05-24-2015, 08:40 PM
(This post was last modified: 05-24-2015, 08:42 PM by hendi_alex.)
Imo total return is the only relevant measure as to overall investing success. Selling shares for cash flow is little different than spending dividends. In one case the company pays out earnings as dividends and in the other case the share price appreciates because of retained earnings. if a company is retaining 10% earnings per year, in theory one could liquidate say 5% of the shares each year and never touch the principal. How is that any different than if the same company chose to divert 5% of its 10% earnings to a dividend which the inestor spends. In either case spending the 5% is a withdrawal of capital from the investment. Also in either case as long as earnings cover the withdrawal, the value of principal will likely remain intact.
The good thing about DGI is that dividends are growing and earnings are also growing. If the pay out ratio is low, then lots of retained earnings contribute to growth of capital. Therefore most DG candidates should also be pretty good total return candidates as well.
I think that the conflict between dividends and total returns mostly comes into play when yield chasing via low growth stocks which have high pay out ratios.
The good thing about DGI is that dividends are growing and earnings are also growing. If the pay out ratio is low, then lots of retained earnings contribute to growth of capital. Therefore most DG candidates should also be pretty good total return candidates as well.
I think that the conflict between dividends and total returns mostly comes into play when yield chasing via low growth stocks which have high pay out ratios.
Alex