How are dividends for retirement

[ERD50]

... In both cases, you have the share price the same. I suggest the valuations would be different. For example, the non-dividend case...they are developing a new product & pouring all their available cash into it. Should hit the market in x years. Or the dividend case....paying some cash out now in quarterly dividends realizing it will take longer to get to market because they have less cash than if didn't pay. Do you see a difference in risk? Why would they both have same valuation? Growth rate? Look at what happens when a company changes its dividend policy & see if that affects the price. ...

But you are describing two different companies (or the same company, taking two hypothetical paths). Sure, they could be valued differently, I'm not disagreeing, but I'm just trying to focus more on what the mechanics of a div payment does or does not do.


Again, if the div payers offered some significant risk-adjusted over-performance over the broad market, it should be pretty clearly visible in the div focused funds/ETFs, but they seem to be a pretty mixed bag.

... Look at what happens when a company changes its dividend policy & see if that affects the price. ...

Sure, but that's usually due to some underlying changes, which affects the NAV (cutting divs due to poor sales, or increasing divs due to greater sales). Those same things would change the NAV of a non-div payer as well.

-ERD50

 

[ERD50]

Yep, this confirms what I was thinking in my earlier post. Not picking on you, but this is the heart...is a stock's share price the NAV?

I used them inter-changeably.

https://www.investopedia.com/terms/n/nav.asp

What Is Net Asset Value (NAV)?

Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), NAV is the price at which the shares of the funds registered with the U.S. Securities and Exchange Commission (SEC) are traded.

-ERD50

 

[all4j]

But you are describing two different companies (or the same company, taking two hypothetical paths). Sure, they could be valued differently, I'm not disagreeing, but I'm just trying to focus more on what the mechanics of a div payment does or does not do.


Again, if the div payers offered some significant risk-adjusted over-performance over the broad market, it should be pretty clearly visible in the div focused funds/ETFs, but they seem to be a pretty mixed bag.




Sure, but that's usually due to some underlying changes, which affects the NAV (cutting divs due to poor sales, or increasing divs due to greater sales). Those same things would change the NAV of a non-div payer as well.

-ERD50

So then accepting that your scenario would have different valuations....the dividend example, the company would have less cash. Agree? In the non-dividend example, the seller has to find a buyer willing to pay that price (although you acknowledge the valuation would be different, etc) & you would then only have 99% of the claim on future earnings than if no sale. Agree? (Previously you said the 'same' which I didn't follow). And in my ealier post I did say the amount deposited in your account might be the same. I don't argue that. But after that, the fate of the $1 is part of the difference.

I'm not contending that dividends are good or bad. To me, they just are. Those that don't like them shouldn't buy them. I try not to have the victim mentality personally. I do have some empathy for those that buy, but then the dividend policy changes to not fit the need. But nothing in investing is really forever & no point in singling out dividends.

 

[all4j]

I used them inter-changeably.

https://www.investopedia.com/terms/n/nav.asp



-ERD50

I couldn't figure out how to copy the text of what you cited, but it clearly says "funds".

My point from the beginning has been that the share price is NOT interchangeable with nav for individual stocks. If you disagree with me, you likely have lots of company. & no point in me trying to elaborate. I said in earlier post I wasn't trying to sway the opinions of those who do disagree. That's one thing I did learn! I'm done now

 

[OldShooter]

Wow. Getting complicated here. Let me try a simple analogy:

I am ten years old and my entire net worth is $1 in change in my pocket. I give a dime to my sister. As I grow up, my net worth fluctuates as I get more income and I spend income. But my net worth is still always a dime less than it would have been if I had not given the dime away.

 

[ERD50]

I couldn't figure out how to copy the text of what you cited, but it clearly says "funds".

My point from the beginning has been that the share price is NOT interchangeable with nav for individual stocks. If you disagree with me, you likely have lots of company. & no point in me trying to elaborate. I said in earlier post I wasn't trying to sway the opinions of those who do disagree. That's one thing I did learn! I'm done now

OK, I was referring to share price then. -ERD50

 

[jazz4cash]

Yep, this confirms what I was thinking in my earlier post. Not picking on you, but this is the heart...is a stock's share price the NAV?

