Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"One of the original studies on dividends in the early 1960s said people shouldn’t care. Maximizing wealth is the point, and dividends are just part of investors’ total return. Any cash a company pays out reduces its value by an equal amount."
"Data from the past 50 years compiled by Ned Davis Research shows the annualized return of dividend payers in the S&P 500 was 9.2% compared with only 4.3% for non-payers, and with less choppiness too."
"Dividend payers would have left you with 10 times as much wealth before taxes. Meanwhile, owning an equal amount of every stock in the S&P 500, including payers and non-payers, returned just 7.65%."
@Observant1 - Hi! I look for Mr. Jakab's column every morning in my email. There's usually a nugget in there and this column was no exception. (I didn't know that I could link it so I've never attempted to).
The link I provided takes the reader to the study of Vanguard customers highlighted (linked) in the column. Look's like we're all good.
SCHD is my go-to investment in both taxable and tax deferred accounts. Unsurprisingly, it’s getting crushed on many websites for its poor recent (3 year) performance…which is accurate. I don’t think the folks piling on think too much about reversion to the mean as relates to investments.
After the recent rebalance, SCHD has become overweighted in energy (top sector at 19.4% vs only 3% for SP500), so I sold it, but may get back to it in future.
I recall SCHD reconstituting into holdings thinking, “what the hell are they doing”? It always seemed to work out in the end. And the distributions keep increasing.
This isn’t the portfolio position I tend to worry about.
This debate of divvies vs the SP500 is decades old. Until the 1970s, many profitable companies paid dividends—it was the standard. But then came the tech revolution. It started in the '70s, gained momentum in the '80s, and exploded in the decades that followed.
That shift proved something important: dividends are an outdated concept. Tech companies showed that instead of paying out cash, they could reinvest in R&D, acquire smaller companies, and execute massive stock buybacks—delivering far more value through total return.
Today, total return is the only game in town. Yes, some dividend-paying companies still perform well, but dividend stocks with low performance are useless—you’re just collecting crumbs while losing real value.
I always wonder:
If dividend stocks are so great, why did Jack Bogle—after years of research—create the S&P 500 index, not a dividend index?
Why did Warren Buffett endorse the S&P 500 (SPY) for most investors, not a handpicked list of dividend payers?
Why do top managers worldwide hold a diversified mix, not just dividend stocks?
And finally, why are so many trying to sell you dividend strategies, while almost no one pushes the simple, boring, and proven SPY?
"If dividend stocks are so great, why did Jack Bogle—after years of research—create the S&P 500 index, not a dividend index? Most, if not all S&P 500 indexes pay dividends.
"Why did Warren Buffett endorse the S&P 500 (SPY) for most investors", see above. He's also stated on numerous occasions how he loves collecting dividends from his holdings, just doesn't believe in paying any.
"And finally, why are so many trying to sell you dividend strategies, while almost no one pushes the simple, boring, and proven SPY?
It says a lot." Yes, it says that not everyone thinks and/or invests like you say you do. Get over it.
Actually, it's a bit different. In the past, techs rarely paid dividends, but tech dividends are more common now.
Keep in mind that when a company gets into some trouble, it cuts or eliminates dividends first. If more trouble, the preferred dividends can be cut or eliminated - common dividends cannot be restored until the preferred dividends have been restored (and cumulative preferred dividends have been made whole).
So, look at some level of dividend as a quality indicator. I only question the extremes of dividends - what's the point of tiny token dividends? And very high dividends are bad (much could be just ROC).
Actually, it's a bit different. In the past, techs rarely paid dividends, but tech dividends are more common now.
Keep in mind that when a company gets into some trouble, it cuts or eliminates dividends first. If more trouble, the preferred dividends can be cut or eliminated - common dividends cannot be restored until the preferred dividends have been restored (and cumulative preferred dividends have been made whole).
So, look at some level of dividend as a quality indicator. I only question the extremes of dividends - what's the point of tiny token dividends? And very high dividends are bad (much could be just ROC).
