Do dividends psychologically make retirement easier even if total return theory says they shouldn’t matter?

[Onda]

To clarify, I didn't say dividends are "irrelevant" to a total return investor (as I understand the term) but rather that dividends do not carry special weight above the weight that selling stock would have in the total income-generating engine that is the portfolio. Dividends and capital appreciation can go hand in hand in the total-return investor's eyes. Or at least that's my understanding. I could have it all wrong.

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

 

[audreyh1]

As a total return investor I really don’t care about dividends at all. I don’t hold individual stocks either, so I’m sure that makes a big difference.

 

[marko]

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

Agreed. My company paid a decent dividend for a high-tech company. We were highly profitable, reinvested in R&D and had zero debt.

We firmly believed that the shareholders were the "owners" who deserved to participate (via dividends) in the success of a well-run organization and the fact that we paid dividends was indicative of such to other investors.

 

[Lorenzo]

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

I don't see how that is contrary to anything I said. Just as I did not say dividends were "irrelevant" I did not say they were "incidental." It is my understanding that dividends are equal in weight with any other component of the engine. Whether it's the compounding of dividends reinvested or the company's growth or any combination of the two, it is the same total result. Absent any monkeying around, increased dividends, increased stock value, or any combination of them, reflect a healthily growing company. The company that increased dividends 10% every year could just as well have refrained from that excess and let their investors benefit from the other side of the same coin, in the form of even greater stock value.

 

[RunningBum]

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

That's a self-fulfilling prophecy. We can't buy these stocks 10 years ago. More meaningful would be to go back 10 years, see which companies increased dividends by that rate for the 10 years before that, and see how they did the next 10 years. That's how you can better tell whether picking companies that have been raising dividends will continue to do well. Isn't that what we really care about?

 

[rjsos5]

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

Agree. Can also look at funds such as NOBL.
Dividend Aristocrat funds invest in S&P 500 companies that have increased dividends for at least 25 consecutive years, offering high stability, quality, and consistent income. The primary ETF is ProShares S&P 500 Dividend Aristocrats ETF (NOBL), which equally weights ~75+ holdings to limit reliance on a single sector.

Either may or may not beat e.g. S&P index in any given period. But what is noteworthy in the context of thread imo is utilizing above for seeking good total risk adjusted return stocks/funds vs. being enticed simply by a high (or ultra high) dividend or yield and placated about its true risk adjusted total after tax returns. Distinction important imo.

 

[Onda]

That's a self-fulfilling prophecy. We can't buy these stocks 10 years ago. More meaningful would be to go back 10 years, see which companies increased dividends by that rate for the 10 years before that, and see how they did the next 10 years. That's how you can better tell whether picking companies that have been raising dividends will continue to do well. Isn't that what we really care about?

True — if dividend growth is the only metric you use to pick the next such company, that would be too narrow. But the point is different: sustained 10% dividend growth over a decade is rarely random; it usually reflects durable earnings growth, pricing power, strong cash generation, and disciplined capital allocation.

That is dividends matter.

 

[Al18]

If a company stock is paying a 6% dividend or higher, it's likely in trouble. Check the data on dividend.com - it's payout rate is likely more than 50% and this dividend rate is usually not sustainable over the long-term. There's not enough leftover cash to invest in itself. This is called a dividend trap. In the immediate future, what usually happens is the company will slash dividends by 50% or 100% and reorganize.

You can see this happen most recently by tracking the WBA dividend payout history in 2023, 2024 (50% dividend cut) and it's dividend estimate briefly was nearly 10% when it was bought out in 2025 - it never paid the 10% dividend.

 

[Onda]

If a company stock is paying a 6% dividend or higher, it's likely in trouble. Check the data on dividend.com - it's payout rate is likely more than 50% and this dividend rate is usually not sustainable over the long-term. There's not enough leftover cash to invest in itself. This is called a dividend trap. In the immediate future, what usually happens is the company will slash dividends by 50% or 100% and reorganize.

You can see this happen most recently by tracking the WBA dividend payout history in 2023, 2024 (50% dividend cut) and it's dividend estimate briefly was nearly 10% when it was bought out in 2025 - it never paid the 10% dividend.

We are discussing dividend growth not dividend yield.

Huge yields from what I consider poor investments are often discussed in "CEF Holdings ..."

 

[FD1000]

lerenzo: I don't think that "dividend investors" use psychology as an "excuse." Psychology is a real thing. Some investors may acknowledge that feeling good for reasons they cannot fully explain through math and investing logic has intrinsic value. A retiree with a hedonistic philosophy might say the entire point of being retired is to feel good until you die.

