Dividends are inefficient from a tax perspective and those funds almost always underperform the market in the long run.
The only real "benefit" I've seen is that psychologically, it feels like you're getting paid. But what's the point of getting a $250 dividend on a fund that grew 5% (and had taxable dividends) when the market itself grew 10% (just an example)?
KPMG: Traditionally dividends ARE profits. It’s rare for a company to pay dividends while making a loss, at least over the medium term. If the company can’t reinvest profits at a higher return than the cost of equity then it should absolutely pay dividends. Just because a company doesn’t have highly profitable reinvestment options doesn’t make it a bad company. Investing in low returning projects would be far worse.
Holding a stock means you are part owner of a business, they aren’t some abstract financial product.
Microsoft is a value/growth stock still, with a hefty dividend. I’d rather have that in an index where it doesn’t get passed through. I’d personally avoid individual stocks, though.
Disagree that dividend funds underperform. Dividend investing is a good way to target investments in profitable but slow growth companies and value stocks. These are companies that are highly successful but have limited reinvestment opportunities. Overall their returns historically have beat the market. However they do limit diversification and need to be done carefully. However, investing in an index and targeting value stocks as a percentage of portfolio is probably more diversified than dividend investing. In the very long run, almost all stock returns are basically from dividends.
Mentor
Dividends are inefficient from a tax perspective and those funds almost always underperform the market in the long run.
The only real "benefit" I've seen is that psychologically, it feels like you're getting paid. But what's the point of getting a $250 dividend on a fund that grew 5% (and had taxable dividends) when the market itself grew 10% (just an example)?
Mentor
KPMG: Traditionally dividends ARE profits. It’s rare for a company to pay dividends while making a loss, at least over the medium term.
If the company can’t reinvest profits at a higher return than the cost of equity then it should absolutely pay dividends.
Just because a company doesn’t have highly profitable reinvestment options doesn’t make it a bad company. Investing in low returning projects would be far worse.
Holding a stock means you are part owner of a business, they aren’t some abstract financial product.
Why do you need passive income pre-retirement? While dividends held over a quarter LT taxable (yes, even if you reinvest), why pay that tax now?
Microsoft is a value/growth stock still, with a hefty dividend. I’d rather have that in an index where it doesn’t get passed through. I’d personally avoid individual stocks, though.
Mentor
You missed out on the greatest dividend buy in decades when XOM was yielding 10%
Are you treating dividends as different from capital appreciation?
Stock picking is even more dangerous than dividend investing.
https://youtu.be/4iNOtVtNKuU
Coach
SP Global is an index provider...
I buy SCHD and HDV to get growth and dividends . It is a small part of my portfolio.
Dividends are taxable
Disagree that dividend funds underperform. Dividend investing is a good way to target investments in profitable but slow growth companies and value stocks. These are companies that are highly successful but have limited reinvestment opportunities. Overall their returns historically have beat the market. However they do limit diversification and need to be done carefully. However, investing in an index and targeting value stocks as a percentage of portfolio is probably more diversified than dividend investing. In the very long run, almost all stock returns are basically from dividends.
Exactly my thinking. Most dividend stocks are some of the biggest companies in the world that have constant returns and still continue to grow
Why do we all vti if it pays dividends? Or does it stay in the fund?
Reinvest.