FANOFJESUS
Thinks s/he gets paid by the post
Free Dividend Fallacy--Why Dividends Don't Increase Your Wealth
Closed-end mutual funds typically trade at a discount or a premium to their Net Asset Value. Traditional open-end funds do not. ETF's theoretically do not except to the extent of the bid/ask spread. Keeping NAV and price in line is the job of the authorized participants. https://www.investopedia.com/terms/a/authorizedparticipant.asp In theory any discrepancy between NAV and market price of an ETF is small and transitory. In fact, behavior of the authorized participants during market gyrations can temporarily distort things beyond what some consider to be "small." For the retail investor, an ETF's NAV and its price are effectively the same. For a high speed trader, discrepancies may present an arbitrage opportunity.
Not sure where you are looking. Possibly you are confusing NAV with Book Value. Book Value is not of great use to investors because it is a flawed measurement. A company's book value typically includes depreciated assets which may have a market value below or in excess of their book values. It can also include such non-assets as "Goodwill" and capitalized R&D.
NAV as a term is only used in the context of mutual funds. Book Value is only used in the context of individual companies.
I mentioned this and he agreed it's best for our scenario to do bonds right now. I believe there is a 10k cap each though, unless I'm misunderstanding you.
Nice summation.Math is math:
1. Interest rate up = bond price down
2. Taking a 2.75% mortgage and investing in a 4% T Bond will make you more money.
3. A stock split does not make the enterprise value of the company any higher.
4. A stock dividend does not make the enterprise value of the company any higher, it lowers it so that there is net zero change.
The world is gray:
1. You can argue that your bond did not lose money because you did not sell if you ignore opportunity cost.
2. You may place a value on having no debt or have specific tax circumstances.
3. Having a lower stock price may increase demand for shares from retail investors and lead to an increase or not.
4. People may bid up a stock due to a dividend payment or not.
None of these considerations change the math. To deny the math is just to conflate the reason why something happens. Something always happens, but that is a correlation not a causation. From a practical standpoint you can argue that the reason doesn't matter, you only care about the result in the market YMMV.
Yes math is the math
you have 100 dollars in a stock paying a 10% dividend .
the stock goes ex div and a mandatory drop by the same amount has to happen before the stock trades , no different then a fund .
so you have 90 dollars left working for you for markets to work on and 10 dollars in hand .
great news , your stock doubled , they cured covid so you have 180 dollars invested .and 10 dollars in hand ...
so that is 190 dollars .
if instead of keeping the 10 dollars you reinvest it , you have more shares at a lower price which now equals the 100 dollars you had before the stock went ex div . if it doubles you have 200 dollars
if the stock didnt payout and still had the same 100 and it doubled you have the same 200 dollars .
there is no difference , its a wash,
In the example given above with the two stock s , one could have withdrawn the same dollars as that dividend example you gave from stock 2 and had the same payout all along.
Sorry but your example isn’t math , it is merely cherry picking a stock which you will have fail and one to do well hypothetically.
Dividends are not paid from just profits .
The blue chip graveyard is filled with companies that paid out right in to the failed company graveyard .
Dividends are only an amount agreed on by the board to be returned to you .
It can come from borrowed money , money that was ear marked to buy other assets but used it to continue paying out …
It can come from selling assets off as well …so it is merely a forced withdrawal from any number of sources
There are a few distinct differences with bonds. All is known at the time of purchase. There is a par value the bond returns to at maturity and market price on the day you purchase is based on the cashflow over the duration of the bond. None of that exists with an equity. So you can get paid dividends and still lose in total value. Examples Verizon and AT&T. With a bond you are paid interest and get your par value. So a bond short of default will always be additive to your assets, a dividend is a maybe.WADR, that happens with bonds too.
Let's take an example of a bond trading at $1,000 par that pays 4% semi-annually. If you buy a bond the day before interest is paid you'll pay the market price plus accrued interest of $20 so a total of $1,020. The next day you receive the $20 interest coupon... if you sell the bond later that day you receive $1,000 plus $0 accrued interest.
So it is quite similar to the way that... all else being equal... that a stock declines by the amount of the dividend.
So if I had $1,020 in a stock and it pays a $20 dividend then at the end of the day I have $1,020... $1,000 in stock and $20 in cash. If I have a $1,000 bond with $20 of accrued and unpaid interest and it pays $20 in interest at the end of the day I have $1,000 bond and $20 in cash.
Dividends are income and interest is income too. In the case of bonds, the accrued interest that attaches to the bond declines in value when it is paid out but with stock the share value declines.... a nuance a difference IMO.
No.Thanks for proving my point. It’s NOT about math. It about expected future earnings that a shareholder is willing to pay for. We can show “math” examples all day long and manipulate them to support what we want, just like statistics.
Absolutely. I agree 100%.THe point is dividends are a wash , nothing to debate.they add nothing in investment value when paid
Excellent.Absolutely. I agree 100%.
People who buy dividend stocks aren't looking to increase wealth and grow their portfolio's value. They are looking to create a regular, relatively predictable, automatic income stream. There is generally the added benefit of growth over time, but that's secondary to the goal.
Lots of retirees, including many people on this site, have all or most of their money in CDs and bonds. It isn't to grow their wealth. It's to get those monthly and quarterly interest payments to fund their living expenses.
People who buy annuities surrender tens or hundreds of thousands of dollars of principal to insurance companies to get that guaranteed monthly check.
All of these are fundamentally the same. But all things being equal, the dividend route is probably the best. You don't give up your principal and over time, chances are pretty good that your principal will actually continue to grow. Sure it will be at a slower rate than if you had invested purely for growth, but that's okay because that wasn't your goal.
I'm curious. For those who think the share price of a stock is changed....
1) what does that mean exactly? At least 1 share traded at that precise amount? A number flash on a screen somewhere at that amount? If nothing trades at that level, what relevance did it have?
2) who or what does it?
Please understand I am asking about the share price of an individual stock. Not price referenced in an outstanding limit order. not a price in a call/put option, etc. But the actual price of the stock.
Absolutely. I agree 100%.
People who buy dividend stocks aren't looking to increase wealth and grow their portfolio's value. They are looking to create a regular, relatively predictable, automatic income stream. There is generally the added benefit of growth over time, but that's secondary to the goal.
Lots of retirees, including many people on this site, have all or most of their money in CDs and bonds. It isn't to grow their wealth. It's to get those monthly and quarterly interest payments to fund their living expenses.
People who buy annuities surrender tens or hundreds of thousands of dollars of principal to insurance companies to get that guaranteed monthly check.
All of these are fundamentally the same. But all things being equal, the dividend route is probably the best. You don't give up your principal and over time, chances are pretty good that your principal will actually continue to grow. Sure it will be at a slower rate than if you had invested purely for growth, but that's okay because that wasn't your goal.
I agree. I don't think I suggested otherwise. I wasn't comparing dividends to selling shares.The tax treatment of dividends is worse than selling shares.
There are some situations where it is a wash, but it is never better.