Dividends are not a good thing in a portfolio

[ConnorMacGregod]

When I get dividends, my portfolio doesn't fall. You must be doing something wrong.

Check your portfolio, check the date dividends are paid out and you will see the value you pay for each share drops on the day dividends are paid out by much more than what dividends are given out. you will have more shares but the value per share drops alot.

 

[Literally Bricked]

Check your portfolio, check the date dividends are paid out and you will see the value you pay for each share drops on the day dividends are paid out by much more than what dividends are given out. you will have more shares but the value per share drops alot.

They would fall after the ex dividend date, not the date of payment. The amount of bad information in here is frightening. No wonder so many people are still struggling at 75.

 

[ConnorMacGregod]

They would fall after the ex dividend date, not the date of payment. The amount of bad information in here is frightening. No wonder so many people are still struggling at 75.

How long you think it takes to sell your funds in portfolio? It aint the same as selling a stock. It takes a full day to do so and once you get your dividends you wont be able to sell your portfolio at the high price and will have to settle for the low price the next day. And this is why I would rather sell the day before at a high price then get the dividends and have the portfolio's price per share be lowered. Lets say your portfolio pays a yearly dividend of 1.25% but the stock could drop to as much as 3-5% the next day. The dividends arent worth it.


Tell me what about this is wrong? Hit me with your best shot buddy.

 

[MadSquabbles500]

And you know why? It's because I said so. Nah, jk'ing, but seriously they are meaningless. As soon as you get your dividends the value of the portfolio falls like hell. I always thought Dividends are great but in reality they arent since the value of your portfolio will automatically fall.

I believe there is an SEC rule that states the value of your stock lowers when receive dividend. But then again, what is the point of having ownership of company if not to receive profits from it? I guess when you delve into stock market investing, you are banking on someone in the future willing to just pay more because they think someone else in future will pay even more. Now, isnt that kind of ponzi-ish if not an out right ponzi scheme?

 

[BlazeCarolina]

Just to weigh in here...in my short time learning about investing, this is not true. I am a newb to the market, but it is pretty simple math. I just calculated on two of my stocks in my portfolio and I am ahead on both.

 

[Literally Bricked]

How long you think it takes to sell your funds in portfolio? It aint the same as selling a stock. It takes a full day to do so and once you get your dividends you wont be able to sell your portfolio at the high price and will have to settle for the low price the next day. And this is why I would rather sell the day before at a high price then get the dividends and have the portfolio's price per share be lowered. Lets say your portfolio pays a yearly dividend of 1.25% but the stock could drop to as much as 3-5% the next day. The dividends arent worth it.


Tell me what about this is wrong? Hit me with your best shot buddy.

It presently takes T+3 days for stocks to sell and the order to be filled which will reduce down to +2 days shortly. You also seem to have bid/ask understanding confusion as well as market hours confusion.

Also the payment date of a stock is never the day after the ex dividend date but many days if not weeks later, this holds true regardless if dividends are paid monthly, quarterly or annually.

You also seem to be ignoring the fact that shares will usually increase in value after the date of record and as they approach three days before the exdividend date.

There is so much misinformation being presented here and confusion between mutual/seg funds and common/pref. shares on your part I would highly recommend spending some time taking some C/E courses to have a proper understanding before posting about this subject again.

 

[mike sherry]

maybe the stock was higher before the dividends because of the upcoming dividend..

 

[ConnorMacGregod]

It presently takes T+3 days for stocks to sell and the order to be filled which will reduce down to +2 days shortly. You also seem to have bid/ask understanding confusion as well as market hours confusion.

Also the payment date of a stock is never the day after the ex dividend date but many days if not weeks later, this holds true regardless if dividends are paid monthly, quarterly or annually.

You also seem to be ignoring the fact that shares will usually increase in value after the date of record and as they approach three days before the exdividend date.

There is so much misinformation being presented here and confusion between mutual/seg funds and common/pref. shares on your part I would highly recommend spending some time taking some C/E courses to have a proper understanding before posting about this subject again.

I never said shares wouldnt increase the days before dividends are recorded and it takes more than just a couple of days for the price of that stock to rise up again. Sometimes weeks.

I am aware of that the payment of the dividends is not on the same date the dividends are recorded. That proofs nothing against my point though. My point in general still stands.

Give me the name of a fund and I will show you that its share value drops more percentage wise than the percent you get from it from a dividend.


As you can see in this portfolio the end of year dividend paid was about 1.25% but the share value dropped about 4% the next day. This happened for all the years I checked.

 

[IDL]

Because on average, the price of the stock drops by the amount of the dividends. If you sell your stocks and miss out on $10,000 of dividends, but then buy back the same number of shares for $10,000 less than you sold them for, you’ve accomplished exactly nothing.

