interesting thoughts. my personal opinion is that both strategies work if you work them. 1. growth companies are subjective. 2. dividend income is also subjective, however, companies with a track record usually payout. 3. Growth stock is like being a cattle rancher, you grow your herd of cattle and kill when you need money. 4. Dividend income is like being a dairy farmer, you milk the cows regularly and still get to keep your cows. 5. It took me 6 years of investing monthly to build a dividend income of over 1,500 per month and now I use that income to buy etf monthly. I 6. I built the cash cow and it is now buying more cows for my money farm without me having to work or side hustle. 7. Bottom line, the plan is more important than the talking.
I have a third of my investments in dividend stocks, a third in the SandP500 and a third in a fixed deposit (bond). It's only the dividend stocks that keep me interested in the market though. It's becoming a hobby and fascinating to witness the effect of how macro economic and political events affect the share prices and it's nice to receive a dividend and then have some fun reinvesting it. I get what you're saying Toby, totally but I do like the certainty of dividends in a stagnant UK market. My dividends mostly come from 100 year+ old banks and insurance companies that aren't going anywhere.
Here in Spain the capital gains tax rate is 19% if it is less than 6000euros annually, if it is more, then the tax rate is 24%, but dividends are taxed at 15%, so if you are making over 6K a year in capital gains, then the difference in the tax rate with dividends is a whopping 9%!!! That is worth thinking about, and definitely makes dividend giving companies a better investment.
If a stock share price decreases when it pays a dividend then here's a question: when my S&P 500 ETF pays me a dividend, does the price also drop? I've never noticed!
Dividend stocks behave differently and give more power to the investor as to what happens with the money. What is the mechanism that guarantees that a stock price must go up/ down with earnings/ performance? Whats stopping a company from increasing its operation costs to pay its top 5 executives 20 million each? A dividend puts the breaks on exorbitant spending in unfavourable interest environments imo
The answer to all of your questions is the market decides 👍. There’s no way to stop management making bad decisions. Also Apple and Nvidia pay a dividend does that mean that investors have more power?
@@TobyNewbatt Exactly, the market decides. You can have a company at an unreasonably low PE multiple for over a decade, no dividends, no price growth. Yes it does in the sense that investors who receive dividends can decided when to invest back into the stock or even invest it elsewhere
The thing that stops a company paying it's execs 20m each is the board of directors. The thing that decides to pay a dividend is the board of directors. The board of directors decide how to allocate capital. They are the shareholders representatives.
Your theory sounds all fine and dandy but you just skipped over a very important consideration. Your investing style has to match your temperament otherwise you will not be equipped to succeed. Most all retail investors, and especially retirees are not psychologically able to sit through massive drawdowns in an index like the S&P 500 during bad times. Knowing how or when to pull income from an index fund during a bear market is far to difficult for the average investor. If you have blue chip dividend stocks paying you every month, the plan is much easier for most people to follow and not panick. You gloss ove the fact that there are have been long periods of no growth for the S&P 500, of a decade or more. Anyone who retired in 1999 or 2000 would have surely been far better served with quality blue chip dividend stocks, than the S&P 500 and bonds. You are not old enough to have witnessed brutal bear markets of the past. Many index investors panicked and sold at the bottom, while dividend retirees getting reular income checks were able to remain calm. This is not my opinion, these are facts.
Personally I’d rather have dividends, company B might go bust or fail to perform next year. Also dividends keep me motivated when the stock market isn’t performing in an upward direction.
Well, Dividend Aristocrats have outperformed the S&P 500 Total Return between 1990 and 2022. In a big tech boom and low rates period, in which they shouldn't do as well. Not like these 3% companies are some unknown gems like Toby seem to like to present them as. They're well run, profitable companies with a long, proven history and many of them do well even in recessions. Pepsi's revenue was .5% lower in 2009 than before. Almost bullet proof. I like to think of div stocks in another way than by dividend income alone. I consider DG stocks as, as stated above, great companies. And great companies will outperform less great companies over the long run. That's just how it is. Does that mean you cant be great if you don't pay a div? Of course not! Many don't, but it's a good way to measure a company's financial health. If you do like to invest in more than funds. Didn't take a genious to invest in KO back in 1980 or 1990 and you'd have crushed the S&P. You could call that cherry picking, but it's not really. It's most likely the company with the biggest moat in the world, even with such a generic product (as in so alike many others). You could say the same with FAANG but those companies aren't as easily spotted. Even if they're "obvious" in hind sight. Btw, I'm diversified in global index funds, div stocks, growth stocks and a couple of rental apartments so it's not like I'm preaching one thing here. Just think this YTer has a bit on an agenda really. Even if I do agree that index funds is the best option for most people and you cant really do wrong there. The thing is though, I don't agree with him about 'just selling of shares of your IF" if you need money, like for retirement. To me, owning a DA or DK company is like owning a cow and getting milk monthly. For companies like Pepsi, Cola and many other that have raised their div for decades, theres a big probability you'll get your milk (even more of it) even in economic down times. Lets call that when the cow is undervalued by the market by 20-40%. I wouldn't like to negative compound that cow by selling parts of it to pay my bills. I'd much rather still get my milk (and more each year) regardless of what the market valued it at the time. And with great companies, the cow will be valued by the market again. As they always do. Diversify and prob put most in inder funds, but dividends doesnt matter? That's just false. They make up for something like 60% of total return since 1920. Yes, that's included in index funds, but that's every stock of a company that survived - good and bad. And as said earlier, great companies with growing dividens arent hard to spot.
I get both sides of the argument (great vid btw Tobeston Moss!).. if you want some passive income that isn’t offered elsewhere (unless you’re willing to wait 1-2 years for a savings account to mature). I also get that over both the short / long term your overall investment can lose money (although some stocks that pay decent dividends also bounce back after a fall, if you wait long enough). As Tobeston Moss says however there’s no guarantees.. I approach it from both sides. Invest in both an all-world fund as well as a dozen or so div stocks (diversified across sectors).
Hi Toby, would you mind doing a video on accumulated s&p 500 and how exactly the accumulation works and when you will truly see it reflected based on some numbers? For example 100k, 200k and so so… ticker symbol CSPX for example! Thank you :)
great video, thank you for the explanations! As a side note, can you tell us a few words about the screen on the wall behind you? what is it? it's blurred and I cannot see details, but I feel like you have some information about some stocks since the red and green texts are changing. Thank you in advance!
Whether you look for dividends or not, may also depend on your goals, particularly for older investors seeking income. If we could find such finely matched companies as A & B, I think we’d all agree with your conclusions. However, since both are as likely to succeed, or fail, taking a dividend for income can mitigate the consequences of the latter…
If you need income buy bonds or sell your stocks. Dividends are not a reliable income source I’m afraid imand I would not let a company decide for me how much money I could have during retirement
Thanks for the video Toby. If I understand you correctly, company A and B are identical in all respects except A pays out a dividend and B puts its years earnings into growth. If A pays out 50 cent in a dividend and reduces its value to 9.50 where does the years earnings for that company go to? Compared to company B, it seems like daylight robbery. I must be missing something?
Hi Patrick I think you’ve got it slightly mixed up. I never said the company pays out all its earnings so it has nothing left. There’s no magic money. It’s just to highlight the fact that total returns are all that matters and a dividend is just a part of your returns. Don’t get too hung up on the example. A company can still have plenty of earnings left after a dividend the point was to highlight total returns I hope that helps 👍
I'm still confused Toby. Did you not say that if company A pays a dividend of 50 cent the value of the original share in that company is reduced to 9.50? What happens in year two? Where do the earnings that that share makes, ( presumably they did make earnings?) disappear to. Thanks for your patience with me.
the assumption that dividend stocks and growth stocks can generate equal total return in the long run would give people more reason to favor dividend stocks, because you would have more flexibility/control over the money, you can either reinvest if you don't need the cash flow, or use the money to cover some short term increased spending knowing you are giving up on some long term compound return. Also psychologically when you see your monthly/quarterly dividend payment getting bigger and bigger, it's very satisfying at least for me, compared to having to hold the growth stocks seeing those numbers going up, without being able to access them until you sell.
Worth considering a higher dividend ETF if you want a more value and less growth based portfolio- the big tech companies are still too expensive for my taste right now so it's a useful way of diversifying if anyone feels overexposed/bearish on that sector. Enjoyed the video.