That's my approach, too. Companies are loathe to cut a dividend for the horrible PR optics it can generate. And any company that (often proudly) says they pay a dividend of say < 1% is just out for headlines --- such token dividends are, imo, meaningless.
Other than MLPs, my sweet spot for stock dividends is 4-6%. Maybe up to 7-8 for preferred that's on sale.
Have to be selective for dividend focus funds. Too many of they hold too much value stocks that are value traps. Not playing that approach for now.
My beef with most dividend funds is not only the value traps but how they stuff 1-2% payers into their holdings and think that's a 'good' thing. Sure, it might BE a dividend payer, but how much does that really help one's income? And then their ER's eat into your returns as well. Better to just hold the stocks directly imo!
And don't get me started about 'dividend growers' --- I want dividend growers that are already paying 4-6 percent, not ones paying 1.1% and 'growing' it a fraction of a percent each year.
My problem is that dividend stocks paying 4-6% are NOT really growers at all. They are matured business with slow growth. On the other hand, stocks paying the lower end of dividend may be still growing at a faster clip. The dividend filter by itself is complicated and I have not rely on these as part of our income sleeve.
For me, the key was to buy solid dividend growers in a down market. It takes patience though. These end up being "accidental high yielders" in the 4-6% range who also who also have a history of increasing their dividends. If we're talking individual stocks, banks are good targets, select pharma companies, the occasional tech company (like Broadcom in 2020), insurance companies.
4-5% short term bonds makes it easy to be patient.
"If dividend stocks are so great, why did Jack Bogle—after years of research—create the S&P 500 index, not a dividend index? Most, if not all S&P 500 indexes pay dividends.
"Why did Warren Buffett endorse the S&P 500 (SPY) for most investors", see above. He's also stated on numerous occasions how he loves collecting dividends from his holdings, just doesn't believe in paying any.
"And finally, why are so many trying to sell you dividend strategies, while almost no one pushes the simple, boring, and proven SPY?
It says a lot." Yes, it says that not everyone thinks and/or invests like you say you do. Get over it.
Your usual off mark. It's not about me it's about the data. I didn't invent it, the guys I mentioned did it for a good reason. This is not the off topic thread. This is about investing. If you can educate US, do it with research. Please get control of your anger.
CGDV has whupped the S&P 500 since its creation. It's a classic growth and income fund.
If you were strictly interested in the dividends, and your only North Star is the 500, it would have been advisable to have gotten into them around five years ago, and then held on. I'm looking at funds like ONEY, RDIV, FDVV that are beating the return of SPY over the past five years no matter what has happened to them recently. There are probably others.
On my watch list I have to go back ten years to find SPY in the top fifteen funds. Most of the funds ahead of it back in the days of ZIRP were growth funds. And then there was the predecessor to BBLU. I think it still tends to beat SPY, depending on when you bought it.
Then COVID hit. And over the last five years I see SPY down to around #37. Over three years it climbs back up to #24. Over 12 months, returns were back down to 44 despite the fact it was "setting a record." YTD? Ringing in at #50, and another "record."
If one were paying attention to the actual return, one might get the impression that for the 500, things have changed.
"...And very high dividends are bad (much could be just ROC)."
Quite right, I see what you mean, there. Isn't that the way MLPs operate all the time, though? ET seems to have been stuck in a range. A great deal of the nonsense is manipulation. It also owns chunks of Sunoco and USCompressionPartners, so the fortunes of those two will have an effect. Currently, ET offers a 7.3% dividend. Yes, high indeed. And it is ALL R.O.C. I shall reach a point where I don't want to buy any more shares. I'll use the dividend for something else--- unless the bottom falls out of the share price.
for me its about liking the type of stocks that pay a dividend vs investing in them BECAUSE of the dividend. the dividend is just the natural outcome of investing in older stable companies. reinvest them if you don't want them.
it was also a much larger deal 50 years ago when IRA's, 401k's weren't the primary investment vehicle. today having heavy dividends doesn't matter because you aren't paying taxes each year on that income whether you reinvest or not. I like dividend payers as a portion of my investing (largely index funds for large cap) because of what they do. not because of the dividend. Luckily most of that happens in my 401k/IRA. I'd rather make my own income decisions.
for me its about liking the type of stocks that pay a dividend vs investing in them BECAUSE of the dividend. the dividend is just the natural outcome of investing in older stable companies. reinvest them if you don't want them.
