Ex Dividend

[dirtbiker]

Do I understand you correctly? The theoretical problem is a quarter century into the future and you are concerned about it now? Really?

Chill, man. Trying to solve problems you don't have and may never have is IMO not a good use of your time.

Do I understand you correctly? You're surprised that people on THIS forum, one dedicated to early retirement and financial independence, are concerned about financial matters a quarter century in the future? Yes, of course I am. I mean, of course. And so are most who are still working/recently retired. How many people run Firecalc? Do they look 25+ years in the future? Of course. When we're young and working, do we just blindly hope that what we are saving will work? Hopefully not. Hopefully we plan a quarter century or more into the future.

Trying to solve potential problems before they become actual problems is nearly always a good use of your time. It's the difference between a proactive and a reactive approach to life. I guess I prefer the former.

 

[ERD50]

Do I understand you correctly? You're surprised that people on THIS forum, one dedicated to early retirement and financial independence, are concerned about financial matters a quarter century in the future? ...

I bet he is only surprised that you are concerned at this level of detail.

Remember, when a company pays a dividend, it is money that otherwise would have been retained, and reflected in their share price. So you can look at it as selling off a bit of the company.

When you sell some of your portfolio, you do it when and how you want, rather than being dictated by the company. That can sometimes help you be more tax efficient.

-ERD50

 

[dirtbiker]

Yeah, I get it. You don't like dividends. It always comes back around. Sheesh.

 

[ERD50]

Yeah, I get it. You don't like dividends. It always comes back around. Sheesh.

No, you don't get it.

I invest in the total market, plenty of div payers in there, I do nothing to avoid them (except in my taxable account as I try to maximize Roth conversions). I accept them as part of the market.

I don't like it when people claim they are superior in some way, and don't provide any evidence for it. But I'm that way with everything, not specific to dividends.

You are trying to plan 25 years out, aren't you going to use evidence based information for that planning? If not, what is your planning looking like?

-ERD50

 

[Running_Man]

I bet he is only surprised that you are concerned at this level of detail.

Remember, when a company pays a dividend, it is money that otherwise would have been retained, and reflected in their share price. So you can look at it as selling off a bit of the company.

When you sell some of your portfolio, you do it when and how you want, rather than being dictated by the company. That can sometimes help you be more tax efficient.

-ERD50

Please show me on this chart what happened to the 65 billion of cash GE used to purchase their own stock in the last 20 years. Would you claim that the GE market cap of 90 Billion today would be only 35 Billion if they had not purchased back their shares? Or that if GE had not paid dividends of 85 billion in the last 11 years and instead purchased back company stock that the market cap of the stock would presently be 175 Billion? I find the share buybacks to be really tax efficient, but not value efficient. Note that on the chart in 2008 with the stock at $22 and market cap of 98 billion they sold 12 Billion in common and issued 3 billion in preferreds with warrants to convert at $22 with a 10% dividend to Warren Buffet. They bought those same shares they sold at $12 back at prices of $32 a share

https://www.macrotrends.net/stocks/charts/GE/general-electric/market-cap

 

[ERD50]

Please show me on this chart what happened to the 65 billion of cash GE used to purchase their own stock in the last 20 years. Would you claim that the GE market cap of 90 Billion today would be only 35 Billion if they had not purchased back their shares? Or that if GE had not paid dividends of 85 billion in the last 11 years and instead purchased back company stock that the market cap of the stock would presently be 175 Billion? I find the share buybacks to be really tax efficient, but not value efficient.

https://www.macrotrends.net/stocks/charts/GE/general-electric/market-cap

Dividends aren't the only thing affecting a stock price.

It's pretty easy to see in a large end-of-year distribution in a mutual fund, it has been pretty easy to see when a company announces a large special dividend. But the same concept applies, the smaller divs can get buried in noise (and GE sure has been 'noisy'!), but it's there. The money doesn't go 'poof', and it doesn't appear from nowhere.

This has already been covered many times.

I'll add to my earlier reply to dirtbiker - if someone tried to tell me that the sector of stocks that do not pay dividends reliably out-perform the Total Market, I'd ask for the same evidence. So no way is that "hating dividends". It's all about liking evidence.

-ERD50

 

[dirtbiker]

No, you don't get it.

I invest in the total market, plenty of div payers in there, I do nothing to avoid them (except in my taxable account as I try to maximize Roth conversions). I accept them as part of the market.

I don't like it when people claim they are superior in some way, and don't provide any evidence for it. But I'm that way with everything, not specific to dividends.

You are trying to plan 25 years out, aren't you going to use evidence based information for that planning? If not, what is your planning looking like?