I don't know how much truth there is to the stock dropping in any significance when there is a dividend payment (color me skeptical), but even assuming it goes down in line with the amount paid out (in terms of earnings per share), I don't think it would necessarily accomplish nothing according to your above scenario.

At least in Canada, for Canadian stocks, we have a dividend tax credit so we don't pay nearly as much tax on dividend payments as we would capital gains. Reason being that the money paid out in the form of dividends is after tax company profit so it has already been taxed.

So a dividend is better than the equivalent capital gain at least in my scenario.

 

[lts5025]

I don't know how much truth there is to the stock dropping in any significance when there is a dividend payment (color me skeptical), but even assuming it goes down in line with the amount paid out (in terms of earnings per share), I don't think it would necessarily accomplish nothing according to your above scenario.

At least in Canada, for Canadian stocks, we have a dividend tax credit so we don't pay nearly as much tax on dividend payments as we would capital gains. Reason being that the money paid out in the form of dividends is after tax company profit so it has already been taxed.

So a dividend is better than the equivalent capital gain at least in my scenario.

In the US, dividends and short-term profits from trades are taxed as regular income. In order to qualify for the lower capital gains tax, you have to hold onto an asset for at least a year. Dumping stocks before dividend payments and then re-purchasing them would not provide a tax advantage. In fact, it may provide a disadvantage for tax purposes because sometimes dividends qualify for capital gains tax rates, but investors must own the stock for at least 60 days before and 60 days after the payment of dividends.

 

[Literally Bricked]

I never said shares wouldnt increase the days before dividends are recorded and it takes more than just a couple of days for the price of that stock to rise up again. Sometimes weeks.

I am aware of that the payment of the dividends is not on the same date the dividends are recorded. That proofs nothing against my point though. My point in general still stands.

Give me the name of a fund and I will show you that its share value drops more percentage wise than the percent you get from it from a dividend.


As you can see in this portfolio the end of year dividend paid was about 1.25% but the share value dropped about 4% the next day. This happened for all the years I checked.

You do understand how mutual funds work correct? These payments are often times reinvested back in to the fund. So if anything if the fund value drops by a greater amount than the amount of the dividend the dividend payment purchases a larger share of the units. Those units will often times increase in value as the underlying shares within the fund increase in value, as more units are purchased than sold, etc.
1.

For example, if you initially purchase 10 units at $10, the dividend is paid out of $1/unit and the fund decreases to $9, you purchase 1.1111~ units. Now you have 11.111~ units valued at $9, meaning the value of the fund has virtually not changed. When the value of the fund increases back to $10 your portfolio value is higher. If the value of the fund only increased, but you wanted to purchase more units, you would not be able to do so or could only do so if you contributed more of your own cash into the fund.

And consider regular contributions where that $10 unit might go to $11, then $12, then $15 in your no dividend world. Now your $100 contribution buys less units or you may not even be able to purchase a share in the case of common/pref. stocks to begin with. Now you have to go and find another fund/unit/stock to purchase for your $10 because you can no longer afford the $15 unit. You want dividends or else you would be in a position where you will not have a fund to purchase anymore as they would all be too high for you to purchase a unit.

You are also not taking in tax considerations for capital gains, losses and dividends for these funds and what they take on versus what you as an investor in a mutual fund would incur. You also are forgetting when the management fee comes out for the fund as well.

 

[IDL]

In the US, dividends and short-term profits from trades are taxed as regular income. In order to qualify for the lower capital gains tax, you have to hold onto an asset for at least a year. Dumping stocks before dividend payments and then re-purchasing them would not provide a tax advantage. In fact, it may provide a disadvantage for tax purposes because sometimes dividends qualify for capital gains tax rates, but investors must own the stock for at least 60 days before and 60 days after the payment of dividends.

Hmm interesting so a lot has to do with what tax climate you are working in. So it sounds like the US government double taxes dividends, unless maybe they are tax deductible to the company. Taxes..

 

[ConnorMacGregod]

You do understand how mutual funds work correct? These payments are often times reinvested back in to the fund. So if anything if the fund value drops by a greater amount than the amount of the dividend the dividend payment purchases a larger share of the units. Those units will often times increase in value as the underlying shares within the fund increase in value, as more units are purchased than sold, etc.
1.

For example, if you initially purchase 10 units at $10, the dividend is paid out of $1/unit and the fund decreases to $9, you purchase 1.1111~ units. Now you have 11.111~ units valued at $9, meaning the value of the fund has virtually not changed. When the value of the fund increases back to $10 your portfolio value is higher. If the value of the fund only increased, but you wanted to purchase more units, you would not be able to do so or could only do so if you contributed more of your own cash into the fund.