Yep. The easiest way to do this is to own an index fund with dividend accumulation. Guaranteed total market return (less expenses which you have to pay regardless of vehicle) and maximum diversification. Owning the haystack is way less effort then finding the needles.
The theory is right, that ex dividend the stock discounts to the amount of the dividend but in reality, it doesn't. Pure maths ignores sentiment and there is strong buy side sentiment for dividend paying stocks as it gives cashflow for easy reinvestment or diversification. I tend to look for stocks which have depressed share prices but a strong history of dividends and then hopefully, as the share price rebounds, to use dividends to rebalance the portfolio and top slice effectively.
Yes 100% the market decides at the end of the day what to price a stock at, you can't predict the movement of a stock price. But also, i'd be careful buying something because it's cheap that's the classic value trap. If you only buy stocks that pay a dividend you are actively asking to underperform the market :)
Before people start stressing out its important to remember that this is not financial advice. It's your money you can invest it which ever way makes you comfortable. Not every stock is the same and not every portfolio is the same.
Great video Toby! Thanks for explaining in a informative but easy to understand format. I sold off individual stocks and focus of funds these days, around 50% index trackers/50% managed funds... Portfofio looking a lot healthier and stable. I'll watch your video on individual stocks 👍
Hi Toby, another great video. I would love a video on bonds, gilts, treasury bonds etc. getting a clear picture on how these things work would be amazing 😊
Some really good points made Toby. Dividend stocks are somewhat out of favour right now due to high interest rates on offer for cash but I personally think they will improve once rates start to come down. This higher for longer fear / Geopolitical concerns too mean the rush to safe havens isn't really happening so I agree that right now an index fund, be that US or Global, makes sense. I am certainly leaning more this way at the moment but will always hold some dividend paying stocks too 👍🏻
Depends on the company rather than the Dividend. If a company can grow without 50% of their earnings and grows anyway, you get the benefit of being given the value back and the price appreciation. Psychology it helps keep invested. Value Traps are the worst ones to watch out for.
Sure it absolutely does depend on the company. But here’s a question - which companies will be worth holding if less than 3% of dividend stocks have matched the S&P 500 over the last decade? Indeed watch for value traps…it doesn’t have to come back up 😉
I think I'm missing something here, which hopefully someone can clear up: Company A 10usd invested, at dividend time it drops to 9.50usd, I reinvest .5usd. A year later, the stock has gone back up to 10, drops back to 9.5, I get dividends of 0.5usd + .0026usd from the extra I reinvested. Lucky me this happens every year for 10 years. Isn't this essentially a company synthetically lowering the price of a share (a dip, if you will), which I then reinvest; am I not now in the winning situation of "buy the dip, sell the high"? After 10 years of exactly the same, my 10usd investment is now worth 16.16usd Company B I invest 10usd, every year it has linear growth of 5.3% (the same as a 9.5usd share going up to 10usd). After 10 years, it's now worth 15.92usd I know it's only 20c, but I think the maths is a bit more complicated than this video is letting on, unless I have (quite likely) misunderstood something.
Hi Nick, yes sorry you have missed something here :) I was very careful with my wording during the video - your investment in each stock is worth $100 from a $10 initial investment. Meaning that both have compounded. Over 10 years, to get from $10 to $100, this means that your CAGR is 25.8% - A obviously had dividends along the way to get there, but B is purely on capital growth. In this example, you will end up owning more shares of company A, but those shares will be worth less to make the numbers work. e.g. your $100 investment may actually be 2 shares of $50 On your point about 'synthetically' lowering the share price - remember that I am only talking about total returns here I hope that makes sense, this stuff can get complicated fast. But just focus on what I started with and what I finished with this was the key point to show total returns.
There is a But! In this example The person getting the dividends doesn't have to use their dividends in the same company and its actually realised gains, say the company's stock price takes a dip but is still doing well (as sometimes happens) the dividends still get paid 🤷🏻♂️
Sure of course they don’t have to use it. But if you invest in the company that doesn’t pay a dividend you can just sell it if you need money 😉. I find it weird to let a company decide if I should be allowed money or not. A dividend is a forced taxable event that you do not have a choice about
Taxes make a huge difference. In Ireland, I believe that ETFs are taxed at 44% and dividends at your tax rate. Capital gains are at 33%, but there is a 1200 allowance. From a tax perspective, a non-dividend stock is the way to go. I really hope that Ireland will one day introduce ISAs. Our investment options are too focused on real estate and pensions
Hi Toby, interesting video with some good information. I do, however, feel like you left out one important factor in your example. You said both stocks are worth $100 and so the total return is equal. This is only true if you sold both stocks and got the full value for all your shares, which for the average retail investor we can probably assume would happen as it's unlikely that their share count is high enough to drop the stock price in a significant way. However, prior to selling, the stock paying a dividend is worth more since it is paying you to hold it at its $100 valuation. You are of course correct though that a lot of stocks are value traps with dropping values that entice new investors, so good on you for trying to warn these individuals.
Could you do a video on what a 1 million pound stocks and shares isa made up of accumulation funds only can work for someone to start living off and using as a income ? Selling half your gained interest etc ? I can’t get my head around how people make it work without removing too much capital etc ? Also can you do a video on investment trusts? All the studies show that the isa millionaires have half of there portfolio within trusts?
Companies don't devalue by the amount of the dividend though, and if they did then in my experience it catches up fast. Charts show this. This probably needs a very thorough investigation.
My friend I have no idea what charts you are looking at but a stock does not have to go up or ‘catch up’. If the market decides a share is worth more it goes higher it’s just a matter of supply and demand. But the dividend is not free money it’s moving cash from the business to you. Total returns are all that matters
I just checked 4 stocks randomly, 3 dropped a tiny amount when dividends paid last, but all 3 recovered quickly, probably because good dividends attracts more investors. One was on a downward spiral anyway, so couldn't tell what affect if any. These are Aviva, DEC, L&G and Rio TInto, check for yourself. @@TobyNewbatt
Great video as always. You touched on it a few times throughout the idea of feelings and emotions affecting rational investing decisions. This is I feel the single biggest factor in investing, and one that is really overlooked.
Thanks for another great video, as always your understanding of the market and ability to break it down is a huge help to us plebs trying to make a few bucks for retirement. What are your thoughts on Covered Call ETFs? they have become very popular lately and I am concerned that there is a huge downside to the promises of regular and substantial dividends. Would you recommend having funds like HMAX, HYLD, or ZWB as part of a portfolio alongside S&P index funds?
Thank you! Great question. Short answer is that covered call ETFs have no place in a long term investing portfolio. Longer answer is that they will work for as long as they work and any yield that sounds too good to be true is not magically sustainable in the long run I'm afraid. you cannot get 20-50% yield a year (whilst increaseing your capital!) otherwise you'd be the richest person on the planet. There is no magic money tree. These investments are sold to people who have no idea what they are doing and who are chasing yields...unfortunately that tends to be new investors. Guess who's making the real money....the providers of these funds. No wonder they are not allowed in the UK.
Interesting, although I'm not 100% sure why this is, as if this was to do with fractional shares then all share trading would be halted. You can still buy fractionals on every individual share. An ETF is not the issue that HMRC were going after
@@TobyNewbatt everything in the ETF section has halted. When I asked for a comment from T212, I had a “we are reviewing this and will get back to you asap”. They say it could be news to be released or high volatility. So it’s either the regulator or the stock exchange?
Corporations pay tax on their profits. When they pay a dividend you pay tax too, so the profits are taxed twice. In the UK aren't dividends received by individuals taxed at a higher rate than capital gains?
Capital gains is actually slightly higher for basic rate and then a bit cheaper for higher rate tax payers. But don’t forget that there’s no dividend taxes if you use a stocks and shares ISA. There’s no reason a uk investor should be paying dividend taxes unless you’re super rich and invest more than £20k a year!
But corporations pay taxes on their profits no matter whether they decide to keep it or distribute them the shareholders. That’s a sunk cost and not a valid argument against not paying dividends.
I’m investing very similarly to you. I probably don’t need the answer to this for another 20 years 😅but…… when we need to draw money out for an income, I’ve heard people say that having money invested in dividend paying companies is better as you never sell any shares, whereas we would have to sell our shares….which is all well and good when prices are high, but rubbish if we have to sell shares for income if the markets have dropped 10-30%. So my question would be, when we get to that retirement age are we best off sticking and selling our ETF’s or switching and buying dividend paying companies. Hope all that made sense 😅
I’d never buy dividend stocks as a reliable income generator I’m afraid that’s not a good plan. If you need income you have bonds and you should sell your stocks. That’s what they are there for 👍. Not wanting to sell stocks is weird, that’s like owning a car but not driving it. And it means you only rely on dividends that’s just insanity.
