Dividends Are Irrelevant (Sort Of...)

[missy2710]

@boanerges1989 Dividends are irrelevant before personal tax considerations are factored in. Period. Full stop.

People like dividends, they just don't know what it entails.

 

[creexpl]

@missy2710 It's "irrelevant" theoretically. In practice there are differences in psychology, market inefficiencies, the choice in where capital is allocated, company tilt (value), there's even embedded signals in what a sustainable withdrawal rate is given most companies are better informed about their own financial operations.

They are irrelevant if you're chasing yields for the sake of yields, but there are definitely legitimate reasons for why some people might prefer them.

 

[missy2710]

@creexpl

psychology, market inefficiencies, the choice in where capital is allocated, company tilt (value), there's even embedded signals in what a sustainable withdrawal rate is given most companies are better informed about their own financial operations.

If this is less than 1% of the reason why dividends matter, then we are talking about an immaterial consideration.

I'm saying 1% of the 3% dividend, or 0.03%. I'm certain the above is not 33% of the dividend (1% / 3%)

 

[creexpl]

@missy2710 The psychology component itself is already worth more than 1% in my opinion. How many retail investors are able to stomach the stock market diving 20, 30, 40%? How many are better able to stomach it if they are focusing on the dividends being deposited quarterly irrespective of volatile stock prices?

 

[missy2710]

@creexpl I can't comment on the real stat, but touche.

I would also say that if down some massive number, that dividend (humorously enough) would also be irrelevant, as all they see is the big fat red double digit number.

 

[crazyal]

@missy2710 Yup, dividends have this weird cult and many people who seek them out don’t really understand what they are and aren’t

 

[slamoutte]

@boanerges1989 My longer term goal is getting into dividends. Banks, insurance companies, some energy and mining companies...

 

[zango11]

@boanerges1989 They might be irrelevant "for all intents and purposes" but they are not irrelevant.

If a company never pays a single dividend between its creation and it's eventual dissolusion, then that company's shares should presumably worth zero today.

 

[velocity]

@zango11 Can you show your math on that? I'm legitimately confused.

 

[miamivice]

@velocity I think he is saying if a company ipos at say 25, you buy 10 shares at say 22, maybe the stock goes to 500 before declaring bankruptcy 5 years later and goes to 0… with no dividends you are out 220. If they had paid a 4% dividend you would have at least gained 4% for the years you held the stock.

 

[creexpl]

@velocity It's just fundamental analysis. The sum of all discounted future cash flows for that company is 0.

 

[estelee]

@boanerges1989 I read this as buying xqq over vfv

 

[johnsmith9]

@boanerges1989 Some large, stable companies currently have fairly steep dividend yields based on sliding share prices

I think Scotiabank is around 7.5% compared to share price and Verizon is nearly 8%

With down profits I wonder how companies will respond dividend wise. I would imagine a large slash to dividend payout would be very unpopular among shareholders