Should I buy U.S. Dividend stocks when I’m a Canadian?

[xososaxo]

@turmoil77

chasing dividends doesn’t make sense in an era of low/no fee liquidity.

Can you explain your reasoning a bit further?

 

[sa_m]

@xososaxo Corporate valuations are pretty nutty right now considering so many have sagging net incomes and depression level GDP. JPow and Trump have guaranteed stonk valuations will continue to rise at a blistering pace even if corporations lack the ability to pay out dividends.

I’m not the OP just my thoughts on what he could mean.

 

[ukbeliever220485]

@xososaxo

Can you explain your reasoning a bit further?

Ben Felix created an article & video a while back laying out out the evidence:

• https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/

See also:

• https://canadiancouchpotato.com/2011/01/18/debunking-dividend-myths-part-1/

TL;DR: there is nothing special about dividend paying companies that makes them better than non-dividend paying companies. Especially if you're still working and in the saving / accumulation phase of life, one should focus on total returns. Total returns will give you large pot of money for your retirement.

In retirement, perhaps, maybe one can focus on dividends for income, but even then evidence is sketchy for it.

 

[xososaxo]

@ukbeliever220485

TL;DR: there is nothing special about dividend paying companies that makes them better than non-dividend paying companies.

I get that, and agree. The comment I replied to said:

chasing dividends doesn’t make sense in an era of low/no fee liquidity

And I thought they were making some argument about the effect of abundant capital on dividends. Instead he was saying that the cost of selling a stock (to synthesize a dividend) isn't a factor like it once once since transaction fees are low.

 

[aydoubleugee]

@xososaxo You could just sell shares of VGRO instead if you needed cash. Transaction costs have disappeared.

I do not really agree with the reasoning because dividends tend to be more stable than share prices if you need regular income, but that is the thinking.

 

[xososaxo]

@aydoubleugee Right, but that assumes VGRO is appreciating faster than whatever divided stocks you buy plus the divided.

I'm assuming the poster has some argument why they see valuations accelerating, or dividends declining, or both....and then, why does that correlate to low borrowing costs?

 

[turmoil77]

@xososaxo When you get a dividend of X, the stock price goes down by X.

It's not free money.

The only thing you save is the transaction fee for a sale.

 

[xososaxo]

@turmoil77 Got you.

Surely there are cases where you can produce similar cashflows, but personally I wouldn't consider the two outcomes the same.

In the dividend example, you still retain the same amount of ownership of the company on a percentage basis, and you have the cash in hand meaning it is no longer influenced by the company management.

In the other example, you have less ownership, the ownership you do have is still influenced by those retained earnings, and the company management still in control (for good or bad) of those retained earnings. Mind you, if you don't trust them with the retained earnings you shouldn't trust them at all, but not all businesses are growth businesses.

Also, of course, there are the tax implications for taxable investing.

I'd be curious to see an analysis on this over a broad term.

 

[turmoil77]

@xososaxo To be fair, I have an index ETF bias which means I'm less concerned about the management of any particular company (although Elon Musk is pretty entertaining).

In a taxable account dividends can pose other challenges. The reason is that with a capital gain, I can control when I do the sales to control the taxes I pay. With dividends I have no control over that. I currently make a higher income, which means any dividends I receive get taxed quite highly. It would be much more to my benefit to get none at all and continue to accrue capital gains that I could then spread out over lower-income years.

 

[xososaxo]

@turmoil77 Good points, all. Thanks for following up with me. For your situation, did you consider the swap ETFs?

Good point for the OP: Don't chase dividends if you don't want income. I'd assumed he had a good reason to want dividends, but had no real basis for that.

 

[turmoil77]

@xososaxo I haven't considered swap ETFs because they make me somewhat uncomfortable. I feel like at some point the government will end that party as they did with income trusts.

 

[akayfx]

@turmoil77 What if you need to withdraw a certain amount each quarter?

 

[retirementproject]

@akayfx Then sell some shares

 

[akayfx]

@retirementproject Could be down market when you need to sell. Whereas with dividends you just use dividends not caring about swings

 

[ukbeliever220485]

@akayfx

Could be down market when you need to sell.

You (a) sell bonds (which will probably be up), and (b) have 1-2 years' worth of cash in a GIC/HISA.

And if equities are really down, you sell some more bonds and buy equities when they're low (rebalancing): remember that retirement can potentially be for 30 years, so you still have to practice good asset allocation over that time period.

Any money needed in the short term shouldn't be in equities.