@@TobyNewbatt What if we both had $ 1 000 000 worth shares as of 2007. I had 10 000 shares in an index fund only and you had 10 000 who were diversified in stable, proven, profitable boring companies that paid 3% dividend - and growing over time (aristocrats, kings, contenders)? We were both looking to retire by 2008 and suddenly both of our portfolios were worth half of that by Feb 2009? Yours most likely still worth quite a bit more, as those companies are better off in down times even share price-wise. Your 10 000 shares of dividend growth companies and some that reduce or even cut dividends during that time, paid 3 dollars (or pounds) per share in 2007. So you recieve 30 000 in 2007, most likely a bit more in 2008 and even a bit more in 2009. Without selling a single stock. While I had to sell of shares to pay my bills in retirement, while they're plummeting. Even If I still had 500k as of Feb 2009, it'd take another four years until they'd be back to $ 1 000 000 in medio 2013. That's without considering either inflation, or that I'd sold off quite a few shares as the price reduced along the way. So while you'd have 500k as of 2009 with a nominal 3 dollars per share (maybe higher, maybe a bit lower), I'd be on a lower amount of shares and therefore lower investment sum than 500k and a considerably slower return in money on the way up again. As your 10 000 shares still pay a divididend (growing at that) as we go from 2009 to 2013; I'd have to cut my holdings considerably and to get my 30 000 I'd have to sell a lot of shares at a huge discount. That's not taking selling off shares in 2008 into consideration and on the way up again. If we were both to live to 90 from retirement at let's say 55 or 60, I'd much rather keep those 10 000 shares than cutting into them at that time. That''s why not wanting to sell stocks isn't_weird_. As you say, total returns is all that matters, but you have to take risk into that. So these kind of companies is a damn good hedge against down times and black swans and the like. Obviously you cannot say that any of them are bound to pay a growing div for all time, but we cannot say the stock market will return 9-10% CAGR going forward either. We can base that on the best of our knowledge and stability, profitability, earnings, cash flow and solidity are as good metrics as any other. It's like selling (part of) your cow, when you can get your milk for free (don't take this as the 'free lunch' myth of dividends - I understand fully what they are), even as the cow get's more valuable and producing even more milk year over year, in stead of selling parts of the same cow to pay for milk. Or having a rental appartment that fluctuates in market price, while the rent slowly increases over time. The market will most likely return the value of the appartment over time and then increase it, but in down times you'd have to sell off square feet if you didn't rent it out (dividends). As stated in another comment, I own mostly index funds, two rental appartments and growing my dividend companies portfolio. I'm not (only) buying more there because of the dividends, but because they're great companies and they tend to be great companies over the long run. So high yield doesn't bother me, it's the steady growth of it. (and several more things, like cash flow). My terminal goal is that most of my shares will be left to my daughters, so they can get both invest more in them as dividends are there to both add to their income and be reinvested. Even in the last 50 years, as tech has soared and the Nasdaq has left the utilities section in the dust growing over 10folds, when dividends are considered into that, the utility sector actually beat the Nasdaq, even before risk adjustment. At least according to Charles B Carlson and a study he refers to in his book.
@@LeedsDee84 so two things here. Firstly the number of shares is totally irrelevant all that matters are the total returns and the total amount of money invested. Secondly nobody knows the future. We cannot just assume a company pays a dividend nor that it will grow as it might have in the future. The sooner we acknowledge that we do not know the future the better. Everything else is just speculation and investments are just one part of a solid portfolio. On your great companies that you own that’s fine sure! But everyone else thinks they’re great too, this is priced in. Remember the part of the video I showed. Less than 3% of all companies who paid a 2% yield or more managed to match or beat the S&P 500 over the last decade. Betting on companies that pay a dividend is actively seeking to underperform the market. Obviously we don’t know the future…but why bet the house? 😎
@@TobyNewbatt Well, I agree with some of what you say, as said before, but not all. As for the example with # of shares vs total returns. Yes, obviously, it doesn't matter if a share costs 100 or 1000. But if you have to sell # of shares as the price is going down everywhere to pay for a living, vs getting the same amount of money from dividends throughout a bad time in the stock market (without investing anything in either example), you will have less money when the market turns. You still have your initial balance, getting paid along the way, while I had to sell of a lot of my holdings to pay for my bills and the rebound of the stock market will make your returns higher. You had 500k at the bottom, I had to sell my to get my 30k i 07, 08 and 09, so my sum would be lower than 500k. If I had hold onto the same amount, it'd be the same, but I needed money in those years... If the market returned 100% from 09 to 13 (down 50% from 07-09), you'd be back at 1 mill, having gotten 90k (in example) div along the way, while I had gotten the same out of it, but "started" with a lot less at the bottom. Therefore, back at before 07 level, I'd need to make a lot more than 100% return to match 1 000 000 when I sold a lot of shares along the way. BTW S&P 500 Dividend Aristocrats have outperformed S&P500 Total Returns over the last two decades (mostly tech boom and low rates), by about 1% each year. So it's not like you're 100% going to lose against the market as a whole. Solid, proven companies will usuallly be solid, proven companies in 20 years. Studies about RoE show that. Not 100% sure, but with a pretty good probability none the less. Does anythink think KO or Pep will disappear in that time? As for KO, you'd be much better off betting on that stock from 1980 or 1990, than in index funds / market as a whole. A lot more risk yes, but it's not like it's a lottery with a company like those. And you can sell up, invest in others and rebalance your portfolio along the way. And as for total returns, I'll happily pay a little premium on getting less risk and volatility as I get closer to retirement. As Carlson says in his book. If the market makes 8%, it's got a 100% downside to that return. When a company states it's going to pay a 4% dividend and the company's share price rises another 4% over the years, it'll have a 50% down side. The 4% is more or less sure that year. I know the last paragraph states I'm not looking for max returns there, but you need to calculate risk into your holdings. Being 100% into one thing, even index funds, is risky. In example, in my part of the world, I'd protect my money a lot better in real estate as the down side's are a lot less. But it's less liquid and either way I want to spread my risk.
So a couple of things. The value of the stock does not always go down by the amount of the dividends. There have been a couple of studies on this where sometimes it does and sometimes it doesn't because the market price is based on investor behaviour in the period and related to the specific company. Second there is nothing to say that the person will reinvest automatically in the same company. There is a point where a person collects multiple dividends then buys stocks in something else with them. Third the assumption is that the company value of your investment in both examples match and pre supposes the answer. It is like saying if my company and your company had the same investment and yours performed worse than mine then I won. Well of course. But it is reaching the same answer with extra steps. It supposes that a dividend paying company will perform equally as an investment based on public perception of value. As you said we can not guarentee they will be worth the same value at all.
I found this video a little too black and white personally. What about if the company is massive with a large debt to service? Surely the payment of a dividend is not so direct on the share price then? That said he's spent a lot more time looking into this than I and explains his working out so I'll certainly not be disregarding what he's said.
@@M896 Oh I accept the principle. But it is saying that 63+45-106=2 is inferior to 1+1=2 as it has extra steps. In fact it should be a comparison of a+b-c=d and a+e=f. We know what we put into it and how we want to operate, but not what the results will be until after the fact. Only later can we see that d=f and that a=e. We do not ever know how the value of a stock will perform. I can tell you that stocks can drop value worse than the dividend or hold value to more than what was taken out. There was a study done in the mid twentieth century where the value held true overall to the dividend and in the 90s when another study was done it did not hold true, the value did not decrease up to the amount of the dividend. Time, place, company and market participation with narrative play a part. It is still a terrible idea to chase dividends though, not a reliable strategy. But holding dividend paying stocks is a different thing.
I don't understand why the share price would go down just because they paid out a dividend. I mean, it could but aren't stock prices based on the present value of all future cash flows? If so, the dividend would already be priced in- even the most basic retail investor knows which companies pay a dividend well in advance of it actually happening. Even if I'm wrong about how stocks are valued, it would be quite miraculous if the market as a whole managed to time things perfectly to reduce the value of the share by the exact amount of the dividend paid without going too far. Does the book value decrease? Sure, but people don't buy and sell stocks based on book value or we'd never buy anything. Regardless of the why, a market is based on supply and demand and I find it almost impossible to believe that disparate groups of people from around the globe could choreograph their activity to bring down a share price by the precise amount desired. I'm clearly missing something here but I can't think for the life of me what it is.
