. Finally clicked

[@junsilver650]

Does this also apply to REITS?

[@togoni]

Yes Rob, you are right in general terms but, how many Americans own a lot of such valauble stocks that also pays dissent dividends to have the problem Warren Buffett talks about. 🤔🤔😫

[@TheSmartLawyer]

I like a nice mix of stocks and bonds.

[@davidbrooks8809]

Bonds are trash

[@Porkchop259]

A good, profitable, well run company is a good, profitable, well run company, growth or dividend is a distant second as long as you pick stocks that cover the first part the rest will take care of itself.

[@charlestrobaugh7917]

Hey Bob do you have a spreadsheet of your portfolio? It would be interesting to see your allocations are %. Struggling to figure out where to invest. I have 10 years left and playing catch up. Thanks

[@snowfirel7108]

Dividend stocks are fun!

[@jdgolf499]

Your Berkshire example is flawed in many ways. While what he wrote in his letter is correct, let's look at it closer. As he stated earlier in his letter, he LOVES dividend paying companies, which is why he buys so many of them, and we buy for the same reason. They make money! As for Warren, using him as an example for anything investing, is a joke. I love Warren, although not his politics, but he is very unique. When he buys shares in a company, it comes out in the news, and everyone buys that stock, and he immediately makes money.

[@maguilla]

If you hold the cash and buy great dividends business at the lowest price at the upcoming recession/depression . It will be a great opportunity besides that I would just stick with growth. BRK to me is a insignificant investment, specifically because I can buy Apple directly and make the dividends, or Coca-Cola or any of its top 5 investment. Buffett loves dividends but pays no dividends, read his book snow ball and you will understand

[@victorvale8391]

your appl example is true but most of the dividends paid did go back to the company in the form of reinvestment

[@rob_berger]

Reinvested dividends don't go back to the company. They are used to purchase shares from other investors on the secondary market.

[@paulthorpe766]

I absolutely love 80% of the comments below 👇 It's extraordinary how many people just don't get it! It's so simple, that it is total value that matters. EVERYTHING ELSE IS NOISE !!. Also, so few people understand that they, as humans, are hard wired to minimising perceived loss (loss aversion)... and that's what drives the insanity of a dogma of religiously non-selling and buying only dividend aristocrats and the like. These evangelists often throw-up single stocks that have 5%+ dividend AND good growth and say this therefore is a great strategy! But they don't look at the whole market over say 2 or 3 decades and see that these stocks overall nearly always enjoy/suffer the principle of 'regression to the mean' and that a mixed portfolio of growth and dividend (and other asset classes too) will win out when you look at it in the whole. * And in the Buffet example it would only be an issue if charitable disposals meant as a majority shareholder you accidentally go from say 51% (majority) to 49% (non majority ownership) by mistake with your philanthropy.....and with Buffet, that won't happen !

[@cindymcdonald8244]

Hi Rob, I'm also headed for retirement and when it comes to retirement accounts/IRAs, we'll be coming to an age where we will be required to withdraw certain amounts every year. Wouldn't it be better to take those RMD's from dividends that were earned from our investments in aristocrat stocks? We have no pensions and social security is well... not that secure. Our retirement accounts have to be tipped towards stocks in order to sustain any kind of growth or even keep up with inflation. So doesn't it make sense to invest in some of these rock-solid aristocrats and kings that have been around forever - like some of the bank stocks up here in Canada - BMO Bank of Montreal has been paying dividends since the 1800's. Although some of the percentages are small, we can accumulate these dividends over time and use them for our annual withdrawals without drawing down our actual investments. The hope being to sustain ourselves longer with an income source that is more predictable and reliable than stock values. As some other friend bloggers have said -- "eating the apples without chopping down the tree." Look forward to your comments when you do your video on dividends in retirement accounts. Love your blogs! Thank you!!!

[@rob_berger]

Because RMDs come out of traditional retirement accounts, I don't see how taking the distribution from dividends changes anything. It's all taxed as ordinary income. And there's no designation of the withdrawals as coming from contributions, gains, or dividends.

