Dividend ETF vs Individual Dividend Stocks

[ERD50]

There is no proof that will satisfy you. We've already been through that here: http://www.early-retirement.org/forums/f28/dividend-paying-stocks-90316.html
Sometimes common sense must be utilized in the absence of data. Do you refute any of the specific limitations pertinent to funds which I reference? Do you deny that they only apply to funds and not individual stocks?

There is no persuading a zealot. I'm a zealot, you're a zealot. I posted not to pick another debate with you, but for those seeking new information to have something to consider. I stand by my post as you have not shaken my belief.

OK, have a few minutes yet...

Do you refute any of the specific limitations pertinent to funds which I reference? Do you deny that they only apply to funds and not individual stocks?

I understand that funds have limitations that a stock picker does not. I never claimed otherwise.

But the question remains - can a stock picker use that to their advantage, consistently, reliably? I'm looking for evidence of that.

There's really two discussions going on here. One is are div payers advantageous over the broad market. And using funds as a proxy for each, all the data I've presented shows little/no difference, and any advantage seems to be for the broad market.

The second one is individual stocks versus a fund. That's harder to test. Common sense and a basic understanding of statistics will tell us to expect some stock pickers will beat the index, some will not. There will always be anecdote of someone beating the market. For evidence, we'd need a larger scale study w/o survivor bias.

And to be useful, any winners would need to be able to put their picking strategy into some objective, repeatable process. If I can't repeat it, what good is it to me?

OK, now I really do need to run.


-ERD50

 

[Chuckanut]

I completely agree with you but when I give the above argument to my stock picking friends, they say that they can pick winners through research. One of those friends has indeed done well, out performing the market (and me) by a huge margin, but it is hard for me to know whether that is luck or skill.

Your stock picking friends are like my friends who visit the Indian Casinos in my area. They all at least 'break even' or 'make a little' every year. I have come to the conclusion that the local tribes are generously subsidizing the lives of all those non tribal members who visit their casinos. How nice of them.

The only guy I ever knew who consistently out performed the market when I was invested with him was Michael Price who managed Mutual Shares. Every other 'great' fund manager reverted to the man in 5 years or less. Alas, Mr. Price sold out to a load-fund outfit and eventually left the business. (The writing was on the wall so I sold less than a year after he sold.) I made quite a pile thanks to him. Well, it looked like a big pile to a wet-behind-the ears 20-something just starting out.

 

[audreyh1]

I would never argue about it. Just going by the fact that 100% of my SCHD dividends for the last few years has been qualified.

Yes - I will be really surprised if this year’s dividends are not also qualified. Something is wrong with that report as I’ve never received unqualified dividends from SCHD for the few years i have owned it.

Even is shares are recently acquired, it would seem that the amount of unqualified dividends would be very small. An individual investor will have the same issue about holding times to meet qualified dividends requirements.

 

[HI Bill]

Long Term Capital Gains are also taxed at 0%. So, that's free $.

Divs have no advantage in that regard.

And LTCGs have other potential advantages, in certain cases. I'm likely to pass the equities in my taxable account on to heirs (income from RMD, SS & pensions will cover expenses). So I don't realize those gains, and will be stepped up, and never taxed for me or my heirs.

While dividends will be realized each year, no control over them, and for my future case, taxed at 15% if Qualified, and 22% if Non-Q.

LTCG losses can also be used to offset gains, resulting in zero tax. Divs do not have this flexibility.

All I see are disadvantages, and no advantages. The dividend approach is an illusion.


-ERD50

I could never see any advantage to seeking high dividend stocks. TOTAL RETURN is what matters. In my current w_rk%$ng years, I always hated paying taxes on dividends when the stock valuation tanked. Losing money on a stock/fund, and paying taxes! Please tell me what I'm missing.

 

[OldShooter]

... [an] ETF/fund will under-perform its holdings by the expense ratio. ...

Not to be picky, but to clarify the answer to the question:

An ETF/aka mutual fund will underperform by the amount of its costs. The expense ratio is part of that, but there are also trading costs and market impact costs. I have read that market impact may be the biggest cost for large funds. It arises when a manager needs to take a position large enough to "matter" given the size of the fund. As he starts buying or selling, the market moves against him. His traders may do their first trades near the bid or asked prices but as they want to buy or sell more and more, the next bid or offer is less favorable, etc. Market impact is higher for stock pickers because they trade more. Passive funds don't trade so much, so have a cost advantage in this area. There is also a small offset to these costs if he is willing to loan stock to short sellers and collect fees for that.

Edit: Nobel winner William Sharpe explains the situation in more detail here: https://web.stanford.edu/~wfsharpe/art/active/active.htm It's only three pages, and an easy read.

 

[ERD50]

I just discovered another potential negative to SCHD. Some of the divs may be non-qualified. ...

Not likely. All qualified in the past.

Not according to the link I found. Is it wrong?

https://ycharts.com/companies/SCHD/dividend

-ERD50

I would never argue about it. Just going by the fact that 100% of my SCHD dividends for the last few years has been qualified.

Yes - I will be really surprised if this year’s dividends are not also qualified. Something is wrong with that report as I’ve never received unqualified dividends from SCHD for the few years i have owned it.

Even is shares are recently acquired, it would seem that the amount of unqualified dividends would be very small. An individual investor will have the same issue about holding times to meet qualified dividends requirements.

Well, how long have you owned it? That link says they have been all Qualified for 2015,16,17. That's a few year, no? It is only listing 2012-2014 as Non-Q, I couldn't go further back w/o signing up.

The link may be wrong, I don't know. I mentioned it is a "potential negative to SCHD. Some of the divs may be non-qualified". I do try to be careful with my words.

-ERD50

 

[braumeister]

Yes, we all understand.

 

[audreyh1]

Well, how long have you owned it? That link says they have been all Qualified for 2015,16,17. That's a few year, no? It is only listing 2012-2014 as Non-Q, I couldn't go further back w/o signing up.

The link may be wrong, I don't know. I mentioned it is a "potential negative to SCHD. Some of the divs may be non-qualified". I do try to be careful with my words.

-ERD50

I highly doubt 2018 dividends are all unqualified. That table makes no distinction but lumps all together as qualified or unqualified on the quarterly dividends. Looks suspect to me for that reason. We’ll find out next spring whether any of the 2018 divs were unqualified.

 

[ERD50]

I highly doubt 2018 dividends are all unqualified. That table makes no distinction but lumps all together as qualified or unqualified on the quarterly dividends. Looks suspect to me for that reason. We’ll find out next spring whether any of the 2018 divs were unqualified.

I'm guessing they report them as unqualified until they are documented to be qualified (not reported until after EOY)?

The lumping does seem strange, you'd expect some breakdown between the two, but who knows?

Yes, we all understand.

So neither of you owned or know if the numbers reported in 2012-2015 are accurate?

-ERD50