-ERD50

You're again trying to lure me into a dividend vs. no dividend debate. You can go back and re-read my several previous replies to you about this. I never claimed they were better, and I don't want to continue to debate a position that you're trying to pin on me, rather than a position I actually hold.

 

[pb4uski]

I'm still 20-25 years from retirement, so obviously I am a long ways off. However, the thought of having to sell off my portfolio to fund my retirement causes me anxiety. It's not actually having to sell, as I know that's the name of the game, but it's how I'll allocate what is being sold and when that drives me nuts. Having a portfolio that generates enough income so that I don't have to touch the principle is very comforting. But to do that, I'd need a very large portfolio compared to what Firecalc tells me I need, or I'd need a high dividend portfolio. Obviously I'd rather the former (who wouldn't like a bigger nest egg?), but the latter obviously has its appeal too.

Well, hopefully in the next 20-25 years you'll read and learn so that occasional selling doesn't bother you. I don't think of any of this as selling... I am just rebalancing... and since I live off of my 5% in cash then when I rebalance cash I sell either bonds or stocks depending on what is overtarget at that time.

That is the problem/fallacy with considering "principal" to be sacrosanct... you need a much larger portfolio which means that you need to work longer... to heck with that! People forget that in most cases what is "sold" is just unrealized appreciation that is realized and used for spending. In most scenarios even with a total return strategy your portfolio will increase and dividends and appreciation will exceed withdrawals. I know that mine has... I've had 7 years of withdrawals for spending money and special withdrawals for a garage and a winter condo and my portfolio is still 125% of what it was when I retired... as a result of appreciation.

 

[OldShooter]

Do I understand you correctly? You're surprised that people on THIS forum, one dedicated to early retirement and financial independence, are concerned about financial matters a quarter century in the future? Yes, of course I am. ...

Do you have young children? Have you planned their weddings? IIRC you are an MD. Do you worry about how to manage patients using drugs that have not yet been discovered?

It is a matter of scale and of understanding uncertainty. For example, Firecalc's "number" is used around here all the time as if it was predictive. Sure, it can have two digits of accuracy looking in the rear view mirror. That's just math. But through the windshield its value is unknown. So to zoom down to withdrawal details 25 years from now is to be planning based on complete speculation. Better to work on the details of kids' weddings, as they will probably happen much sooner.

I mentor small business owners via SCORE. Lots of times I will get a client who goes through something like this: "A will probably happen. If A happens, then B will probably happen, then C will probably happen ..., so I need to get ready." I then point out the the joint probability of that outcome ("probably"^3) is pretty small. IOW, we don't know which way the duck is going to fly, so there is no reason to raise the shotgun and point. Wait until the duck does fly and see which way it goes.

 

[ERD50]

You're again trying to lure me into a dividend vs. no dividend debate. You can go back and re-read my several previous replies to you about this. I never claimed they were better, and I don't want to continue to debate a position that you're trying to pin on me, rather than a position I actually hold.

I'm lost.

I'm not trying to "lure you into a dividend vs. no dividend debate". You are the one who made comments regarding their superiority, I'm only asking for the data that backs up those statements. Isn't that reasonable in a forum where people are trying to learn about investing, and looking for opportunities? Earlier, you said:

I'm a fan for a few reasons. First, dividend stocks ... are generally more stable and less risky. ... .

... dividend paying stocks weather financial crises better ....

... There are a lot of good reasons to like dividend stocks. They're not for everyone, but I like them.

Obviously, you can invest any way you want. But when people come here and make statements about investments, I think they should be ready to back it up with data, for the benefit of all.

I don't understand why that should be an issue for anyone.

-ERD50

 

[dirtbiker]

Well, hopefully in the next 20-25 years you'll read and learn so that occasional selling doesn't bother you. I don't think of any of this as selling... I am just rebalancing... and since I live off of my 5% in cash then when I rebalance cash I sell either bonds or stocks depending on what is overtarget at that time.

That is the problem/fallacy with considering "principal" to be sacrosanct... you need a much larger portfolio which means that you need to work longer... to heck with that! People forget that in most cases what is "sold" is just unrealized appreciation that is realized and used for spending. In most scenarios even with a total return strategy your portfolio will increase and dividends and appreciation will exceed withdrawals. I know that mine has... I've had 7 years of withdrawals for spending money and special withdrawals for a garage and a winter condo and my portfolio is still 125% of what it was when I retired... as a result of appreciation.

I like the idea of having a small pile of cash to live off and then rebalancing assets to replenish the cash pile.