[@tommybahamas40]

Can some one tell whether Mr Buffet invented any item and became who he is today or just like the amazing owners of Amazon owner/ Apple owner or Elan musk. They all created a product and sold it to the world and built their empire. I see Mr. Buffet had been buying other companies from his wealth and managed to profit from it. Like to get some thoughts about this. Thanks.

[@krunalrpatel725]

Lest assume young investor , 25 years , putting money every yearly in company A- Apple , company B- BRK, now he wanted to retire at age 60…..at retirement age both company about to get bankrupt or become like GE/Kodak/blackberry/Nokia …their share value cut down 90% … so what you suggest … investing in company A is better then company B because investor at least got dividend whole life .

[@seanuh60]

I just dont understand why businesses who had dividends prior to 2008 havent brought them back. We all understood that businesses couldnt pay dividends after the crash. But now everything has recovered and been at all time highs for over 7 years. So why is it still acceptable, or we are ok with a company that used to pay $.25 at $20 a share but is now still pretending to struggle getting out $.002 a share at $75. Just as an example.

[@ros7788]

The source of the reinvestment matters for the dividend investors who are also value investors, which is often the case. The intrinsic value of a $1 dividend is very different from the intrinsic value of a $1 of shares. If the investor believes he can buy $1 worth of assets for $0.80, he can do that with dividends. A $1 dividend is worth $1, but $1 inside the business may be worth $0.80 through the share price when stocks are out of favor. This is assuming that you agree the market can be inefficient in the short to medium term. If the market sentiment is negative, I'd much rather receive a $1 dividend coming from the company's cash flow, which is unaffected by the market sentiment. On the other hand, selling $1 worth of shares is not worth it because I'm giving up more than $1 of intrinsic value.

[@stan4d1969]

The people who think this information is wrong/inaccurate lack a basic understanding of the subject matter. However, it can seem a bit misleading/incomplete in spots. I used to be focused on growth stocks but the concept of "total return" (growth + dividend) makes perfect sense. As for me, I like the idea of living off the dividend yield in retirement and not touching "the principal". Three reasons: 1) Your original nest egg remains in case you *really* need it. 2) You leave behind a nice legacy for building generational wealth. 3) Less stress/worry around having to periodically sell assets (maybe at a loss).

[@lusmas99]

But wouldn't Buffet be better off if he still had the 712 million shares. Perhaps the value of those share would not have the same value IF Berkshire paid a small dividend, but I would bet it would (like Apple, JNJ, CAT, etc). I won't convince you there is a difference and you won't convince me there isn't. My view of Dividends is "Cash flow". Sure there is risk of cutting or eliminating dividends, but good companies increase more often then Black Swan events that cause cutting/eliminating.

[@aljacksonartist]

Rob, everything you say is true, wise and sensible - for people who share with you the same age, net worth, debt and temperament. That's why you're losing people. The quality of a stock is not intrinsic. One stock could be great for one investor and awful for another. I think it's best to just lay out the facts minus how the stock works or doesn't work for YOUR life in particular.

[@SKITTLELA]

Except stocks have the same total value regardless of the investor's age. Actually, I would want as little dividends in taxable as possible because they're a tax drag (although they're a "necessary evil"--strong emphasis on quotation marks; don't hurt me.) Then value/dividend funds would make more sense in tax-advantaged accounts because they're...not taxed. I get that there's a psychological component to receiving dividends and being more likely to hold onto a stock. But if investors can look past that, I think they'll perform better in the long run.

[@mikekeenanphd]

I think your analogy was not very good because it came as a surprise to the purchaser of the company. My response would not be to pay 9.75 but to cancel the transaction. If they lie about that, what else are they lying about. If there were no such thing as taxes, then it might make sense to favor dividends over share buybacks. The company is using the money to purchase its own stock while I can choose to do what I want with the money. I agree that dividends (at a reasonable payout ratio) should be used as an indicator of company health and should not be used as the tail wagging the dog. Unfortunately, I am guilty of violating that dictum on many occasions and it usually means less total return.

[@rodrain2]

There was a study done showing that companies that pay a dividend outperformed companies that didn’t by a pretty good margin. Just sayin’

[@Sylvan_dB]

If I am own a business I want it to pay me. End of story.

[@johndroescher6291]

Ok, but doesn't giving a dividend DECREASE the chances of a mass sell off, WHICH MEANS THE STOCK PRICE STAYS UP!!!!!