...
This is my take. That I am interested in the company for whatever reason: wide moat, total return, value, growth. If a company that I own has a dividend, I am reinvesting it at present. Overall though, I only care about TR, relative to the objective.
I feel that it isn't the dividend that makes the stock attractive, rather that companies which are solid, can afford to distribute dividends. OTOH, certain companies should be investing in their own growth perhaps, not paying dividends.
All of the above makes sense to me. When it comes to single stocks, those are still a small portion of my total. Mutual funds are still the lion's share. For the extra risk taken to buy into single-stocks, I have pre-decided that I want the dividend. But all of the other fundamental factors are just as much a part of the picture, and direct my decision to buy X instead of Y or Z.
Seems to me he's making a very narrow point. Op. cit.:
Again, to be clear, I have nothing against dividends. They are an important component of returns. I just think it’s egregious to think you can use dividends to pick winning stocks.
...And we all come at this particular point from our own individual angles of attack. We all want to make money, investing. Our personal circumstances are all unique. I gauge my risk to be mitigated by dividend payments, and that is a key consideration for me. I'm sworn off Real Estate and penny stocks on account of yesteryear's experiences. My divvy universe has shrunk. A conscious decision. In line with the Zurich axioms, I let my winners run. The REAL hard part is deciding when to pull out, or when to take profits and thereby eliminate risk on X amount, completely.
You can guess what happens next. He fixes the cable? Don't be fatuous, Jeffrey.
Ben states that research proves that you should be fully invested, use index funds and asset allocation to match risk profile. Of course I don’t listen to that after getting burned 45%, 50%, 25% in 2000, 2008, 2020, etc.
Ben states that research proves that you should be fully invested, use index funds and asset allocation to match risk profile. Of course I don’t listen to that after getting burned 45%, 50%, 25% in 2000, 2008, 2020, etc.
I've been known to post things to bump the conversation along. Plus, you find out who reads the links.
Given the nature of his headline, I was surprised to read that he saw any virtue in dividends at all. But since he's Canadian, he has to deal with all the fans of their bank stocks.
Comments
I wonder if this might be the study that you were looking for LINK It comes from The Journal of Wealth Management.
Link was fixed—please try again.
I don't know if article is paywalled.
The link I provided takes the reader to the study of Vanguard customers highlighted (linked) in the column. Look's like we're all good.
Dividend payers may be on the rise once again.
This isn’t the portfolio position I tend to worry about.
Until the 1970s, many profitable companies paid dividends—it was the standard.
But then came the tech revolution. It started in the '70s, gained momentum in the '80s, and exploded in the decades that followed.
That shift proved something important: dividends are an outdated concept.
Tech companies showed that instead of paying out cash, they could reinvest in R&D, acquire smaller companies, and execute massive stock buybacks—delivering far more value through total return.
Today, total return is the only game in town.
Yes, some dividend-paying companies still perform well, but dividend stocks with low performance are useless—you’re just collecting crumbs while losing real value.
I always wonder:
If dividend stocks are so great, why did Jack Bogle—after years of research—create the S&P 500 index, not a dividend index?
Why did Warren Buffett endorse the S&P 500 (SPY) for most investors, not a handpicked list of dividend payers?
Why do top managers worldwide hold a diversified mix, not just dividend stocks?
And finally, why are so many trying to sell you dividend strategies, while almost no one pushes the simple, boring, and proven SPY?
It says a lot.
