The True Cost Of Dividend Investing

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[pyrosketcher]

What you call "total returns" is actually only total theoretical appreciation when it concerns stock price. You haven't realized any return while you still own a non-dividend stock regardless of how much its market price may have changed. Dividends are realized returns that don't require you to sell the productive asset. You aren't accounting for the opportunity cost associated with non-cash-flowing assets (ie, you don't have income from those assets that could be further compounded by investing in additional assets or ventures) and you incorrectly assume a direct relationship between a business retaining earnings and its stock price going up.

It's very simple: Would you work a job that paid you in one big check whenever you left the company, or would you rather get paid the same amount in installments along the way? The answer should be obvious. Cash in hand has important qualities that theoretical asset value does not.

[robertgiudice]

Here's the thing to take into consideration: I do not plan on ever selling in my lifetime or my children's lifetimes. I therefore do not care whatsoever about the rate of return, as long as the dividend stays the same. In fact, I would much rather the stock go down because I can then buy into those dividends for a discount, again, provided the dividend remains consistent. The whole point of dividend investing is being able to generate income in your retirement without having to withdraw AT ALL.

[ericscott]

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

[davidbarclay]

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.

[ammart]

Missing the point of dividend investment. The price appreciation means nothing, it is dividend appreciation that matters. In fact dividend investors prefer the price of stock doesn't appreciate, so they can accumulate more shares by reinvesting, which leads to increase of income generating. It is all about income generating income without having to sell your shares, it is all about generational wealth.

[susanbarkley]

Everyone complains about the world and its problems, yet we invest in many companies who clearly lack integrity and do more harm than good. I want to choose my individual stock based on the companies ethical practices and products that do not harm people in the long run or cause a decline in health and or negatively affect the environment. There is no one perfect stock, but there is good reason not to invest in some very wealthy businesses, like McDonalds for instance. Money and profit always seem to take presidence. I'm sure there are people who stay clear of McDonalds, but will invest in them! There goes money winning over integrity. Choose your investments wisely. If we keep supporting businesses that are destructive to this world, how will we ever move closer to a world that operates out of integrity. The more you support these companies the richer and more powerful they become.

[CarSalon]

Very good points. Thank you. 👍🏼

My problem with index funds is that by buying them I'm empowering Blackrock and Co. They use my money to buy shares and then the shares to vote on my behalf. I don't like them having soo much influence over so many companies worldwide. That's why I don't give them my money.

I wish everybody did the same thing. We'd have much less problems in the world with a much weaker Blackrock, Vanguard, State Street and the likes...

[adrianellis]

The first ISA millionaire Lord Lee based his portfolio around Dividend paying companies. Warren Buffets Dividend paying companies. An investment portfolio should be diversified which includes Dividend paying companies. The S&P 500 had a place in a diversified portfolio but only a place.

[AB-hczl]

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!

[bardatwork]

My portfolio is a mix of good dividends, growth stocks and index funds. Having a little of everything I find works best for me.

[dotis]

You miss the additional profit step by not adding covered calls. They add significant returns on dividend stocks.

[sneakyquick]

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

[MrPurle]

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

[rodrain]

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

[howardsmith]

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.

[MattMajcan]

very good points. its as warren buffet says, for most people investing in the snp500 is the best option, but thats boring and people dont want to do it. Im trying to split my portfolio between a lot of growth etfs and a few dividend etfs just to give me some flexibility and spending money if i want it

[wcg]

Not sure how it works in the UK, but in Canada, dividends are almost tax free (to a limit) if from eligible companies. If you factor in the tax savings and the steady income stream, they’re are good source of retirement income, although I’d argue not all of it. However, it makes no sense to do dividend investing during the growth stage when you’re working and saving.

[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.

[edcar]

There is no need to invest if you don’t want to take some profits. The trap is never taking an income from your investment.

[fv]

Great video . Couple of things I would like to have seen discussed, 1. Volatility, 2. Sequence of return risk, 3. Different time periods.