No, share price is NOT the same as NAV for an individual stock. Where is this even addressed? NAV is for funds. That’s why share price is constantly addressed as over-or undervalued.

https://www.investopedia.com/ask/an...alue-common-share-and-nav-net-asset-value.asp

 

[OldShooter]

No, share price is NOT the same as NAV for an individual stock. Where is this even addressed? NAV is for funds. That’s why share price is constantly addressed as over-or undervalued.

https://www.investopedia.com/ask/an...alue-common-share-and-nav-net-asset-value.asp

Yes, this. A similar concept for individual companies is Book Value, but that is not of great value for an investor because, among other things, it includes the depreciated value of assets that may be worth far more or far less than book.

 

[COcheesehead]

No, share price is NOT the same as NAV for an individual stock. Where is this even addressed? NAV is for funds. That’s why share price is constantly addressed as over-or undervalued.

https://www.investopedia.com/ask/an...alue-common-share-and-nav-net-asset-value.asp

But NAV can be at a discount or a premium too.

 

[jazz4cash]

But NAV can be at a discount or a premium too.

Im familiar with funds and ETFs that may trade at a discount or premium to NAV. I’m not familiar with NAV at a premium/discount to ? Obviously share price can be at a discount or premium to book value which is the closest thing I can think of to NAV for an individual stock.

Its really different with a fund since the dividends are accumulating within the fund throughout the year.

 

[COcheesehead]

Im familiar with funds and ETFs that may trade at a discount or premium to NAV. I’m not familiar with NAV at a premium/discount to ? Obviously share price can be at a discount or premium to book value which is the closest thing I can think of to NAV for an individual stock.

Its really different with a fund since the dividends are accumulating within the fund throughout the year.

The market price of the NAV can be at a premium or a discount. Sorry I described it poorly.

 

[jazz4cash]

It’s still confusing to me. Everywhere I look NAV is a measurement and market price is a negotiation.

 

[COcheesehead]

It’s still confusing to me. Everywhere I look NAV is a measurement and market price is a negotiation.

Could you clarify your point?

 

[mrfeh]

I'm not contending that dividends are good or bad. To me, they just are. Those that don't like them shouldn't buy them. I try not to have the victim mentality personally. I do have some empathy for those that buy, but then the dividend policy changes to not fit the need. But nothing in investing is really forever & no point in singling out dividends.

Haven't read the entire thread because I've seen dozens (hundreds?) of these discussions over the last 10 years, and it is rarely worthwhile to participate.

One thing I do feel the need to mention though - in a taxable account dividends are worse when it comes to taxes, even if the dividends are qualified.

I'm not gonna spell out why. If folks want to know, go over to bogleheads and read until your eyes glaze over.

That reason alone is sufficient to take the total return approach.

 

[MichaelB]

Net Asset Value does not apply to individual securities prices and is not interchangeable with market price of individual securities. NAV is used to describe the sum of market prices for a basket of holdings, which could be a mutual fund or an ETF.

For a stock, there is only the market price. For a fund or ETF that holds stocks, there is the NAV, with is the sum of all the market prices of all its holdings, and in the case of the ETF, in addition to the NAV there is a market price for the ETF.

The NAV of a mutual fund is calculated once daily, using the prices at market close. For an ETF, there is a market price which can (and often does) diverge from the value of the securities it holds (the NAV).

 

[pb4uski]

The day after you are paid a dividend your account is exactly the same value as the day before because the value of the stock/ETF/equity fund drops equal to the dividend. How is that income? A bond or a CD however actually is income. The interest paid increases the value of your account the day it is paid. Interest is additive, a dividend is not.

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.

 

[cloud9nd]

Okay, so I got my answer from my advisor.

He said since I don't really have taxes I could go into higher yield dividends with taxes.

If my situation was different I would choose dividends with little to no tax.

He said the 6mo bond is not actually 3.55% for 6 months, it would be half of that.

Also said to stick with our plan and maybe buy more bonds and CDs in the future as I don't need to focus on growth much.

 

[pb4uski]

Yep, this confirms what I was thinking in my earlier post. Not picking on you, but this is the heart...is a stock's share price the NAV?

No, NAV is net asset value and individual stocks do not have a NAV (or at least not one that is published daily like mutual funds and ETFs).

Mutual funds and ETFs do have NAVs. For these entities, NAV is net equity with assets at market value... so if the fund owns 1,000 different stocks it is the closing price of those 1,000 different stock + cash - liabilities... divided by the number of shares outstanding.