[@richardperritti5916]

A dividend gives me money but does not increase my wealth. What? My paycheck gives me money but does not increase my wealth. What? Drawing down my wealth by 4% a year increases my wealth? What? A business increases its revenue, but the business is not worth as much. What?

[@franksatterfield9764]

A company that can grow its dividend tell us 2 things. The BOD believe they can continue to grow the company and the company is successful today.

[@SKITTLELA]

Or they're growing their dividend because they're failing--who's to say. Depends on the company. Simple fact is vast majority of businesses eventually fail and fall.

[@franksatterfield9764]

@@SKITTLELA that’s just not true as long as dividend growth is accompanied by the dividend being a stable % of earnings. I’ve never seen a company go under because of increased earnings. Dividends don’t grow because the stock price falls, dividends grow because the earnings grow.

[@SKITTLELA]

@@franksatterfield9764 I'm saying virtually all businesses fail in the long run, and if it's at the point of providing a high dividend yield, it's statistically more likely to sooner (not that it's necessarily a bad business.) I'm trying to find a source I read about how the average lifespan of major corporations is 40 years or something like that but not having any luck... Basically, look at the S&P 30 years ago compared to today, and see how many are no longer there.

[@franksatterfield9764]

@@SKITTLELA , I agree with you about high dividend yield, but I’m talking about dividend growth fueled by earnings growth

[@Jay1971lion]

Dividends are great to produce income from within a Roth IRA. Once you retire and have your 401k, withdraw up to your tax bracket, convert Roth IRA what you can (hopefully you’ve opened and been contributing to the Roth over time). Invest in income producing investments, interest income, short sell option funds (JEPI), invest outside Roth into dividned producing investments. Limit taxes. Total return for growth, dividend and interest income for tax free or low tax income. The math works dependent upon tax bracket. That’s why.

[@jasonhobbs2405]

Loved the opening example of buying a company!

[@jefals2000]

Also, stock prices tend to rise between the declaration and the ex date. So, if you want to suggest that the dividend reduces your value - you must concede that dividend increased your value before it reduced it. 😉

[@rob_berger]

My focus is on value, not price. The price changes for many reasons in the short-term. That said, I'm still surprised at the reaction to these videos on dividends. If you remove $100 million in cash from any enterprise, it lowers its value. That doesn't seem controversial to me.

[@jefals2000]

@@rob_berger it could be controversial, tho. It could be argued that divs- at least from well run companies - come from excess earnings - and therefore do not reduce intrinsic value...

[@rob_berger]

@@jefals2000 You make an interesting point. I guess the idea is that the excess cash would just sit there earning next to nothing. And if paying the dividend doesn't hurt future earnings, how could it lower intrinsic value? Well, certainly earnings are a huge part of value, but so of course is book value, which goes down dollar for dollar with a dividend. But certainly worth further study.

[@jefals2000]

@@rob_berger as for the book value, this will have gone up during the quarter as those earnings come in. Then down with the div, then back up again next quarter. Some might also point out (I won't do it, but some folks might 😉), that companies with excess cash on the books have been known to sometimes spend it foolishly. Reducing the value by way more than the dividend...😬

[@jefals2000]

@@rob_berger sorry: one more thing. You said you're focused on value, not price. But you're focused on THE COMPANY'S value - not the investor's value. As an investor, I'm concerned with my value. Shares times price. I get dividends PLUS I can sell my stock for more than I paid for it several years ago. I leave the company's value to management.

[@johnbrown1851]

I'll take the SCHD over the Voo dividend... I can gradually fill my cash bucket without selling shares whether the market is up or down. I hold growth ETFs for further into the future.

[@canpin]

Some rather invest in "orchards" and pick the fruits for life...than choppig down the trees everytime you need money.

[@rob_berger]

And that analogy is a perfect example of how people misunderstand dividends.

[@idog63]

love getting my monthly BND dividend :)

[@morriselee]

The debate about focusing on income/cash flow (dividends)versus total return never ends. My DIVIDEND GROWTH INVESTING account crashed SP500. My holdings? $ABT, $CHD, $MSFT, $PEP, $SHW, $DPZ, $V, $DG, $COST, $LOW, $ITW, $NOC, plus two non-dividend paying stocks $AMZN and $CRM. I will hold all stocks forever and enjoy the 10%+ annual dividend growth.