Psychology and feelings should not be used for investment decisions. My neighbor that sold his company for millions invested most of his money in Munis. I can be in CD until death. We can claim psychology and feelings, or we can learn about markets, risk, and how it works. So far high dividends didn't prove to be a better choice.

youbet: Actually, any income is a powerful back up to your lifestyle. However you choose to get it (real estate, divs, interest, pension, SS, cap gains, etc.), it's all accepted at the grocery store!

I have been selling shares for years, and they are all accepted at the grocery store and around the world.

Diogenes: Exactly! You eloquently point out, the dangers of concentration. Concentrate in the wrong thing, and you get wiped out. Concentrate in the right thing, and you're handsomely rewarded. Do we feel lucky?

There are always solutions. You could easily buy QQQ instead of single companies

Onda: SCHD protects long-term purchasing power much better.

Investment should based on risk-adjusted return. SCHD performance will likely be better than HOSIX but the risk/SD will be higher too. I'm greedy, I'm looking for both.

Onda: We are discussing dividend growth not dividend yield.

The original post focuses solely on dividends. But unless you can point to a dividend growth fund or ETF that consistently outperforms on a risk-adjusted basis, the conversation ultimately comes back to stock selection. The devil is in the detail and execution.

If dividend growth were the ultimate investment strategy, wouldn't we see thousands of funds proving it with strong, consistent results?

What I appreciate about the S&P 500 and QQQ approach is its simplicity. It’s based on price, which, in my view, is the most reliable indicator of long-term success—no matter what anyone else says. This is why SP500 funds are so big and are offered in most 401Ks. Why Div growth/CEFs/REITS\MLPs are mostly not in 401K?

 

[Elle_N]

Maybe I don't understand what is meant by total-return investing. My impression is that, with a few exceptions, it means the investor doesn't care whether the portfolio's income comes from selling stock or from dividends, as it's all the same at its core. (Which is why the person in my post said with a shrug that he must be a total-market investor; dividends didn't carry any special weight to him.) So a total-return investor might very well hold both growth stocks and value stocks--a total-market portfolio. Am I incorrect?

I thought you meant the shrugging guy was saying that the dividend stock investor was not interested in total return? I guess I misunderstood.

I believe in diversification and buying and holding for the long run, a la Bogle. But by my reading over the years, anyone holding strictly dividend stocks that have paid an increasing dividend over decades (essentially value stocks) is not misguided when it comes to the latter stocks' total return competing well with growth stocks' total return.

In other words, those buying value stocks that pay an increasing dividend are making a choice based in large part on sound financial reasoning (or sound enough, if anyone prefers), based on the historical record of value vs. growth stocks.

 

[Elle_N]

The original post focuses solely on dividends. But unless you can point to a dividend growth fund or ETF that consistently outperforms on a risk-adjusted basis, the conversation ultimately comes back to stock selection. The devil is in the detail and execution.

If dividend growth were the ultimate investment strategy, wouldn't we see thousands of funds proving it with strong, consistent results?

I do not think there are thousands of growth stock funds (meaning non-value, non dividend paying stock funds) that have strong, consistent results. I am talking the lifetime of an investor, not the last five years.

I think this forum tilts towards Bogle, buy-and-hold-for-the-long-run investors. I think Bogle-investors are more interested in long term performance and not year-over-year performance. The long term performance of value stocks (which are largely stocks with a long record of raising the dividend) competes well with that of growth stocks.

 

[Elle_N]

sustained 10% dividend growth over a decade is rarely random; it usually reflects durable earnings growth, pricing power, strong cash generation, and disciplined capital allocation.

That is dividends matter.

Yes. FWIW to me the sound bite explanation of the total return of value, dividend growth (DG) stocks goes like this:

1. Reinvesting the dividends buys more shares of the stock. This increases the dollar value of one's stock position.
2. The fairly regular increase in the dividend buys still more shares of the stock. This increases the dollar value of one's stock position.
3. Over the years the price of the DG stock goes up. This increases the dollar value of one's stock position.

This is a trifecta compounding effect. It is a main driver of the performance of DG value stocks. I think it is one explanation of why DG value stocks compete well with growth stocks, over the long run.

 

[FD1000]

I do not think there are thousands of growth stock funds (meaning non-value, non dividend paying stock funds) that have strong, consistent results. I am talking the lifetime of an investor, not the last five years.

I think this forum tilts towards Bogle, buy-and-hold-for-the-long-run investors. I think Bogle-investors are more interested in long term performance and not year-over-year performance. The long term performance of value stocks (which are largely stocks with a long record of raising the dividend) competes well with that of growth stocks.