Hey Mark in very short answer terms it’s all down to the market. As you say if a dividend is known about then the market aka everyone! Is pricing it in. Think of it like this, if everyone bought a dividend stock the day before the dividend and then sold it a day later so they got paid the dividend it would be free money. The market stops this happening because there is no free money it has to come from somewhere. As usual supply and demand sorts this out but it’s not a magical thing or done by some computer. Hope that helps 👍
Tell that dividends don’t matter to dividend millionaires like GenEx or Kevin Burgees, they’ll laugh and collect that income of +60K$ a year which is also growing YoY while they’re watching your vid 😅 I agree total return matters, having mix of growth stocks and dividend growth stocks is way to go, that’s why you have to also look at cash flow… or just pick 3-5 etfs and don’t worry about anything
I'd happily tell them that dividends are irrelevant, because they are. It is no different than selling stock, and I say this as someone who likes dividend investing.
I collect that kind of income from the dividends in my index fund and I reinvest every single penny back into the index. Staying in the total market, never selling and reinvesting dividends is how you accumulate wealth. I stopped working 4 years ago. I keep three years of expenses in cash. Every now and then I sell a slice to top it up.
Thanks for the video. Very interesting. I completely agree with you about dividends. I started investing in dividend companies, but I don't anymore. It also occurs to me that if you ever did want to make a decent passive income from dividends, you'd need a lot of money to invest to make it worthwhile. I'm sticking with the S&P500, and I have a few companies that I think will do well in the future. I'm in it for the long-term 😂
i’m not going to say that you’re wrong, but you’re point contradicts itself 2 the 3 times in the video. you showed that of the stocks that paid dividends would have only realised a growth of 33k but with reinvesting the divs its 89k? that tells me that i have larger volume of capital growth. you also started with the initial investment was the same, 1 share for £10, after 10years the gains on the stocks were £100. however you then go on to state that over the same time reinvesting the dividends it would equate to 2 shares, so in total thats £200. again this is all assuming its a golden goose of a stocks. Despite this i see you’re point’s because if there is no growth in the stocks then the dividends cancel out. however, take IBM and coke a cola, their shares have always performed strongly over the last 50years, and generally stayed above $100~ price and will probably continue to do so for the next 10years at least. i’m might be wrong, but i am okay with that. I have a mixture of stocks that pay dividends and have shown growth over the past 5-10years, and i also have indexes for longer term investments. Personally, i think bonds are better than dividends but i haven’t ventured there yet.
So you’ve not listened sorry I was very careful with my words. 😉 Point 1 I never said you only bought 1 share of each company I merely said you invest $10 and it becomes $100 in both companies. In example 1 you may end up with two shares but each would be $50. For point two in the graph for total returns I am merely showing why dividends make up part of the market. It’s not better or worse to pick a dividend stock, but I’d not bet on them to beat the market. Final point you are welcome to believe whatever stocks you like and invest where you want. But most retail investors lose out to returns of a basic index fund and don’t even realise this is the case 👍
@@TobyNewbatt the learning curve is real, and like i said, you are not wrong but you over simplify it. I do not bet on stocks to “beat the market”, nor do i believe an index fund to be the only answer although the risk reward is perhaps lower. Picking stocks is not a simple thing, investing as a whole is not easy. Yes, reinvesting your dividends adds to the market, whether it’s directly invested back into company x or is reinvested in company y, ultimately you have the choice. its a great way to speculate your future. I get your point, its just, well not realistic because always comparing picking stocks for whatever reason to the s&p 500 is lazy. Yes, you can’t beat the market with dividends alone, but if you want to invest in a handful of stocks that have a good track record of growth and profitability, dividends are a bonus on the top. My opinions on this may change while i learn and progress, because i do listen to what guys like yourself have to say. I worked on the trading floor as an it engineer and ive spoken many times with traders and brokers, but it doesn’t mean i know any better. why not talk about shcd as one of the best performing index/etf’s. Even the s&p aristocrats is a good example to. “growth” stocks may well be the lion’s share, but picking a stock is picking a stock, its an individual choice. Ive compared over 100stocks over the past 2 years and i come back to the same conclusion, what do i want to get out of it in the long term. good companies will always grow whether they pay dividend stocks or not. compare amazon to astrazeneca or compare intel to broadcom. comparing deferring instruments is more neutral in my opinion. Again, i’m not saying you are wrong, i understand your points. It just doesn’t represent the reality of the market.
You don’t avoid a loss with a dividend sorry that’s not right. Dividends literally reduce your capital. Your stocks reduce in value. I know it doesn’t feel like it but the effect is exactly the same as selling and this is a very common misconception 👍
@@TobyNewbatt yes i agree the stock price is reduced with the dividend but what if the whole stock market is down 20 percent. I avoid selling stocks with a loss because i get the dividend and can wait until the stock market is up again.
Lets say the dividend is 5 percent the market is down 20 percent. When the market is up again my stock is up 15 percent, all things being equal, i avoid a loss of 15 percent. Sorry to say youre wrong
@TobyNewbatt it also depends on what price you payed for that dividend stock, which you failed to mention. I've got plenty of high paying dividend stocks that have returned Good growth over the long term
@@dubsdolby9437 good! Of course it depends what price you pay it doesn’t matter whether they pay a dividend or not all that matters is total returns. You know the dividend returns capital and your total stock value reduces?
I think these examples maybe skew a little to simplistic. Great for getting the point across, but you are effectively fighting misinformation with more misinformation. The simple example of the company paying out a dividend and the share price going down by the same amount is fine to explain the point, but doesn't tell the whole story, which is that a lot of the time the share price doesn't drop by the same amount as what was paid out. The company keeps a little back. In the example of Coca-Cola, their share price went from $1.13 in 1983 to $58.42 now, which couldn't have happened if they just reduced their stock price by the amount of the dividend they paid out. I'm not saying the dividend plus stock appreciation matches or beats the S&P (which includes KO also), just that oversimplifying can lead to more misinformation. In theory if you reinvest every single penny back into the same stock, it's not really different from owning a growth stock (other than paying out dividend gains every period), as you said in the video your stock is still worth the same but instead of 1 share worth $100 you have 10 shares worth $10 each. I don't know about how it works in the U.S., because a lot of this FIRE strategy seems to have started there, but in Canada we have some retirement accounts which do not get charged capital gains tax or dividend gains tax (I'm making up this term because I don't know what it's called, but it's different than capital gains). Our capital gains are taxed at 50% of gain added to our current marginal rate (potentially pushing into higher rates). Married couple making combined $85,000 in Ontario selling $1000 worth of shares would see capital gains tax of 10-14% (depending on who claims it and their salary). That same couple receiving $1000 of dividends would pay 0%. Single person making $275,000 in Ontario selling $1000 worth of shares would see an effective tax rate of 26.76% ($267.60). The same person receiving $1000 of dividends would see an effective rate of 20% ($200). I think one of the reasons people choose dividends is the ability to change their mind a lot easier. If they have $20,000 in Coca-cola and they don't want to buy more, they could turn off the drip and start using that dividend money for other stocks, or they can easily take it out for cash. They don't have to figure out their strategy for selling some amount of whole shares, or worry about timing the market to get the best return. The worst thing about Financial UA-cam/Twitter/Instagram is people trying to say that what works for them works for everyone. There is no one size fits all solution and saying "put all your money in dividends" is just as wrong as saying "put no money in dividends", "put all your money in Tesla", "put all your money in Johnson and Johnson", or "put all your money in index funds". The best portfolio probably has a mix of all types.
Hi Toby, I follow the “little bit now, more later” philosophy. I need to have a little bit of income to satisfy my mind and keep me on track for my long term goals. Call it a mental block or whatever, it keeps me sane and motivated to throw more money into savings. So I have ETFs that pay dividends rather than accumulation funds for myself, and actual dividend stocks in my wife’s ISA. Although I reinvest the dividends, I like the flexibility of one day being able to take them out as cash without having to sell the underlying holdings.
I like dividend investing, but it's also important to understand that dividends are in fact irrelevant. People find this hard to accept, but it's true.
You could also have company C in your example that does share buy backs and is still worth $100. In that case you have one share in the company but its price has risen. Now I'm going to enjoy a little leaf through the comments section ....
