I think dividends are a good thing because they instill a sense of discipline in management by prioritizing shareholder returns. I don’t go out searching for “dividend stocks” and don’t think they’re magic, but most of the types of stocks I own tend to be dividend payers.
Your comment on the investors using a very simple dividend growth strategy is a good one. In my book I write about someone who amassed a huge estate by simply buying shares of well known companies and holding forever... except in the case of a dividend cut, in which case she sold immediately, and without question. That was the extent of her “work” on her portfolio. I would wager she outperformed most professional managers.
I found the second argument "dividends are double taxed", the main reason why I am not a dividend investor. It has probably been discussed 1000 times in Twitter/substack, but I guess it makes a difference if you are already "retired" and need to live off the dividends or if you are still on the accumulation phase.
The latter implies you can keep your stocks compounding several years and pay the taxes at a later stage if you don't need that extra income stream.
I think dividends are a good thing because they instill a sense of discipline in management by prioritizing shareholder returns. I don’t go out searching for “dividend stocks” and don’t think they’re magic, but most of the types of stocks I own tend to be dividend payers.
Your comment on the investors using a very simple dividend growth strategy is a good one. In my book I write about someone who amassed a huge estate by simply buying shares of well known companies and holding forever... except in the case of a dividend cut, in which case she sold immediately, and without question. That was the extent of her “work” on her portfolio. I would wager she outperformed most professional managers.
Great read, thanks Nelson. I'm a big fan of dividend growers, can make a nice back-bone to a portfolio with a few net-nets sprinkled on top.
Hi Nelson! Great article as always.
I found the second argument "dividends are double taxed", the main reason why I am not a dividend investor. It has probably been discussed 1000 times in Twitter/substack, but I guess it makes a difference if you are already "retired" and need to live off the dividends or if you are still on the accumulation phase.
The latter implies you can keep your stocks compounding several years and pay the taxes at a later stage if you don't need that extra income stream.
Deferring taxes can improve your annual return significantly over longer periods of time: https://park-elm.com/retirement-insights-tip-5-the-power-of-tax-deferred-compounding/
What is your opinion on this?