I love Dividend Distributions

[eta2020]

AKA "Missing Forest for the trees"

[target2019]

My take on what this thread is about:

• If you post without conventional grammar aids (space after period, Capitalize first word of sentence), it is difficult to understand your viewpoint.
• Investing matters are complex, and one should be able to distinguish between a fact and its application to personal situations.
• Taxes have to be considered on a capital gain and/or dividend. However, each tax situation is unique.
• Some like dividends.
• You can post that you like dividends, but may regret the fact that you publicly proclaimed your like.
• Warren Buffet can be used to prove any side of an argument.
• Some like chocolate, some like vanilla.

[pb4uski]

+1 to all, but particularly to bullet #1.

Perhaps we should all chip in and buy him a shift key for Christmas. I saw caps in one of his posts and thought perhaps we had a breakthrough but then I realized that the section I was looking at was a cut and paste job from somewhere else.

[mathjak107]

i type with 1 finger and am lefty. through the years diabetes has effected the nerves in my fingers and toes making it difficult to manipulate a keypad ,especially on my little nook which i use most of the time.

i am hoping the fact everything is now under control allows those nerves to rejuvinate. the finger tips are sensitive like a sunburn would feel .

i hate having anything touching them. it is funny how only the tips of fingers and toes get the issues but nothing else..

except for typing or picking up tiny objects the fingers are not a big issue , i don't mind as much as that feeling in the toes. it always feels like there is something in my sock but it is my foot or the sheet hitting them feels like a bad sunburn. .

so as a heads up when you go for a check up make sure they do not just check blood suger ,you need to do an A1C TEST as well.

i am normal in a blood sugar test so it went undetected for a long time. finally when i complained about my fingers and toes a new doctor ran an a1c and sure enough i was pretty high.

it seems i spiked very high after eating but dropped to normal there after. my sister has the same issue.

[pb4uski]

Ah, the old 1 finger thing.... hard to hold the shift key down and hit a letter key with one finger.

[mathjak107]

i wonder if i can ever go back to using all the finger tips one day. after so long of typing with one finger i am so used to it i think i can type faster than both my hands could . but without the punctuation and cap keys of course.

now back to our regular scheduled disageements.

[eta2020]

Quote:

Originally Posted by pb4uski +1 to all, but particularly to bullet #1. Perhaps we should all chip in and buy him a shift key for Christmas.

Thanks

[mathjak107]

and i suppose that is different than the same amount obtained by capital appreciation alone and the same total return ?

you are arguing about something that is not what this hole thread was about which is given the same total return reinvesting dividends vs capital appreciation offers no inherent advantages.

anyway i am done with this

[eta2020]

You have a point.....

We all like our decisions....that is a human nature

[Strevlac]

I'd like to make my first post to strongly agree with mathjak107 as far as the math of dividends are concerned.

It's understandable how people new to investments can misunderstand how dividends and compounding work. But the math is not complex at all and one explanation should be enough.....but it seems like certain folks just like to keep on arguing just to argue.

To reiterate:

Forget the concept of shares. This is about the total $ value of your bucket of money.

You own a stock or a mutual fund that pays dividends. The value of your investment is $100,000.

You get a dividend of $3,000.

Immediately, the value of your stock/mutual fund investment is $97,000.

You take the dividend and reinvest it back into the stock/mutual fund.

The value of your stock/mutual fund investment is now $100,000.

The same result as if the stock/fund did not pay a dividend. Only now, you have a tax bill.

This is somewhat separate from the concept of compounding:

Stocks/equity funds do not really compound the way interest from a fixed income/cash investment does. The value of a company simply grows, or it doesn't. The company can keep the money and reinvest it in new business and "compound" the value of the company that way, or they they can take excess cash and pay shareholders. Then the shareholder can decide to compound his investment or just spend the money. It's just that the dividend event creates a tax bill.

No one is saying not to reinvest your dividend. By all means do so as not reinvesting results in no compounding at all.

The math of how this works is completely different than the perceived benefits based on outside factors such the psychology of seeing dividend paying companies as "healthier" or "more/less likely to grow in the future." Those are intangibles that are impossible to predict in advance.

[target2019]

mathjak,
I don't have a Nook, but after you type a period, doesn't the system insert a space and auto-capitalize the next letter key you press?

If this is not so, then tap the shift key one time to make the next letter typed a CAP. It is one extra tap, I agree.

[pb4uski]

Quote:

Originally Posted by Strevlac I'd like to make my first post to strongly agree with mathjak107 as far as the math of dividends are concerned.....

For a first sentence of a first post, I'm trying to decide whether it is bold or stupid. No matter what, it is like a bull in a china shop. You make this bold claim and then babble on with some "perceptive glimpse of the obvious" statements that seem to have no particular point.

Oh, and by the way..... welcome.

[Zathras]

The math doesn't tell the whole story.

Mathjak is absolutely correct on the mechanism and math behind dividend distributions.