"Why did Warren Buffett endorse the S&P 500 (SPY) for most investors", see above. He's also stated on numerous occasions how he loves collecting dividends from his holdings, just doesn't believe in paying any.
"And finally, why are so many trying to sell you dividend strategies, while almost no one pushes the simple, boring, and proven SPY?
It says a lot." Yes, it says that not everyone thinks and/or invests like you say you do. Get over it.
Keep in mind that when a company gets into some trouble, it cuts or eliminates dividends first. If more trouble, the preferred dividends can be cut or eliminated - common dividends cannot be restored until the preferred dividends have been restored (and cumulative preferred dividends have been made whole).
So, look at some level of dividend as a quality indicator. I only question the extremes of dividends - what's the point of tiny token dividends? And very high dividends are bad (much could be just ROC).
Other than MLPs, my sweet spot for stock dividends is 4-6%. Maybe up to 7-8 for preferred that's on sale.
“Only game in town”? Crazy talk. Lots of games to fit different types of investors.
And don't get me started about 'dividend growers' --- I want dividend growers that are already paying 4-6 percent, not ones paying 1.1% and 'growing' it a fraction of a percent each year.
For me, the key was to buy solid dividend growers in a down market. It takes patience though. These end up being "accidental high yielders" in the 4-6% range who also who also have a history of increasing their dividends. If we're talking individual stocks, banks are good targets, select pharma companies, the occasional tech company (like Broadcom in 2020), insurance companies.
4-5% short term bonds makes it easy to be patient.
It's not about me it's about the data.
I didn't invent it, the guys I mentioned did it for a good reason.
This is not the off topic thread.
This is about investing. If you can educate US, do it with research.
Please get control of your anger.
If you were strictly interested in the dividends, and your only North Star is the 500, it would have been advisable to have gotten into them around five years ago, and then held on. I'm looking at funds like ONEY, RDIV, FDVV that are beating the return of SPY over the past five years no matter what has happened to them recently. There are probably others.
On my watch list I have to go back ten years to find SPY in the top fifteen funds. Most of the funds ahead of it back in the days of ZIRP were growth funds. And then there was the predecessor to BBLU. I think it still tends to beat SPY, depending on when you bought it.
Then COVID hit. And over the last five years I see SPY down to around #37. Over three years it climbs back up to #24. Over 12 months, returns were back down to 44 despite the fact it was "setting a record." YTD? Ringing in at #50, and another "record."
If one were paying attention to the actual return, one might get the impression that for the 500, things have changed.
Quite right, I see what you mean, there. Isn't that the way MLPs operate all the time, though? ET seems to have been stuck in a range. A great deal of the nonsense is manipulation. It also owns chunks of Sunoco and US Compression Partners, so the fortunes of those two will have an effect. Currently, ET offers a 7.3% dividend. Yes, high indeed. And it is ALL R.O.C. I shall reach a point where I don't want to buy any more shares. I'll use the dividend for something else--- unless the bottom falls out of the share price.
it was also a much larger deal 50 years ago when IRA's, 401k's weren't the primary investment vehicle. today having heavy dividends doesn't matter because you aren't paying taxes each year on that income whether you reinvest or not. I like dividend payers as a portion of my investing (largely index funds for large cap) because of what they do. not because of the dividend. Luckily most of that happens in my 401k/IRA. I'd rather make my own income decisions.
I feel that it isn't the dividend that makes the stock attractive, rather that companies which are solid, can afford to distribute dividends. OTOH, certain companies should be investing in their own growth perhaps, not paying dividends.
https://pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/
You can guess what happens next.
He fixes the cable?
Don't be fatuous, Jeffrey.
Ben states that research proves that you should be fully invested, use index funds and asset allocation to match risk profile. Of course I don’t listen to that after getting burned 45%, 50%, 25% in 2000, 2008, 2020, etc.
Given the nature of his headline, I was surprised to read that he saw any virtue in dividends at all. But since he's Canadian, he has to deal with all the fans of their bank stocks.