I don't promote growth.
All I'm saying is that high dividend investment is not special.
While most will do better holding the SP500, that's not the purpose of this thread.
BTW, the SP500 dividends have been cut by more than two because high tech companies who dominate the index pay a lot less. This is another proof that dividends glory days have diminished.

 

[Diogenes]

There are always solutions. You could easily buy QQQ instead of single companies

Of course. But QQQ or SPY won't reward you with 2000% returns over a single decade. Focusing on QQQ and SPY, we have "Family C" in your earlier example, splitting the difference between A and B. Assuming steady investing and eschewal of gambler's flaws or panic-selling, this family could still FIRE and could still enjoy a materially comfortable life, but they won't have the bragging-rights of Family A. Family C is essentially Bogleheads, with a bit of tilting towards tech and a bit of tilting away from bonds.

But lost in our overall discussion here, is a beguiling question: what about those celebrated "dividend aristocrats"? Have they beaten the Essen Pea Five Hundred over the long-term? Or QQQ? A casual internet search says "yes". Is that true? Then perhaps our Family C might consider a direct-indexing approach with some of these dividend stalwarts, not because they're income-focused or prioritize dividends, but because they're after higher total return. Something to consider. I genuinely don't have a strong position either way.

 

[rjsos5]

Huge yields from what I consider poor investments are often discussed in "CEF Holdings ..."

You just don't understand bondish cefs. Only kiddin' sure you and some others who cautioned do. Agree completely fwiw.

 

[Onda]

You just don't understand bondish cefs. Only kiddin' sure you and some others who cautioned do. Agree completely fwiw.

Well, with bond CEFs you also have to be a superb timer — because those guys constantly churn them, and if you miss the cycle, that juicy yield can quietly turn into capital erosion.

 

[Dash man]

If a company stock is paying a 6% dividend or higher, it's likely in trouble. Check the data on dividend.com - it's payout rate is likely more than 50% and this dividend rate is usually not sustainable over the long-term. There's not enough leftover cash to invest in itself. This is called a dividend trap. In the immediate future, what usually happens is the company will slash dividends by 50% or 100% and reorganize.

You can see this happen most recently by tracking the WBA dividend payout history in 2023, 2024 (50% dividend cut) and it's dividend estimate briefly was nearly 10% when it was bought out in 2025 - it never paid the 10% dividend.

Sure, and if you don’t follow the company you’ll lose money. Just as you would if a growth biotech stock missed on some drug development that went south.
My portfolio dividend distribution runs 3.04% with annual growth just under 10%. The only 6% or higher stocks I have are ETFs using option strategies or ELNs. I’m living off of dividends primarily from our Roth accounts. My taxable dividends are mostly long term. When the market declines, no worries. I still get paid.

 

[Al18]

WBA money troubles were well advertised for a year or two beforehand. It’s not like it was a secret.

 

[Flyfish1]

Well, with bond CEFs you also have to be a superb timer — because those guys constantly churn them, and if you miss the cycle, that juicy yield can quietly turn into capital erosion.

Not everyone that owns CEF's tries to churn them. Buy at a good discount to premium and sit back and collect the income. I have many that I have owned for several years. My income goes up every year as does my overall account value. Of course I don't own only CEF's, I have dividend stocks, ETF's, preferred's , REIT's, etc.. but I do have quite a bit of bondish CEF's. And I am buying more and more shares almost every month.

I really don't understand the animosity on this forum towards dividend investors and particularly people that own CEF's. CEF's predate mutual funds, it isn't some new fangled scheme. ADX has been around since 1929, with a total return very close to SPY. The bondish CEF PTY has been paying consistent dividends since 2003, with a total return around 7% per year. ADX,SPY,PTY Stock Chart (Dividends Reinvested, Inflation Adjusted) | Total Real Returns
Is it that people don't understand CEF's? Or that the prevailing tone and attitude here is that of bogleheads? I seriously don't get the attitude- so please explain to me what the issue is?

Like many of you I was a buy and hold index investor for decades, but in retirement I transitioned to an income investor. In sailing when you go and buy a powerboat they call it going to the dark side. Is that what the forum considers income investing? Exhausting sometimes.

 

[rjsos5]

Well, with bond CEFs you also have to be a superb timer — because those guys constantly churn them, and if you miss the cycle, that juicy yield can quietly turn into capital erosion.