However, that makes zero difference to why I like dividends.

Companies with a solid record of dividend growth tend to be very good long term investments.

During recessions, I have no concerns about selling stocks at a loss, and the dividends tend to hold up far, far better than the stock prices. This is just one case, but for me, in the last recession, my portfolio lost about 40% of its value, my income stream from dividends was down 3% for one year and then recovered.

The psychological benifit of having less volatility is very valuable to some.

The fact that my dividend income stream grows by 7-8% a year is also very helpful.
So in good years, I contirbute more to charities, reinvest some, or a bit of both. In the worst of years, I hold pat. No need to sell anything with the exception of now as we plan to build a new house.

The math is important for everyone to understand, but the math is not the whole story.

[redduck]

I was going to say everything that Zathras just said, except I was having a difficult time placing the words in the right order. Oh, I guess there is one difference, we have no plans to build a new house.

[pb4uski]

With all due respect, this whole argument about dividend payers vs non-dividend payers is much ado about not much. Attached is a chart of the value of $10k of the Vanguard Growth Index Fund and Vanguard Value Index Fund for the last 20 years with dividends reinvested. The former group is a universe that pay less in dividends (currently 1.19% dividend yield) and the latter group is a universe of higher dividend payers (currently 2.33% dividend yield). As you can see on the chart, there have been periods of time where dividend payers have outperformed non-dividend payers and vice versa and over long periods of time the accumulated value of $10k with dividends reinvested are not all that different. So is it "toe-may-toe" or "toe-mah-toe"?

VVIAX Vanguard Value Index Adm Fund VVIAX chart

[Strevlac]

Quote:

Originally Posted by pb4uski For a first sentence of a first post, I'm trying to decide whether it is bold or stupid. No matter what, it is like a bull in a china shop. You make this bold claim and then babble on with some "perceptive glimpse of the obvious" statements that seem to have no particular point. Oh, and by the way..... welcome.

I didn't think it was particularly bold or stupid or reckless.

There is obviously a misperception by some that dividends are "new money" that magically appear out of nowhere when this is not so. It is more than apparent that is the case with the OP and a few have made attempts to explain it. I tried to restate what has been stated already in more simple terms because some appear to have completely misinterpreted/disregarded/didn't read those explanations.

I fail to see how any of my "babbling" was pointless. But maybe I'm wrong.

[mathjak107]

There are so many paths that can lead to the exact same results . the important thing though is to just understand why the results can be the same .

but folks get some thoughts in their head that their way is the only way and they will argue that point mistakingly forever without investigating the facts.

[Strevlac]

Quote:

Originally Posted by Zathras The math doesn't tell the whole story. Mathjak is absolutely correct on the mechanism and math behind dividend distributions. However, that makes zero difference to why I like dividends. Companies with a solid record of dividend growth tend to be very good long term investments. During recessions, I have no concerns about selling stocks at a loss, and the dividends tend to hold up far, far better than the stock prices. This is just one case, but for me, in the last recession, my portfolio lost about 40% of its value, my income stream from dividends was down 3% for one year and then recovered. The psychological benifit of having less volatility is very valuable to some. The fact that my dividend income stream grows by 7-8% a year is also very helpful. So in good years, I contirbute more to charities, reinvest some, or a bit of both. In the worst of years, I hold pat. No need to sell anything with the exception of now as we plan to build a new house. The math is important for everyone to understand, but the math is not the whole story.

Absolutely agreed. After understanding the mechanics, it's all about what you are comfortable with. As stated earlier:

Quote:

The math of how this works is completely different than the perceived benefits based on outside factors such the psychology of seeing dividend paying companies as "healthier" or "more/less likely to grow in the future." Those are intangibles that are impossible to predict in advance.

But then again that might just be babbling with no coherent point.

[eta2020]

As I said we like decisions that we make.

To explain benefit of owning ETF that pays growing dividend and currently yields 2% to somebody who feels mortgaging house is good way to "invest" is impossible task.

I understand very well that dividend is not a magic money that appears from nowhere and mathematically Mathjak is correct.

[mathjak107]

it is good now that we are all on the same page.

i have to be honest , when i first looked at this issue it took me a while to pin down just why reinvesting dividends in down markets was not producing the effects i thought it would.

for the life of me i am going lower prices and buying more shares has to produce better results.

but if you sit and dwell on something long enough the answer eventually pops out .

that is when i realized gains are always based on a starting value and ending value. what happens in the middle is irrelevant. it could be a thousand shares or 1 share. if the dollars are the same results have to be the same.

i believe the biggest problem we have is in the financial world much of what is spewed is wrong or taken out of context.

just look at the 4% rule and the endless debates on that. how many folks think you can just pull 4% inflation adjusted without ever knowing it was based on certain allocations being true.

we are fortunate in this forum as we have some of the the most intelligent members who question everything . i have learned a wealth of stuff here over the years and my views on so much are a total opposite of what i started with.