I do definitely get the principal vs portfolio balance. It truly doesn't matter whether you're dipping into principal or living off dividends, what matters is the size of your portfolio. It'll probably be a lot easier to better see once I get closer and my portfolio is worth a lot more to envision selling off small parts of it

 

[dirtbiker]

Do you have young children? Have you planned their weddings? IIRC you are an MD. Do you worry about how to manage patients using drugs that have not yet been discovered?

It is a matter of scale and of understanding uncertainty. For example, Firecalc's "number" is used around here all the time as if it was predictive. Sure, it can have two digits of accuracy looking in the rear view mirror. That's just math. But through the windshield its value is unknown. So to zoom down to withdrawal details 25 years from now is to be planning based on complete speculation. Better to work on the details of kids' weddings, as they will probably happen much sooner.

I mentor small business owners via SCORE. Lots of times I will get a client who goes through something like this: "A will probably happen. If A happens, then B will probably happen, then C will probably happen ..., so I need to get ready." I then point out the the joint probability of that outcome ("probably"^3) is pretty small. IOW, we don't know which way the duck is going to fly, so there is no reason to raise the shotgun and point. Wait until the duck does fly and see which way it goes.

I'd rather explore possibilities that never happen then to be broadsided by something I never expected. Don't let my future planning bother you too much though. It only affects me.

 

[dirtbiker]

I'm lost.

I'm not trying to "lure you into a dividend vs. no dividend debate". You are the one who made comments regarding their superiority, I'm only asking for the data that backs up those statements. Isn't that reasonable in a forum where people are trying to learn about investing, and looking for opportunities? Earlier, you said:



Obviously, you can invest any way you want. But when people come here and make statements about investments, I think they should be ready to back it up with data, for the benefit of all.

I don't understand why that should be an issue for anyone.

-ERD50

You've lured me in once, but not again. I don't want to have a discussion about superiority or inferiority of dividend stocks, which I've said several times in this thread. I'm not going to provide any data. Let's agree to disagree... Even though I don't actually disagree with you. You just can't see that because you seem to be itching to have a debate about this. I buy index funds without thinking and I buy individual stocks after careful investigation. I don't avoid a stock because it has a dividend. I don't avoid a stock because it doesn't have a dividend. I buy good companies, which I don't think runs contrary to your thoughts on this. But I do like dividends. I don't need to provide data to you or anyone else to justify liking dividend-paying stocks.

There's a strong divide in how people feel about this. I don't think many minds are being changed. Like discussing abortion, gun control, gay rights, government entitlement programs, etc.

 

[ERD50]

... There's a strong divide in how people feel about this. I don't think many minds are being changed. ....

I'm not trying to change anyone's mind. I just think the forum members are best served when statements are backed up. Saying I "like" something is fine I guess, but it really doesn't help anyone else, does it? I like turtles.

You probably won't accept this, but if anything, I'm looking for people to change my mind. Maybe I'm wrong, and there is a sector out there that is reliably better than the Total Market. If that's the case, I'd like to know about it, to see if I want to invest in it. But it takes data for me to do that.

-ERD50

 

[triangle]

It sounds like everyone here has nearly the same opinion. That total return is the most important. Though like some posters if the returns were equal then when when in retirement I would prefer dividends just for the ease of use factors I mentioned earlier (less need for proactive selling, less brokerage commission, less entrees to report to IRS in April).

As many have hinted at but not directly stated - companies which pay dividends and those which do not are different beasts. It is typically the larger, mature companies whose growth prospects are limited that pay a dividend. The younger, smaller, faster growing companies tend not to pay a dividend as their earnings can be better reinvested for faster growth. So a diversified portfolio would need to own both. The classic growth (little income) vs more value-ish (higher income) argument. Where in different market cycles different styles behave differently.

But like the standard disclaimer on any mutual fund, I do not think the future performance (next 10 years) of any particular style can be predicted based on past performance. Will there a difference over 20-40 years, maybe. But given potential government intervention in the areas of regulations, patent law, taxes, legal liability, nationalization, etc no one can predict that far ahead.

As one odd example to show how equivalent these actions can be, some time ago I owned Tawian semiconductor (TSM) and I believe they had a convoluted scheme where they would earmark a dividend, but instead of paying it out issue a few more shares and do a reverse split so that the share price would net out the same. I probably go the details of that wrong, but it would result in a few more shares appearing even though the stock price was the same. Giving the shareholder the option of selling the newly issued shares if they wanted to collect "dividend". Otherwise there was no tax implications.

