04-07-2015, 02:30 PM
Good find, Cannew! A lot of good food for thought in there. I want to comment on several of them, but for now will just start with this one:
I, for one, have never argued that dividend-paying stocks are "inherently better." This is mostly a straw argument that gives the author a good stepping off point. I would gladly abandon DGI in a heartbeat and take up a pure growth strategy if someone would just lend me their crystal ball for a couple of days. What I have argued, and still believe, is that DG is a far easier strategy, and far more forgiving, than trying to achieve the same results through a pure growth strategy.
Yes, 6 percent is 6 percent whether achieved through capital appreciation alone or some combination of capital appreciation and dividends. But I have far more comfort with my ability to identify companies that will perform well in the latter category. The capital appreciation portion of the return is far less predictable than the dividend portion. The stock price is at the mercy of not just the company specific variables, but the overall market and economy variables as well. The dividend is not. In a sense, if you choose your DG stocks well, the dividend locks in a positive number as a portion of the ultimate total return. And if your goal did happen to be some specific total return percentage, then the dividend reduces the amount of (less certain) capital appreciation that you need. Yes, if you choose your pure growth companies well, you'll probably do much better in the end than using a DG strategy. But those companies are in my opinion MUCH harder to select with any confidence.
Quote:Dividend Myth #1: Companies that pay dividends are inherently better investments than those that don’t.
Many investors take it for granted that dividend-paying companies are superior to those that do not pay a yield. But this idea has been the subject of debate for decades, and many academics believe that it is irrational.
Let’s start with something everyone can agree on. Equity returns have two components: capital gains (price increases) and dividends. Add them together and you have the total return for a stock. Ignoring taxes and transactions costs, a stock that pays no dividend but increases in price by 6% provides precisely the same return as one whose share price rises 4% and pays a 2% dividend.
I, for one, have never argued that dividend-paying stocks are "inherently better." This is mostly a straw argument that gives the author a good stepping off point. I would gladly abandon DGI in a heartbeat and take up a pure growth strategy if someone would just lend me their crystal ball for a couple of days. What I have argued, and still believe, is that DG is a far easier strategy, and far more forgiving, than trying to achieve the same results through a pure growth strategy.
Yes, 6 percent is 6 percent whether achieved through capital appreciation alone or some combination of capital appreciation and dividends. But I have far more comfort with my ability to identify companies that will perform well in the latter category. The capital appreciation portion of the return is far less predictable than the dividend portion. The stock price is at the mercy of not just the company specific variables, but the overall market and economy variables as well. The dividend is not. In a sense, if you choose your DG stocks well, the dividend locks in a positive number as a portion of the ultimate total return. And if your goal did happen to be some specific total return percentage, then the dividend reduces the amount of (less certain) capital appreciation that you need. Yes, if you choose your pure growth companies well, you'll probably do much better in the end than using a DG strategy. But those companies are in my opinion MUCH harder to select with any confidence.