And while ETFs have a NAV, they typically trade at a premium or discount to NAV depending on demand and supply and other factors.

 

[OldShooter]

But NAV can be at a discount or a premium too.

The market price of the NAV can be at a premium or a discount. Sorry I described it poorly.

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.

It’s still confusing to me. Everywhere I look NAV is a measurement and market price is a negotiation.

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.

 

[pb4uski]

... He said the 6mo bond is not actually 3.55% for 6 months, it would be half of that. ...

That is correct.. interest rates are annualized rates... so if a bond yields 3.55% and you hold it a for six months your $1,000 would grow to $1,017.75.

 

[pb4uski]

Okay, so I got my answer from my advisor.

He said since I don't really have taxes I could go into higher yield dividends with taxes.

If my situation was different I would choose dividends with little to no tax. ...

I don't think you are getting it. You can't "chose dividends with little to no tax". Any dividends received, whether high yield or low yield would be taxed.

I'm alarmed that he suggested that you could go into high yield stocks... they tend to be quite risky... riskier than I think you would like.

 

[cloud9nd]

I don't think you are getting it. You can't "chose dividends with little to no tax". Any dividends received, whether high yield or low yield would be taxed.

I'm alarmed that he suggested that you could go into high yield stocks... they tend to be quite risky... riskier than I think you would like.

Correct, he suggested I don't.

He's says it depends on what or where the dividends come from based on ones overall tax situation how you'd choose.

He said at this point it's not a good option for me based on how we live and the plan in place.

 

[pb4uski]

I am married.

Wow, this is interesting info this is a Good one to consider.

Dumb question but can you explain the steps of this?
I assume it's due to limits per year?

Also, the gift part is interesting but I don't know the background.

Let's say you want to deploy the entire $50k in I Bonds. You open accounts with Treasury Direct for you and your DW. Each Treasury Direct account is linked to your bank account.

In your account you buy $10k which is your 2022 allowance. In her account you buy $10k which is her 2022s llowance.

Then in your account you buy $15k of I Bonds for her in a "gift box" and in her account you buy $15k of I Bonds for you in a "gift box".

In January, 2023, you deliver $10k of I Bonds from your gift box to her account for her 2023 allowance and she delivers $10k of I Bonds from her gift box to your account for your 2023 allowance. In January, 2024, you deliver $5k of I Bonds from your gift box to her account for a portion of her 2024 allowance and she delivers $5k of I Bonds from her gift box to your account for a portion of your for her 2024 allowance.

You'll earn 9.62% annualized in the first six months that you own them. While the rate for the second six months hasn't been declared yet, it is expected to be 6%. 100% government guaranteed. Even if the rate is zero after that the first year you still receive an attractive rate of return... 6.78% on your 2022 and 2023 allowances if you hold until 11/1/23 and a minimum of 5.90% on your 2024 allowance.

A little work to learn about how these work and do the transactions but very attractive yields for risk-free bonds.

 

[cloud9nd]

Let's say you want to deploy the entire $50k in I Bonds. You open accounts with Treasury Direct for you and your DW. Each Treasury Direct account is linked to your bank account.

In your account you buy $10k which is your 2022 allowance. In her account you buy $10k which is her 2022s llowance.

Then in your account you buy $15k of I Bonds for her in a "gift box" and in her account you buy $15k of I Bonds for you in a "gift box".

In January, 2023, you deliver $10k of I Bonds from your gift box to her account for her 2023 allowance and she delivers $10k of I Bonds from her gift box to your account for your 2023 allowance. In January, 2024, you deliver $5k of I Bonds from your gift box to her account for a portion of her 2024 allowance and she delivers $5k of I Bonds from her gift box to your account for a portion of your for her 2024 allowance.

You'll earn 9.62% annualized in the first six months that you own them. While the rate for the second six months hasn't been declared yet, it is expected to be 6%. 100% government guaranteed. Even if the rate is zero after that the first year you still receive an attractive rate of return... 6.78% on your 2022 and 2023 allowances if you hold until 11/1/23 and a minimum of 5.90% on your 2024 allowance.

A little work to learn about how these work and do the transactions but very attractive yields for risk-free bonds.

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.

 

[jazz4cash]

Could you clarify your point?

Your terminology ‘market price of an NAV’ is confusing to me because market price is an agreement between buyer and seller but NAV is calculated (measured).