Indeed I was thinking about buy backs but I didn't want to make it too complicated. I'm awaiting for the comments once the video gets to the die hard investors who insist I'm wrong... :P
@@TobyNewbatt buybacks don't have the marketing cult behind them powering the emotions. I never ever heard of a "buy back investor" who is totally in love with his buy back snowball that passively increases his ownership in the company.
@@TobyNewbatt you're not thinking big enough Toby. We should call it The Buyback Kings and film it in the back of a private jet. That's the trouble with your channel. You don't wear nearly enough chunky gold jewelry to be remotely credible.
I think another point missed is that dividends can't be faked. It's harder to cover up fraud when there is cash being paid to you from the company, compared to financial engineering where companies are just passing things around internally between themselves.
Yes true. But a company can still dilute and go into debt just to keep up dividends as well! Also, as you know if you want to operate a fraudulent company people will always find a way 😉
Enron used to pay a big dividend before it was discovered to be fraudulent. The best way to stop fraud is to have the CFO be afraid of going to jail. The best way to accumulate wealth is to make regular contributions to an index fund with dividends reinvested.
Hi Toby, interesting video on what is a pretty controversial topic, well done for tackling it, I do think there are a few cherry picked dividend stocks that behave a bit differently to others, your point about 3% of those dividends stocks actually beating the market is a very important one and often overlooked, as I guess everyone thinks they can pick the winners better than others. I do think that some stocks benefit from paying a dividend as increased dividend, growth often correlates with share price, appreciation, however, having owned AT&T, Realty income, medical properties trust, and a few other losers, total returns is 100% the only thing that matters.
I do agree with you and Toby, even in the 100% of return is the only thing that matters. I'd absolutely argue you should diversify in several assets, both in the stock market (even bonds, some cash), paying off your mortage etc etc though, but return is obviously what matters. Dividend investors who writes book on the matter also agree with you.. And in my example, I use one fictional company as an example, but read it as a mini fund of 20-30 companies in large, mid and small caps and across a few, mostly non-cyclical, industries. My point is, risk can be reduced with DGC companies also. As a matter of fact, it pretty much is, as these companies are proven, stable, profitable and do less bad in economic down times. That's share price wise, as many of these companies do very well economically in recessions. Not all by any strectch, but many and they're not that hard to spot. Some state you cannot know what industries will do best in down times/black swans, but that's not correct. Or at least, you can know pretty much which industries who will NOT do well/less bad in those times. At least if you put 100+ years of history to the equation. Example (simplified, but so are TNs example in the vid): Let's say you had 10 000 shares of a company that pays growing dividends each year (called DGC - dividend growth companies). They're stable, have a 75 year history, can adjust price on their product (wide moat), low debt ratio, responsible div payout ratio, have a big market share in an industry that's easy to understand and will be here for all time and in every economy, like consumer staples. It's not rocket science, there are many of these type of companies. Not everyone will stay that way over the long run, but few of them fail and fall hard in a short space of time and if you diversify as stated above, you'll reduce that risk a lot. If one or two out of 25 plummet within a short space, you're still pretty well off. On the other hand, I have all my money in global index funds. My money goes hand in hand with the mean of the market and will in most instances outperform every active fund and most other shares over time. And the risk is small, compared to funds that take 1% or more of your money each year or holding only a handful of shares. It's now spring 2007 and we're looking forward to our retirement. We've worked hard, we're debt free but all in, in the stock market. (Might not be a good idea to be 100% exposed there as retirement looms, but let's say we are for the sake of this). Your portfolio of diversified DGCs are worth $ 1 000 000 and you own 10 000 shares that currently pays $3.00 per share in dividends in 25 companies. Several companies in your portfolio are dividend aristocrats, some are kings, many aren't A/K but grow their dividend stable over time and a few are high yielding, but a lot more fluctuating. I, on the other hand, am all in on S&P500. My 10 000 shares of a so called S&P 500 Index Fund (SP) are also worth $ 1 000 000, but my dividends are nominally lower than you have - as I have focused on the whole market (well the 500 biggest companies at least), including high soaring tech companies that don't pay much but pull the return up and include poorer companies that haven't got the economy who pull the opposite way. Your yield is at 3% (which is nothing out of the ordinary, but not too conservative either). Snowball and like not included. Then fall of 2007 comes. I planned to sell off shares of my investment (like a dividend) to pay my bills and drinks in the shade. Suddenly though, my $ 1 000 000 investment is only worth $ 500 000 by Feb 2009. If I plan to live off of $ 30 000 a year, I'm now currently selling off 6% of my investment. This is NOT including what I had sold off during 2008, so my remaining sum as of Feb 2009 would be lower. Yes, there's some dividends in here, but many have reduced or cut those all together. (The yield is high, but that's because of the huge drop in share price). Nominally I'm getting less dividends than before the crash. And as I said, I had to pay my bills in 2008 also... You on the other hand, own 10 000 shares in KO, PepsiCO, Lowe's and many similar stocks. These companies paid you 3% when your investment was worth $ 1 000 000 at the start of 2007. You take your $ 30 000 and sit in the shade, sipping that drink with me. In Feb 2009, both of our investments are worth $500 000. I have to pull 30k out of that money, to pay off for our Long Island Ice Teas, but you? You recieve dividends of $30 000 in 2007, 31 500 in 2008 and 33 075 in 2009. Without selling a single share in a company. (I have used 5% dividend growth in the example. Some aristocrats raised them by a lower amount, some higher. KO raised them by 11% in 08 and 5% in 09 i.e.). To even reduce the risk and take into regard the one's that were aristocrats (or on their way) up intil that time, you could say the net dividend growth of you portfolio was 2%, 1% or even 0%. Let's even say you portfolio had a net reduce in dividends of 5% in that period. You'd get 28 500 in 08 and 27 075 in 09. Still - this is without cutting shares! Sipping on my Long Island, I'd much rather pay be in your beach sandals. You pay with a steady income, while I have to sell off my shares. Take into consideration that over time, our investments would get back to "normality". My fund would grow at 9% or something like that CAGR, while your portfolio of quality stocks would have the same return, dividend and share price combined). But, in this example, my net worth would be considerably lower after the crash. So my money would be lower and grow at the same pace %-wise, while you'd still have the 10 000 shares. You might say I cherry picked like crazy here. Sure I did, but so does Toby when he states Company A and B are the same when they're $100 dollars. Yes, obviously, but there's no such thing as a sure thing in the stock market. Returns are all that matters you say, but then you HAVE to consider risk adjustment in those returns. Even if my example is pretty simplified and cherry picked, it's in fact not as bad as you think. If I was on $ 1 000 000 in at the start of 2007 (not considering any dividends at all here), my investment wouldn't be back to that number until 2013 - SIX YEARS later. And that's not considering inflation! While, if you had at least 4% dividend growth at that time period, you'd stay ahead of inflation and there's absolutely no chance your companies wouldn't have a hugh return in share price along with the rest of the market. And the kicker here obviously being that I would've sold a lot of my shares between 2007-2013. And as of cherry picking. Six years is a substaintial period of time, even longer with inflation, to wait for retirement. I'm 40 next year and I'd like to retire and live comfortably off of my investments before I'm 67 as is the age most retire here in Norway. We have very good pension plans here, so most that have worked their whole adult life and paid off their mortages are living pretty comfortably, but I'd like both the option to leave even better and at least have the option and freedom to choose if I want to retire earlier. If so, six years is a hell of a lot of time to wait for that, even three of four. And as said, I'd eat into my shares in that time also. My goal is to leave my shares to my kids so they can grow them further, so my grandkids can were top hats and walking canes. I'm not saying at all that index funds aren't a good thing, maybe even the very best thing for most people, but - as with dividend growth stocks - it's not the one and only answer to everthing. Remember that the last 15 years or so have been a period of huge tech boom and low interest rates. That should mean dividend companies should perform considerably less than more tech related growth stocks. Well, they haven't. Over the last 19 years, the S&P500 Dividend Aristocrats (dividends reinvested) have outperformed S&P 500 Total Returns (dividend reinvested here also) by almost 1% CAGR. That's a lot of money over two decades, and at lower volatility. So risk adjusted, it scores even better. Again, not claiming that dividens are the best thing since sliced bread and Toby is wrong with index funds. By no means, but he's wrong as to say it doesn't really matter. Because you have to consider you situation, risk tolerance etc. You just have to. By the way, as said in another comment here, I'm mostly in index funds, a few growth stocks, putting more and more into dividend stocks, paying off my mortage and even owning (loan financed) a couple of rental appartments. So I'm diversified and not preaching dividend growth stocks as the cure all here. Just saying it DOES matter. I've also tried to "expose" myself to criticism of that strategy, but I've not found a single one to turn my head still. Don't think it's ignorance, but then again, maybe my head is so buried in that future beach sand and long island, I can't see clear? :) PS. If my examples are wrong or I've not considered something important, please do correct me or comment it. As I said, I'm actively looking for reason as of my strategies might be off, as these are very long term and I'd like not to go down the wrong path.