Yes it seems many "investors" of the ultra high yield bondish cefs do buy and sell based on technical trends, which imagine can be challenging if price and nav in chronic decline. But whole different topic. By the way, though have not looked for quite a while, last time I did, no ultra high yield pimco bond cefs were at discount to NAV, perhaps that has changed now. Many here continue to confuse these comments with cefs in general, which simply means closed ended funds and their portfolios can include anything from equities to bonds, some not even leveraged e.g. ADX. And seems others are lumping all dividend stocks together too, those that may have good risk adjusted returns and those that may not. Whole point of OP, which you started, seems simply not to ascribe some great reason to buy yield simply for sake of yield without considering the investment as an overall investment-i.e. will it have, usually based on history- an acceptable or better risk adjusted after tax total return. Valuable point imo.

 

[Contrarian]

Not everyone that owns CEF's tries to churn them. Buy at a good discount to premium and sit back and collect the income. I have many that I have owned for several years. My income goes up every year as does my overall account value. Of course I don't own only CEF's, I have dividend stocks, ETF's, preferred's , REIT's, etc.. but I do have quite a bit of bondish CEF's. And I am buying more and more shares almost every month.

I really don't understand the animosity on this forum towards dividend investors and particularly people that own CEF's. CEF's predate mutual funds, it isn't some new fangled scheme. ADX has been around since 1929, with a total return very close to SPY. The bondish CEF PTY has been paying consistent dividends since 2003, with a total return around 7% per year. ADX,SPY,PTY Stock Chart (Dividends Reinvested, Inflation Adjusted) | Total Real Returns
Is it that people don't understand CEF's? Or that the prevailing tone and attitude here is that of bogleheads? I seriously don't get the attitude- so please explain to me what the issue is?

Like many of you I was a buy and hold index investor for decades, but in retirement I transitioned to an income investor. In sailing when you go and buy a powerboat they call it going to the dark side. Is that what the forum considers income investing? Exhausting sometimes.

I think you are misunderstanding some comments. See above post, cefs are simply closed ended funds. Some have good risk adjusted after tax total returns, some do not. I do like the fact in your graph of total real returns you compare PTY with equity funds based I assume on its risk profile independent of holdings. I agree. FWIW PTY if held in tax advantaged account did almost as well as the others you listed for that time period but seems to have much more volatility. And that is compared to equity.

But again people do not lump all mutual funds together, which commonly refers to open ended mutual funds. Most but not all cefs have some leverage, most but not all offer higher (albeit not crazy high) yields. Their holdings may be whatever, from a bond cef to a sector or broader equity cef. Maybe missed it, quite possible, but not sure any posters (or many) are bashing cefs as a class anymore than anyone would bash all open ended mutual funds as a class, or all etf's (exchange traded funds) as a class. (E.g.Here is good cef in tech, stk, at discount to NAV, better overall performance than SPY, no leverage and alas only 4% yield. Great performance and is cef. Just to illustrate.). I suspect too this thread may offer wider range of opinions than these vehicles may be discussed elsewhere.

Total Returns PTY, STK, SPY

 

[Montecfo]

Get a list of companies that have raised dividends 10%+ a year for the last decade—and then look at what happened to their stock prices and total returns. In most cases, the same business strength that produced sustained dividend growth also produced exceptional capital appreciation, so dividends were not incidental; they were evidence that the underlying engine was compounding very well.

I can do you one better. Go find companies that have compounded earnings growth at 15% annually for a decade. You will find that each of these stocks was a great investment, whether any dividends were paid or not.

Then find a time machine and go back 10 years.

 

[Montecfo]

Yes. FWIW to me the sound bite explanation of the total return of value, dividend growth (DG) stocks goes like this:

1. Reinvesting the dividends buys more shares of the stock. This increases the dollar value of one's stock position.
2. The fairly regular increase in the dividend buys still more shares of the stock. This increases the dollar value of one's stock position.
3. Over the years the price of the DG stock goes up. This increases the dollar value of one's stock position.

This is a trifecta compounding effect. It is a main driver of the performance of DG value stocks. I think it is one explanation of why DG value stocks compete well with growth stocks, over the long run.

So your view is that the actual paying of the dividend which is then reinvested in company stock creates value?

I don't see that myself. It appears to be circular logic.

If an investor's stock earns $1000 its value has increased by that amount (holding market conditions constant). It pays no dividend.

Now let's say it pays a dividend of $100 to the investor, thereby reducing the value of the stock by $100 to $900. The investor then buys $100 of stock on the open market bringing the value of stock holdings back to $1000.

In both cases the end value of the investor's stock is $1000.

 

[Flyfish1]

See below, cefs are simply closed ended funds.

Fully cognizant what a CEF is. Studied, and read up on them for years before pulling the trigger. Thank you.