 

[rayvt]

I don't buy the rational that a stock drops by the dividend on the ex-dividend date, though it is more often a down day because of this factor. It is not like the buyer 2 days earlier, 3 days earlier, etc, does not also know this and bids accordingly.

It's not a "rationale", it's a fact. Look at it this way: As a buyer, you look at a $100 stock on D-1 stock and know that if you buy it today you will get $5 back tomorrow. How much did you actually pay for the stock? $100? or $95? It's like when you buy something at the grocery store, give the clerk a $20 bill and she gives you back $1 in change. Was your purchase $20 or was it $19?

Buyers know this, and nobody is going to pay $100 for a stock that yesterday came with $5 taped to it but today doesn't. They'll only pay $95 because they know they won't be getting $5 back.

Dividends only come 4 times a year, so it is hard to detect the ex-dividend price drop from normal price fluctuations. What you have to do is download the daily price history for a stock for 20-30 years, and then look at the *average* price changes on the ex-div date. I did this for a number of favorite dividend-growth stocks, 1984 to 2016. 32 years, some 8000+ trading days.

For JNJ, the total dividends were $3,038 and the total ex-div price drop was -$2,458.
For KO, the total dividends were $1,407 and the total ex-div price drop was -$1,103.
Pretty close to a wash.
For the 6 stocks I looked at, the total dividends were $23,399 and the total ex-div day price drop was -$27,704.

Which is what the nay-sayers have claimed all along. The price drops by the amount of the dividend. Sadly, there is no free money.


The other interesting things was to look at the average daily price change. Ex: KO.
For ex-div days this was -0.4519%.
For non-div days this was +0.0533%

Similar for JNJ.
For ex-div days, -0.5357%
For non-div days, +0.0549%

 

[triangle]

It's not a "rationale", it's a fact. Look at it this way: As a buyer, you look at a $100 stock on D-1 stock and know that if you buy it today you will get $5 back tomorrow. How much did you actually pay for the stock? $100? or $95? It's like when you buy something at the grocery store, give the clerk a $20 bill and she gives you back $1 in change. Was your purchase $20 or was it $19?

Buyers know this, and nobody is going to pay $100 for a stock that yesterday came with $5 taped to it but today doesn't. They'll only pay $95 because they know they won't be getting $5 back.

Dividends only come 4 times a year, so it is hard to detect the ex-dividend price drop from normal price fluctuations. What you have to do is download the daily price history for a stock for 20-30 years, and then look at the *average* price changes on the ex-div date. I did this for a number of favorite dividend-growth stocks, 1984 to 2016. 32 years, some 8000+ trading days.

For JNJ, the total dividends were $3,038 and the total ex-div price drop was -$2,458.
For KO, the total dividends were $1,407 and the total ex-div price drop was -$1,103.
Pretty close to a wash.
For the 6 stocks I looked at, the total dividends were $23,399 and the total ex-div day price drop was -$27,704.

Which is what the nay-sayers have claimed all along. The price drops by the amount of the dividend. Sadly, there is no free money.


The other interesting things was to look at the average daily price change. Ex: KO.
For ex-div days this was -0.4519%.
For non-div days this was +0.0533%

Similar for JNJ.
For ex-div days, -0.5357%
For non-div days, +0.0549%

Correct. Another person corrected things after my post and provided a clear explanation in the thread earlier. I had gotten a little ahead of myself in my quick response wanting to comment on the implications (however minor) of buying a taxable distribution a few days in advance vs waiting until ex-dividend date to buy and how the daily fluctuations are layered on top to conceal the dividend payout if simply looking at a daily stock chart.

I think these daily fluctuations on top of the dividend payout might have been the concern of the person who started the thread? Though the original question was worded a little strangely as if to say their brokerage account showed that their position had dropped more that the actual market price change in AT&T.

 

[nwsteve]

You probably won't accept this, but if anything, I'm looking for people to change my mind. Maybe I'm wrong, and there is a sector out there that is reliably better than the Total Market. If that's the case, I'd like to know about it, to see if I want to invest in it. But it takes data for me to do that.

-ERD50[/QUOTE]

ERD, do you think USMV, IVM, and XAR qualify? See attached

 

[ERD50]

You probably won't accept this, but if anything, I'm looking for people to change my mind. Maybe I'm wrong, and there is a sector out there that is reliably better than the Total Market. If that's the case, I'd like to know about it, to see if I want to invest in it. But it takes data for me to do that.

-ERD50

ERD, do you think USMV, IVM, and XAR qualify? See attached

Well, only IVM in that list has a record greater than 10 years, so we can't learn much about how they performed in a big downturn.