@@LeedsDee84some good points. Working out what to invest in is the hard part. A mix of growth, dividend, S&P500, international ETFs and a few single stocks I where I am up to. It’s probably still too diversified. Just culling a few more losers and consolidating EFT’s from here. One of the best metrics I look at is shareholder yield (dividend, buyback and debt reduction) in dividend paying companies / value stocks, along with free cash flow for growth companies like Apple, Visa, Microsoft. Some of the best points I take from Toby’s videos; the chances of picking winning stocks that beat the market is very low, just investing means you are ahead of most other people, time is your friend and total return is what matters.
Thank you! True we never know what will win everything is just about managing risk. No way to know unfortunately for any investment which makes all of this so exciting 😉👍
An index fund with dividends reinvested is guaranteed to give you total market return over every future time period (less expenses, but you have expenses regardless of what you invest in). So it depends what you mean by prevail. If you mean beating then market, then no it won't. If you want to beat the market over the next twenty years, good luck. You may find yourself prevailing on the wrong side of total market return though.
What if you aim to get a good amount of passive income, BUT YOU WANT TO HOLD YOUR STOCKS? Surely this is the purpose of dividends for the hundreds of thousands of dividend investors out there...
Great question and honestly my answer would be that I’d prefer to sell shares to get income. If you insist on never selling then you really restrict yourself on what you can do. I personally dislike relying on a company deciding how much money I can have via a dividend. If I have living costs then I’ll decide what I need. What do you think?
Receiving dividend = retaining more shares of less value Selling stock = retaining less shares of more value It's really that simple. There is no difference.
@@zxr250I partially agree, but in theory if a company re-invests in itself rather than paying dividends, it should improve their ability to improve and grow long term.
Dividends are not income. They are a return of capital. Just like share buy backs are. The fact that the tax man might treat it as income is another issue. When a company pays you £1 of dividend, they are handing you £1 that you already own.
Now my maths could be way off but in your example I buy one share of A and one share of B and end up with the same return but if as in your example I now have 2 shares in A and still only one share in B but as B increase by £1 a share I get 101 return but if A increases by £1a share I get a return of 102 if they both perform exactly the same. If they don't then I can't work it out and my head explodes
So listen very carefully to what I say at the beginning. You invest $10 in each stock I never said how many shares that would buy you, and both investments become $100 (again I never said how many shares you end up with) Hope that clears it up. In company A you might have 2 shares of $50 each which makes $100 total 😁
@TobyNewbatt yes i got that but that's the point I was working on you could invest 100 in A and have 6 shares and 100 in B and have 20 shares working that out would fry my brain But followin the theory that all was eqyal buy the end If I had 2 shares in A at £50 each and 1 share in B at £100 and both shares for A an B went up £1 each share then I'd have £101 return on B and £102 on A. Life I know is never that straight forward or equal but if your not going to at least try and hope you may as well take a list of stocks and pick with a dart although in my case to be fair I'd probably do better
Yes thats right sure so instead you are letting the company force a taxable event on you, for an amount of money they choose and you have no control over? Seriously it makes zero sense to me :)
@@TobyNewbatt that's why it's important to have a good management. It makes no sense to me that for me as an owner the only way to see profit from the company I own is by selling it. Why would I want to sell a good and profitable company?
My friend I don’t think you watched the video. A dividend is not free money that’s just your capital being returned to you! Your investments dropped $5000 at the same time 😎. I genuinely hope you understand that. It’s a forced taxable event.
@@TobyNewbatt I saw the video. Nice content. I was just commenting that since 1970, 70% of global equity returns has come from compounded (call it reinvested if you prefer) dividends.
A buyback in the same amount of a dividend would produce the same total return. A dividend is not free money. It produces a forced taxable event whether you like it or not
His first chart math does not add up. Company A you would have 2 shares = $200 because you reinvested the dividend. Company B 1 share = $100 because you did not reinvest any additional money.
@@RedeadSoultaker yes I explained using a basic example how one share would turn into more after many years of reinvestment. But what was the value of your investment? $100 the same in both companies. Its ok if you didn’t listen to the whole video many people do the same thing 😁
You’re mixing up the cards. Mature companies need less reinvestment. They typically pay out a percentage of profits as dividends. Growth companies typically reinvest instead.
Where did I get this mixed up? I literally said companies who are bigger and lower growing pay out dividends? Also what’s a growth company and what’s a dividend company can you define it for me.Apple and Nvidia both pay a dividend so are they dividend companies?
@@AzzieTheGamerr I’m not sure if you’re trolling or not Aaron. But if you have a $10 stock and get a 50 cent dividend you end up with a $9.50 stock and 50 cents in cash. You still have $10. Whoever told you otherwise is a liar. You can’t create free money from nothing. It doesn’t matter where the dividend comes from. It can come from a bank loan and the effect is exactly the same 😎
right well who ever told you that is a liar :) imagine looking at my 10 dollar stock and it goes down to 9.50 but 50 cent in my cash account..... pretty sure i got 500 pounds in one of the companys i invest in and its up 58 pounds in growth and 18 pounds in the dividends i reinvested soo that means i have 576, i mean its infront of my face so i have no idea where you have gotten your info from, no on would invest in div stocks if there just getting there own money back but hayho all too their own@@TobyNewbatt
You are missing the point and the video is wrong on so many level. If dividends matter or not is not a question of math but rather a question of behavioral finance. Average dividend investor have better return on the long run because they don't try to time the market, they are less subject to panic sell and they avoid buying "lottery ticket"
"In long run will see who win, dividends its good option fir diversification" Dividends provide no diversification benefit. Where on Earth did you get that idea from?
Ahhh so a red herring I would suggest here Tim. Berkshire did not buy any stock because they paid a dividend they bought quality companies. And like you say funny thing they don’t pay out a penny to investors.
BH clearly feel they are better with using the money than their investors are. Funny how they always have a heavy war chest to acquire companies in stress (that war chest built up from massive dividend inflows each year) they also very much like companies that do share buybacks. Buffett clearly loves dividend companies and the income they generate which he then utilises elsewhere. Not sure how you see them as a red herring? Oh and WB also negotiated higher dividend yields from the banks in 08 as part of his bailing them out, he clearly loves the dividends?
It's really amusing how most people assume that the market will go on like this forever and you can't make a bad decision with index funds. Dividends are not the end and be all of investing, but they have a place, becuase they give almost immediate guaranteed returns. This whole video misses one fundamental point: the index can go down. Buying an ETF is not a surefire way of investing, even though it's low risk, the possibility that this bull market we had is ending for the time being is real.
When did I say that an index can only go up? My friend, not investing is a guaranteed loss to inflation so investing is essential. Nobody knows the future so you are welcome to guess stocks if you like but if the market performs badly over many years all this means is that very very few stocks will ever come out on top. If you don’t think the market will be higher in 20 years from now you will be living a very pessimistic life. Investing is just a small part of it too 😁
Investing in an index fund with dividend reinvested is guaranteed to give you total market return over every future time period. You can try to beat the market by all means, but you run a big risk of underperforming total market return.
That’s just not true at all. He doesn’t buy a company BECAUSE of a dividend. Berkshire pays none as you know. A quality company can grow AND pay a dividend but you knew this anyway nice try 😂😂😂
You are welcome to pick and choose any example you like and there’s plenty that don’t pay a dividend. So you know the future can you tell me which stocks go from 10k to 1m in the next 30 years?
interesting thoughts. my personal opinion is that both strategies work if you work them.
1. growth companies are subjective.
2. dividend income is also subjective, however, companies with a track record usually payout.