[@paulfiedler9128]

Rob, did you watch the FAST Graphs video--Why Dividends Increase Your Wealth? That video was prompted by your Free Dividend Fallacy Video. I also left you a quote from Joseph Hogue about how dividends increase wealth. I did not see any response from you. I thought Chuck Carnevale's FAST Graphs video on dividend investing was very educational. I hoped you watched it. That video had everything to do with your dividend bashing.

[@rob_berger]

No, but I'll check it out.

[@rob_berger]

And to be clear, I'm not bashing dividends. I'm putting them in the right perspective, IMO.

[@rob_berger]

Paul, I've tried to listen to the video, but it's a challenge because he repeatedly misstates the ideas I expressed in my video. I don't think it's intentional, and he seems like a knowledgeable, thoughtful person, but I wonder if he watched my video before creating his.

[@paulfiedler9128]

@@rob_berger Yes he did. I asked Chuck Carnevale to watch your video and he was very unhappy with it. I also posted your Free Dividend Fallacy video information on Joseph Hogue's Let's Talk Money Facebook group page.... which I am a member of...and it created a firestorm of comments. I left all this on your video page--Joseph Hogue's comments and Chuck Carnevale's comments. They both watched your Dividend Fallacy video at my request and both heartily disagree with you. It's very troubling that you three guys---who all have access to the same information---cannot agree on the benefit of or lack of any benefits that dividends bring.

[@rob_berger]

@@paulfiedler9128 Well, I think it's ok to disagree. I'm sure they have articulated their views well. I would encourage everybody to read Warren Buffett's 2012 letter to shareholders beginning on page 19. He puts it best.

[@Sylvan_dB]

By what definition of compounding is the value allowed to go up *and* down? The definition of compounding is growth upon a fixed basis. Share prices do not compound. Growth is not compounding. Berkshire grows, it does not compound. You can compute what the compounding would have been if it had been compounding. And then when you calculate again after the next crash you'll get a different answer because it was not compounding. Getting more shares increases your claim on future growth of the company. An increase in share price does nothing unless you sell your share. Selling reduces your claim on future earnings. Do you sell a chunk of your farm to fund your living expenses? No, you live on part of your income. My dividends did not get cut my 20% in 2008-9. In fact, due to dividend reinvestment they actually grew a little bit. If you had too much sector concentration you probably suffered worse. Ex-div price adjustment is nothing more than your business value decrease. It is simple accounting. The long term value of the business is not the cash on the treasury but the future revenues. Total return is a fool's game. Your total return varies day to day. No wonder you need 40% in bonds...

[@739jep]

But businesses do compound , a business earns an income and then that business can use that income to fund future growth (essentially what you’re doing with reinvesting dividends). What if they don’t fund future growth and the price drops you might ask. Well what if you’re reinvested dividends go into the same company? The net result is the same - you just have more shares in a company with a lower share price. It’s only possible to think that one method is compounding while the other isn’t if you believe that dividends are free income and have no relationship to capital gains. To believe that is false.

[@paulthorpe766]

Everything compounds - Investments (incl stocks), inflation and grey hairs !

[@poolking25]

Who needs 40% in bonds...100% stocks all the way

[@Sean-jb5gi]

Remember the Dividends are Taxed at 15% and Keep the Share but Amazons or Berkshire Hathaway's Compounding when sold is Taxed at What? As high as 37% More than DOUBLE and no more Shares. I guess you love Paying the Government workers Salaries. I commend you

[@garythornbury9793]

the magic is you still own the stock after you get the dividend, if you have to sell the stock no more dividends

[@morriselee]

Yep, very simple, right? But so difficult for so many people to understand.

[@garythornbury9793]

@@morriselee your right but rob wants you to trade alot so he and those like him him can live off your money

[@keystoneskiguy2718]

40 percent plus long term returns in the S&P 500 have come from dividends. Stop silly clickbait.

[@rkphibb]

AFTER YOUR last video you are trying to save face with this one. Your dividend view is very simplistic and lame

[@poolking25]

Lol it's fine to disagree. Do your own thing