7 pages ! And I still remain in the camp of "only spend the dividends".
You are not alone. It's just that not everyone wants to discuss dividends with people who consider them quaint. Why bother?
Ha
I can only speak for myself, but I don't consider, or concern myself with the idea of dividends being "quaint". I only take umbrage at some of the claims being made for dividends, that simply don't hold up to scrutiny. If people want to fool themselves to feel better about their decision, that's their business, but I do think the facts should be presented here for the benefit of fact-seekers.
You can’t compare a car to a stock, because the stock will generate future earnings. All you have to do is follow several dividend stocks and you will see after a dividend some will go up when the market opens and some will go down, but not necessarily exactly by the the dividend. Prices fluctuate all day from open to close. The seller and buyer have to agree to a price. When I choose to buy a dividend stock, I don’t check when the ex-dividend date is, just that it’s at a price where I believe it will make me money in the long term.
We've already acknowledged that there is noise in the system, so you will rarely see a drop exactly in line with the dividend payout. My analogy was to provide an example that removes the noise, to better illustrate the concept. But I bet if you measured the daily ex-div change of the div payers in S&P 500, against the daily change in the market on those days, once you got enough data, you'd match to a fraction of a percent.
Yet, no one responds to the simple statement - if a stock has just distributed $4 of it's value, how can it not be worth $4 less after that?
I like the other analogy that was given - if you take $4 out of your checking account, your balance is forever $4 lower than it would have been had you not. Yes, you will have other credit/debits, and if they happen the same day, they may swamp out the $4. But it still affected your balance - forever.
Here's yet another place I get confused: Taking your example above, but extending it out for 10 years, is the non-paying dividend company's stock price going to be 45-55% higher than the dividend paying stock company?
Why is this confusing? I can't see any other answer for it. If the stock didn't pay out the cash, they still have it, and it will be reflected in the stock price. Just like that checking account.
And for those who say the company may mismanage that money going forward, it's better in your pocket, OK, just sell some when you decide. No difference, other than you gain flexibility
Take a graph of dividends and stock price. They have very low correlation. Dividends have less volatility. ...
Since money is fungible, this really doesn't matter - we should be looking at the entire picture. But even at that, I don't believe that what you say is true, it's just something the div investors seem to like to believe. Here's some actual data for you, using VHDYX as a proxy for div payers, currently @ 3.06% yield -
(Fund Summary - The investment seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yield. The fund employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that pay dividends that generally are higher than average.)
This shows:
https://finance.yahoo.com/quote/VHD...00&interval=div|split&filter=div&frequency=1d
dividends went from a high of $0.17 to $0.085,
a 50% drop.
And this shows that the total value (the only thing that really matters), doesn't show any significant difference in volatility (select ALL on the slider), though it does show the broad market to outperform a bit:
https://stockcharts.com/freecharts/perf.php?spy,VHDYX
... If one can afford living on dividends it is way better than having to stay your whole retirement worrying about SWR, bear marketing, risk of sequence of loss and so on. The latest SWR i have been reading lately (millenial revolution, ern) lies on about 3% in order to have 90+% success rate. So, it is not even that more expensive to live on dividends, specially if you consider investing outside US.
How so? If I'm taking 3%~3.5%, I don't worry about anything either. I can't help but get most of that from divs anyway (SPY pays ~ 2%, plus some from bond allocation). A typical investor is going to have an allocation of 80/20 to 40/60. So during a bear, you maintain your AA by selling a small % of bonds, you don't sell stocks at a low.
Here's another chart - drawing 3% inflation adjusted from a dividend fund versus SPY, even at 100% stock allocation, SPY slightly outperforms the dividend fund, and in 2009, the div fund dipped lower than SPY. This idea that div payers are less volatile, or hold up better in a drop is not supported by facts.
http://bit.ly/2P14564
-ERD50