tag:blogger.com,1999:blog-5465015914589377788.post8290077028407012521..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Emotional Benefits of Dividend InvestingMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-5465015914589377788.post-70916505010815131502020-11-01T18:28:19.751-05:002020-11-01T18:28:19.751-05:00The comment above is a rely to My Own Advisor'...The comment above is a rely to My Own Advisor's comment:<br /><br />I'm attracted to dividend-paying stocks because of the passive, secure income they provide in down markets. I feel big, large blue-chips offer some security that equity ETFs don't when things plunge 30%.<br /><br />That said, I own equity ETFs because I'm just not that smart to select, buy and hold all the right stocks that will provide security and growth for forever and a day.<br /><br />Back to the premise of your post, I personally get a kick out of any paid or reinvested dividend or distribution, bonds included. Probably makes me an oddball.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34850350163826048982011-02-03T18:30:34.746-05:002011-02-03T18:30:34.746-05:00Personally my experience has been that my dividend...Personally my experience has been that my dividend income has increased every year, but the value of portfolio has been very volatile at times. <br /><br />I stopped working in 1999 and have added no new money to my portfolio and I have found the same thing. My dividend income has only gone up. In recessions, the increase in dividend income is lower, but still I got an overall increase.SPBrunnerhttps://www.blogger.com/profile/10497905201043436744noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72747005467162386792011-02-01T20:09:58.510-05:002011-02-01T20:09:58.510-05:00@My Own Advisor: Your reason for liking dividend-...@My Own Advisor: Your reason for liking dividend-paying stocks seems to boil down to believing that they are less volatile, which may be true -- I'm not sure.<br /><br />I don't think I'm smart enough to pick individual stocks either.<br /><br />You are hardly an oddball. The premise of my post is that you are among the majority. There is nothing wrong with investing in a way that provides an emotional benefit as long as it doesn't overly harm long term returns.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-19222254729018373272011-02-01T17:56:28.350-05:002011-02-01T17:56:28.350-05:00@Ahmed: Interesting take. I suppose there are si...@Ahmed: Interesting take. I suppose there are situations where a company controls a profitable market that isn't growing and it doesn't make sense to retain earnings to try to start some new business. In general though, if you don't trust a business with retained earnings, you have to question whether you trust them with your capital in the first place.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-91982039093074706592011-02-01T17:49:24.163-05:002011-02-01T17:49:24.163-05:00I'm always amazed by people who don't trus...I'm always amazed by people who don't trust a company with retained earnings but trust the company with the initial capital that produced those retained earnings.Ahmednoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32072229249990553612011-02-01T11:37:33.796-05:002011-02-01T11:37:33.796-05:00@Echo: If you are reinvesting dividends, this is ...@Echo: If you are reinvesting dividends, this is a form of market timing as well. If you intend to replace collecting dividends with selling some shares, I don't see much difference if the stock sales are at the same time as the dividend payments would have been.<br /><br />@Matt: That's interesting. I suspect that this boils down to the theory that dividend stocks are less volatile. I suppose we could check out your idea on past market data. Perhaps it would be present with portfolios of just a few stocks. My guess is that if this effect is present, it would tend to disappear for broadly-diversified portfolios.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-11960195414784616652011-02-01T09:44:50.056-05:002011-02-01T09:44:50.056-05:00The impact of market prices is missing from your t...The impact of market prices is missing from your theory. If a company is paying out a rising stream of dividends, and you're spending that income, then you don't have to care about stock prices. If you're counting on selling 4% of your holding in a company's stock in order to pay the rent, you have to care a lot about stock prices. Clearly in this example I'm putting faith in that rising stream of dividends, which isn't assured. But historically, including the recent decade, stock prices gyrate a great deal more than cash dividends.<br /><br />I trust the businesses I'm buying shares of a great deal more than I trust the ability of the market to put a rational valuation on them. Sequence of returns matters, and assuming you can sell your equity at a good price when you need the income is putting a great deal of trust in market stability.mattnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-77846646146416097062011-02-01T09:44:48.701-05:002011-02-01T09:44:48.701-05:00Your example is great in theory if the market is e...Your example is great in theory if the market is efficient, but with the stock that doesn't pay a dividend you don't "profit" from that 10% gain until you sell, which involves some market timing.Echohttp://www.boomerandecho.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34168633749442065622011-02-01T09:14:10.897-05:002011-02-01T09:14:10.897-05:00@Robert: I suppose that the emotional benefits pe...@Robert: I suppose that the emotional benefits people get from dividend investing may help prevent them from making emotional investing mistakes. Of course, some of them are already making an emotional mistake by tipping their portfolios towards dividends rather than capital gains, and others have overly concentrated portfolios. But these problems may be offset if dividends help people hold on when markets bottom out.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-67069234896197460302011-02-01T08:46:16.302-05:002011-02-01T08:46:16.302-05:00I agree that a major benefit of dividends is emoti...I agree that a major benefit of dividends is emotional. And, given that most investment decision mistakes are emotional (especially herding, which causes market crashes), that's a benefit that shouldn't be discounted. <br /><br />You don't see the mathematical difference. That's based on the assumption that management wisely reinvests profits. I feel that may be the exception rather than the rule. But I can't prove that.Roberthttps://www.blogger.com/profile/12961149077824073687noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-27551426525414269852011-02-01T08:16:02.259-05:002011-02-01T08:16:02.259-05:00@Potato: I agree that a given company may serve i...@Potato: I agree that a given company may serve its investors better by correctly deciding whether or not to pay a dividend. However, I have no confidence that I can figure out which companies should pay a dividend, and I definitely don't believe that the typical dividend investor can figure out which companies are paying appropriate dividends.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-12941033494460224992011-02-01T01:22:59.997-05:002011-02-01T01:22:59.997-05:00In general, and especially in the short term, I...In general, and especially in the short term, I'd agree that it doesn't matter too much one way or another. <br /><br />But over the long-term, if a company can't find a way to reinvest the cash, it should be paid out as a dividend so the investor can reinvest it. Now, that's a company-by-company analysis...<br /><br />Apple, for example, is one company that I can't understand for the life of me why it doesn't pay a dividend. Using rough numbers from memory, it's a ~$300 stock with ~$50 of cash. The operating company grows at say 20%/year, and generates yet more cash that just rots on the balance sheet.<br /><br />So you've got essentially a $250 stock growing at 20%, and a $50 cash tumor growing at 0%. If they paid out the cash in a dividend, you could reinvest it in Apple stock (or somewhere else) and get a return on that, but they don't. So instead of getting the full say 20% return of the operating company, you only get a 16.7% return on the shares.<br /><br />What I'm trying to say is that if a company hoards its cash flow, then you turn a potential compound growth situation into a linear growth one, and in the long term that's not going to be good.<br /><br />But yes, there's no point in a dividend for dividend's sake, if the company can reinvest the cash profitably.Potatohttp://www.holypotato.netnoreply@blogger.com