3. Growth stock is like being a cattle rancher, you grow your herd of cattle and kill when you need money.
4. Dividend income is like being a dairy farmer, you milk the cows regularly and still get to keep your cows.
5. It took me 6 years of investing monthly to build a dividend income of over 1,500 per month and now I use that income to buy etf monthly. I
6. I built the cash cow and it is now buying more cows for my money farm without me having to work or side hustle.
7. Bottom line, the plan is more important than the talking.
I'll never buy another dividend stock ever again 😀
😂😂😂😂😂
Glad you showed up. :D
I have a third of my investments in dividend stocks, a third in the SandP500 and a third in a fixed deposit (bond). It's only the dividend stocks that keep me interested in the market though. It's becoming a hobby and fascinating to witness the effect of how macro economic and political events affect the share prices and it's nice to receive a dividend and then have some fun reinvesting it. I get what you're saying Toby, totally but I do like the certainty of dividends in a stagnant UK market. My dividends mostly come from 100 year+ old banks and insurance companies that aren't going anywhere.
@@bartz4439 Yep, quite happy with my supremely predictable 6% fixed deposit with Hargreaves Landsdown thank you.
Here in Spain the capital gains tax rate is 19% if it is less than 6000euros annually, if it is more, then the tax rate is 24%, but dividends are taxed at 15%, so if you are making over 6K a year in capital gains, then the difference in the tax rate with dividends is a whopping 9%!!! That is worth thinking about, and definitely makes dividend giving companies a better investment.
Well done. I don’t know why this is difficult to understand. Perhaps people don’t want to understand.
If a stock share price decreases when it pays a dividend then here's a question: when my S&P 500 ETF pays me a dividend, does the price also drop? I've never noticed!
Dividend stocks behave differently and give more power to the investor as to what happens with the money. What is the mechanism that guarantees that a stock price must go up/ down with earnings/ performance? Whats stopping a company from increasing its operation costs to pay its top 5 executives 20 million each? A dividend puts the breaks on exorbitant spending in unfavourable interest environments imo
The answer to all of your questions is the market decides 👍. There’s no way to stop management making bad decisions.
Also Apple and Nvidia pay a dividend does that mean that investors have more power?
@@TobyNewbatt Exactly, the market decides. You can have a company at an unreasonably low PE multiple for over a decade, no dividends, no price growth. Yes it does in the sense that investors who receive dividends can decided when to invest back into the stock or even invest it elsewhere
Ive never looked at it that way.
Dividend takes away opportunity. Company sells a portion of your share for you on a regular basis
The thing that stops a company paying it's execs 20m each is the board of directors. The thing that decides to pay a dividend is the board of directors.
The board of directors decide how to allocate capital. They are the shareholders representatives.
Your theory sounds all fine and dandy but you just skipped over a very important consideration. Your investing style has to match your temperament otherwise you will not be equipped to succeed. Most all retail investors, and especially retirees are not psychologically able to sit through massive drawdowns in an index like the S&P 500 during bad times. Knowing how or when to pull income from an index fund during a bear market is far to difficult for the average investor. If you have blue chip dividend stocks paying you every month, the plan is much easier for most people to follow and not panick. You gloss ove the fact that there are have been long periods of no growth for the S&P 500, of a decade or more. Anyone who retired in 1999 or 2000 would have surely been far better served with quality blue chip dividend stocks, than the S&P 500 and bonds. You are not old enough to have witnessed brutal bear markets of the past. Many index investors panicked and sold at the bottom, while dividend retirees getting reular income checks were able to remain calm. This is not my opinion, these are facts.
Personally I’d rather have dividends, company B might go bust or fail to perform next year. Also dividends keep me motivated when the stock market isn’t performing in an upward direction.
Company A might go bust or fail! 🤷♂️
Agree.
How motivated are you to consistently underperform the market?
Well, Dividend Aristocrats have outperformed the S&P 500 Total Return between 1990 and 2022. In a big tech boom and low rates period, in which they shouldn't do as well.
Not like these 3% companies are some unknown gems like Toby seem to like to present them as. They're well run, profitable companies with a long, proven history and many of them do well even in recessions. Pepsi's revenue was .5% lower in 2009 than before. Almost bullet proof.
I like to think of div stocks in another way than by dividend income alone. I consider DG stocks as, as stated above, great companies. And great companies will outperform less great companies over the long run. That's just how it is.
Does that mean you cant be great if you don't pay a div? Of course not! Many don't, but it's a good way to measure a company's financial health. If you do like to invest in more than funds.
Didn't take a genious to invest in KO back in 1980 or 1990 and you'd have crushed the S&P. You could call that cherry picking, but it's not really. It's most likely the company with the biggest moat in the world, even with such a generic product (as in so alike many others).
You could say the same with FAANG but those companies aren't as easily spotted. Even if they're "obvious" in hind sight.
Btw, I'm diversified in global index funds, div stocks, growth stocks and a couple of rental apartments so it's not like I'm preaching one thing here. Just think this YTer has a bit on an agenda really. Even if I do agree that index funds is the best option for most people and you cant really do wrong there.
The thing is though, I don't agree with him about 'just selling of shares of your IF" if you need money, like for retirement. To me, owning a DA or DK company is like owning a cow and getting milk monthly. For companies like Pepsi, Cola and many other that have raised their div for decades, theres a big probability you'll get your milk (even more of it) even in economic down times. Lets call that when the cow is undervalued by the market by 20-40%.
I wouldn't like to negative compound that cow by selling parts of it to pay my bills. I'd much rather still get my milk (and more each year) regardless of what the market valued it at the time. And with great companies, the cow will be valued by the market again. As they always do.
Diversify and prob put most in inder funds, but dividends doesnt matter? That's just false. They make up for something like 60% of total return since 1920. Yes, that's included in index funds, but that's every stock of a company that survived - good and bad. And as said earlier, great companies with growing dividens arent hard to spot.
I get both sides of the argument (great vid btw Tobeston Moss!).. if you want some passive income that isn’t offered elsewhere (unless you’re willing to wait 1-2 years for a savings account to mature).
I also get that over both the short / long term your overall investment can lose money (although some stocks that pay decent dividends also bounce back after a fall, if you wait long enough). As Tobeston Moss says however there’s no guarantees..
I approach it from both sides. Invest in both an all-world fund as well as a dozen or so div stocks (diversified across sectors).
I feel that a lot of dividend paying companies are very robust and established.
They tend to be for sure, as they have nothing left to do with the cash :). But I would not bet on them ONLY for my financial future.
Hi Toby, would you mind doing a video on accumulated s&p 500 and how exactly the accumulation works and when you will truly see it reflected based on some numbers? For example 100k, 200k and so so… ticker symbol CSPX for example! Thank you :)
great video, thank you for the explanations! As a side note, can you tell us a few words about the screen on the wall behind you? what is it? it's blurred and I cannot see details, but I feel like you have some information about some stocks since the red and green texts are changing. Thank you in advance!
Hello! Yes it's a wifi smart clock with a few market tickers. Check out the Divoom Pixoo 64 thats what its called :)
Whether you look for dividends or not, may also depend on your goals, particularly for older investors seeking income. If we could find such finely matched companies as A & B, I think we’d all agree with your conclusions. However, since both are as likely to succeed, or fail, taking a dividend for income can mitigate the consequences of the latter…
If you need income buy bonds or sell your stocks. Dividends are not a reliable income source I’m afraid imand I would not let a company decide for me how much money I could have during retirement
Great video. What site do you use to get total return graphs which includes dividends re invested? Eg AT & T example
Koyfin - it's a great app I just use the free account
Thanks for the video Toby.
If I understand you correctly, company A and B are identical in all respects except A pays out a dividend and B puts its years earnings into growth. If A pays out 50 cent in a dividend and reduces its value to 9.50 where does the years earnings for that company go to? Compared to company B, it seems like daylight robbery. I must be missing something?
Hi Patrick I think you’ve got it slightly mixed up. I never said the company pays out all its earnings so it has nothing left. There’s no magic money. It’s just to highlight the fact that total returns are all that matters and a dividend is just a part of your returns.
Don’t get too hung up on the example. A company can still have plenty of earnings left after a dividend the point was to highlight total returns I hope that helps 👍
I'm still confused Toby.
Did you not say that if company A pays a dividend of 50 cent the value of the original share in that company is reduced to 9.50? What happens in year two? Where do the earnings that that share makes, ( presumably they did make earnings?) disappear to.