IVM has done well in the past 10 years, but when I go back to inception, it under-performs the S&P500.

https://stockcharts.com/freecharts/perf.php?VTI,IVW

Slide the scrub bar to "ALL", and then adjust to see how it did - from the 2000 peak IVM dipped lower than SPY; it did a bit better from the 2007 peak to the dip.

So it's hard to say -- "inconclusive" would be my take on it. But it's interesting, I could understand someone wanting to hold some in their portfolio, and keep an eye on it.


https://stockcharts.com/freecharts/perf.php?VTI,USMV

USMV from OCT2011 is ahead now, but lagged almost all the time.


https://stockcharts.com/freecharts/perf.php?VTI,xar

XAR did great in this limited time (SEPT2011), but also was volatile. Personally, "Aerospace & Defense" is a too narrow a sector for me. We know sectors will rotate, so I suspect that is all this is, and you'd need to have a crystal ball to play it right.

What do you think?

-ERD50

 

[nwsteve]

Well, only IVM in that list has a record greater than 10 years, so we can't learn much about how they performed in a big downturn.

IVM has done well in the past 10 years, but when I go back to inception, it under-performs the S&P500.

https://stockcharts.com/freecharts/perf.php?VTI,IVW

Slide the scrub bar to "ALL", and then adjust to see how it did - from the 2000 peak IVM dipped lower than SPY; it did a bit better from the 2007 peak to the dip.

So it's hard to say -- "inconclusive" would be my take on it. But it's interesting, I could understand someone wanting to hold some in their portfolio, and keep an eye on it.


https://stockcharts.com/freecharts/perf.php?VTI,USMV

USMV from OCT2011 is ahead now, but lagged almost all the time.


https://stockcharts.com/freecharts/perf.php?VTI,xar

XAR did great in this limited time (SEPT2011), but also was volatile. Personally, "Aerospace & Defense" is a too narrow a sector for me. We know sectors will rotate, so I suspect that is all this is, and you'd need to have a crystal ball to play it right.

What do you think?

-ERD50

Knew I could count on you to provide some great insight. Thanks!

My take is driven by a perspective that perhaps there has been a fundamental restructure over the last twenty years in the US economic drivers with a shift from primary mfg to more tech and service including healthcare (demographics). Based on that view, IVM may provide a more focused play on the new version of the economy. XAR obviously is a recent player but with the global environment uncertainly, I think a position provides some helpful benefit to portfolio returns but does require monitoring. USMV seems to provide near comparable returns to Total Market with a lot less volatility and currently beating total market.

So for me, holding ITOT, USMV, IVM, XAR and some XBI provide some upside juice while not abandoning total market. USMV offsets some of higher volatility of the growth component from XBI and IVM.

 

[nwsteve]

You probably won't accept this, but if anything, I'm looking for people to change my mind. Maybe I'm wrong, and there is a sector out there that is reliably better than the Total Market. If that's the case, I'd like to know about it, to see if I want to invest in it. But it takes data for me to do that.
-ERD50

Two more etf that appear to me to beat VTI:
RYH (equal wt S&P healthcare) and xbi biotech. RYH wins on both 5 & 10.
Am I looking at them correctly?

 

[OldShooter]

Two more etf that appear to me to beat VTI: RYH (equal wt S&P healthcare) and xbi biotech. RYH wins on both 5 & 10. ...

Aoogah! Aoogah! Warning Horn: The correct verb is "won" not wins.

Persistence does not exist over any useful period. Check my post # 23 here: http://www.early-retirement.org/for...funds-and-a-muni-fund-with-07-er-98749-2.html

Am I looking at them correctly?

No.

As has been observed here repeatedly: The plural of "anecdote" is not "data." There will always be funds that outperform and can easily be discovered in the rear view mirror. But when the market is basically a random walk, this is simply evidence of luck. As the S&P Manager Persistence report cards consistently say and the graphic in my post #23 shows clearly.

 

[OldShooter]

Here's another view of markets over years, a nice package of quilt charts: https://www.callan.com/wp-content/uploads/2019/02/Callan-Periodic-Table-Collection-2019.pdf

 

[nwsteve]

Here's another view of markets over years, a nice package of quilt charts: https://www.callan.com/wp-content/uploads/2019/02/Callan-Periodic-Table-Collection-2019.pdf

Thanks for the quilt charts. Quite helpful.

 

[OldShooter]

Thanks for the quilt charts. Quite helpful.

Actually I hate them. To me they are a unique combination of ugliness and incomprehensibility.

But I am in the minority. If you stare at then long enough you can start to appreciate the randomness of this holy grail we are chasing.