And consider regular contributions where that $10 unit might go to $11, then $12, then $15 in your no dividend world. Now your $100 contribution buys less units or you may not even be able to purchase a share in the case of common/pref. stocks to begin with. Now you have to go and find another fund/unit/stock to purchase for your $10 because you can no longer afford the $15 unit. You want dividends or else you would be in a position where you will not have a fund to purchase anymore as they would all be too high for you to purchase a unit.

You are also not taking in tax considerations for capital gains, losses and dividends for these funds and what they take on versus what you as an investor in a mutual fund would incur. You also are forgetting when the management fee comes out for the fund as well.

yeah I understand that. but what you dont seem to get is that the percent you get from dividends is lower than how much the value of each shares drops.

Say you have with 10 units at $10 each and it pays $1 in dividends but loses $2 in share value the day after dividends are recorded then you end up with 11.111 units at $8 a share or $88.88 in your portfolio instead of $100. I gave you a picture of how that happened.

Why dont you do this, give me the name of a fund and I will show you that the percent that fund share value drops is higher than the dividend it payed out on its recorded day. You can choose any mutual fund name. Proof me wrong.

 

[mon]

Honestly it never occurred to me before. But dividend stocks are almost universally praised by investors so I’m interested in learning more about this.

I’m not as well versed in investing as most others are here. Couple dudes disagreed with you on the first page. Maybe they can expand more on their reasoning?

If it's a relatively solid/safe company which pays out good dividends and increases the amount every years they can produce a tidy sum.

Better yet if you don't need the money and the have a dividend reinvestment policy you generally get 5% off the asking price in shares instead of money. You could call this compound interest, no ones ever stated compound interest is a waste of time.

To make matters even better in Australia we have franking credits which means that between 1-30 cents in the dollar tax has already been payed by the company. This is used to offset any tax burden generated by the cash profit, I try and stick to the ones with a 30 cent franking credit as it means that for every $1 paid I'm getting $1.30 gross payed to me. With superannuation funds this can/will mean no tax is paid and you'll get a tax rebate on the dividend money.

Old mate is talking out his arse or isn't taking into account that everyones portfolio can and should be different to suit our circumstances.

As for the price drop, this should be expect and considered normal as generally the price increases by the dividend amount anyway leading up to the ex dividend date. The only reason this would bother you is if you are aiming to buy high and sell low which I don't recommend.

There's some very good books on it. If you like compound interest there's no reason to dislike dividends.

 

[Literally Bricked]

yeah I understand that. but what you dont seem to get is that the percent you get from dividends is lower than how much the value of each shares drops.

Say you have with 10 units at $10 each and it pays $1 in dividends but loses $2 in share value the day after dividends are recorded then you end up with 11.111 units at $8 a share or $88.88 in your portfolio instead of $100. I gave you a picture of how that happened.

Why dont you do this, give me the name of a fund and I will show you that the percent that fund share value drops is higher than the dividend it payed out on its recorded day. You can choose any mutual fund name. Proof me wrong.

Sometimes people sell units before dividends are paid out to aboid the taxation. People sell units and lower the NAVPS as well. Value of the shares that make of the units decrease. The actual payment of dividends of a mutual fund do not lower the value of the funds value. If this was the case companies wouldn’t pay dividends as it would be unattractive feature.

If dividends were bad they wouldn’t be included in any portfolio. There are people who have done this for a living for ITT and outside who all would have stated the same thing you are and dividends wouldn’t exist if that was the case.

 

[GSP_37]

Dividends usually mean profitable enough to pay out dividends instead of always losing money and don't have retained earnings to pay out dividends which will likely sink your portfolio for reals.

 

[Law Talkin’ Guy]

And you know why? It's because I said so. Nah, jk'ing, but seriously they are meaningless. As soon as you get your dividends the value of the portfolio falls like hell. I always thought Dividends are great but in reality they arent since the value of your portfolio will automatically fall.

Dividends are good if you want to derive periodic income from your holdings. If you’re just looking at holding on to shares in the hopes at profiting in the future from selling then you just want to the value of the shares to be high.

 

[lsa]

Dividends are good if you want to derive periodic income from your holdings. If you’re just looking at holding on to shares in the hopes at profiting in the future from selling then you just want to the value of the shares to be high.

Could you put this in a sentence?
Preferably about cats.

 

[TAK47]

There is a very logical reason for the share price dropping when dividends are paid out.
Not sure why TS is surprised.

 

[storenut47]

Average Sherdog knowledge of dividends.