Thanks for your patience with me.
the assumption that dividend stocks and growth stocks can generate equal total return in the long run would give people more reason to favor dividend stocks, because you would have more flexibility/control over the money, you can either reinvest if you don't need the cash flow, or use the money to cover some short term increased spending knowing you are giving up on some long term compound return. Also psychologically when you see your monthly/quarterly dividend payment getting bigger and bigger, it's very satisfying at least for me, compared to having to hold the growth stocks seeing those numbers going up, without being able to access them until you sell.
This debate has roared on between investors for decades and will still be debated years from now.
Such a waste of oxygen arguing about it 😂😂. But hey you’re right!
I was considering SCHD but now I will stick with just XLK, VOX and VOO.
Also what you think about REITs?
If you buy index funds you get REITs inside of them already so my personal view is that there is no need to double up
Worth considering a higher dividend ETF if you want a more value and less growth based portfolio- the big tech companies are still too expensive for my taste right now so it's a useful way of diversifying if anyone feels overexposed/bearish on that sector. Enjoyed the video.
I like having a mix of growth and dividend since they are typically different types of businesses and so this adds diversification.
Yep. The easiest way to do this is to own an index fund with dividend accumulation.
Guaranteed total market return (less expenses which you have to pay regardless of vehicle) and maximum diversification.
Owning the haystack is way less effort then finding the needles.
The theory is right, that ex dividend the stock discounts to the amount of the dividend but in reality, it doesn't.
Pure maths ignores sentiment and there is strong buy side sentiment for dividend paying stocks as it gives cashflow for easy reinvestment or diversification.
I tend to look for stocks which have depressed share prices but a strong history of dividends and then hopefully, as the share price rebounds, to use dividends to rebalance the portfolio and top slice effectively.
Yes 100% the market decides at the end of the day what to price a stock at, you can't predict the movement of a stock price.
But also, i'd be careful buying something because it's cheap that's the classic value trap. If you only buy stocks that pay a dividend you are actively asking to underperform the market :)
Before people start stressing out its important to remember that this is not financial advice. It's your money you can invest it which ever way makes you comfortable. Not every stock is the same and not every portfolio is the same.
Great video Toby! Thanks for explaining in a informative but easy to understand format. I sold off individual stocks and focus of funds these days, around 50% index trackers/50% managed funds... Portfofio looking a lot healthier and stable. I'll watch your video on individual stocks 👍
Hi Toby, another great video. I would love a video on bonds, gilts, treasury bonds etc. getting a clear picture on how these things work would be amazing 😊
Thanks for the suggestion David
Well explained Toby :)
Cheers buddy!
Really well explained, Toby. I'm sure this video will annoy some people 😉
I don’t mean to disturb the hornets nest but…… 😎😂
Balance!! Half etfs and half in your choice of stocks that pay some dividends. I did just that last Friday when I invested £140k
Great content as always! There has always been an argument between dividends or not... Still can't beat an Index fund!
No doubt the arguments will rage on. Unfortunately they will remain misunderstood indefinitely and investors will pay the price.
@@TobyNewbatt Indeed. Luckily the age of the internet and UA-cam has allowed people like yourself to have a platform to pass on a wealth of knowledge.
Some really good points made Toby. Dividend stocks are somewhat out of favour right now due to high interest rates on offer for cash but I personally think they will improve once rates start to come down. This higher for longer fear / Geopolitical concerns too mean the rush to safe havens isn't really happening so I agree that right now an index fund, be that US or Global, makes sense. I am certainly leaning more this way at the moment but will always hold some dividend paying stocks too 👍🏻
Indeed mate, always swings and roundabouts as certain sectors come in and out of favour. Interesting times ahead at the moment!
Depends on the company rather than the Dividend. If a company can grow without 50% of their earnings and grows anyway, you get the benefit of being given the value back and the price appreciation. Psychology it helps keep invested. Value Traps are the worst ones to watch out for.
Sure it absolutely does depend on the company. But here’s a question - which companies will be worth holding if less than 3% of dividend stocks have matched the S&P 500 over the last decade? Indeed watch for value traps…it doesn’t have to come back up 😉
It also depends on what price you pay for that dividend stock aswell.
In Belgium there is no capital gains tax but dividends are taxed at 30%
So I invest in Accumulating ETFs to avoid losing money on my dividends
Very interesting! I really like learning things like this thank you Peter!
@@TobyNewbatt Belgium has a negligible transaction tax on each buy and sell instead of a capital gains tax
And of course the dividend tax
I think I'm missing something here, which hopefully someone can clear up:
Company A
10usd invested, at dividend time it drops to 9.50usd, I reinvest .5usd.
A year later, the stock has gone back up to 10, drops back to 9.5, I get dividends of 0.5usd + .0026usd from the extra I reinvested.
Lucky me this happens every year for 10 years. Isn't this essentially a company synthetically lowering the price of a share (a dip, if you will), which I then reinvest; am I not now in the winning situation of "buy the dip, sell the high"?
After 10 years of exactly the same, my 10usd investment is now worth 16.16usd
Company B
I invest 10usd, every year it has linear growth of 5.3% (the same as a 9.5usd share going up to 10usd). After 10 years, it's now worth 15.92usd
I know it's only 20c, but I think the maths is a bit more complicated than this video is letting on, unless I have (quite likely) misunderstood something.
Hi Nick, yes sorry you have missed something here :)
I was very careful with my wording during the video - your investment in each stock is worth $100 from a $10 initial investment. Meaning that both have compounded. Over 10 years, to get from $10 to $100, this means that your CAGR is 25.8% - A obviously had dividends along the way to get there, but B is purely on capital growth.
In this example, you will end up owning more shares of company A, but those shares will be worth less to make the numbers work. e.g. your $100 investment may actually be 2 shares of $50
On your point about 'synthetically' lowering the share price - remember that I am only talking about total returns here
I hope that makes sense, this stuff can get complicated fast. But just focus on what I started with and what I finished with this was the key point to show total returns.
There is a But! In this example
The person getting the dividends doesn't have to use their dividends in the same company and its actually realised gains, say the company's stock price takes a dip but is still doing well (as sometimes happens) the dividends still get paid 🤷🏻♂️
Sure of course they don’t have to use it. But if you invest in the company that doesn’t pay a dividend you can just sell it if you need money 😉.
I find it weird to let a company decide if I should be allowed money or not. A dividend is a forced taxable event that you do not have a choice about
Taxes make a huge difference. In Ireland, I believe that ETFs are taxed at 44% and dividends at your tax rate. Capital gains are at 33%, but there is a 1200 allowance. From a tax perspective, a non-dividend stock is the way to go. I really hope that Ireland will one day introduce ISAs. Our investment options are too focused on real estate and pensions
Very interesting! Yes a good reminder and I am shocked that you don't get any decent ISA or similar accounts in Ireland I think that's a real shame.
Hi Toby, interesting video with some good information. I do, however, feel like you left out one important factor in your example. You said both stocks are worth $100 and so the total return is equal. This is only true if you sold both stocks and got the full value for all your shares, which for the average retail investor we can probably assume would happen as it's unlikely that their share count is high enough to drop the stock price in a significant way. However, prior to selling, the stock paying a dividend is worth more since it is paying you to hold it at its $100 valuation.
You are of course correct though that a lot of stocks are value traps with dropping values that entice new investors, so good on you for trying to warn these individuals.
I have some div shares and after the Ex div days they dont go down really.. shares always goes up and down.. so I am not fully agree with you..
Could you do a video on what a 1 million pound stocks and shares isa made up of accumulation funds only can work for someone to start living off and using as a income ? Selling half your gained interest etc ? I can’t get my head around how people make it work without removing too much capital etc ?
Also can you do a video on investment trusts? All the studies show that the isa millionaires have half of there portfolio within trusts?
Great video, well explained. 👌
Thank you! 👍
Companies don't devalue by the amount of the dividend though, and if they did then in my experience it catches up fast. Charts show this. This probably needs a very thorough investigation.
My friend I have no idea what charts you are looking at but a stock does not have to go up or ‘catch up’. If the market decides a share is worth more it goes higher it’s just a matter of supply and demand. But the dividend is not free money it’s moving cash from the business to you.
Total returns are all that matters
I just checked 4 stocks randomly, 3 dropped a tiny amount when dividends paid last, but all 3 recovered quickly, probably because good dividends attracts more investors. One was on a downward spiral anyway, so couldn't tell what affect if any. These are Aviva, DEC, L&G and Rio TInto, check for yourself.
@@TobyNewbatt
Great stuff Toby! Just found out your channel and you're already on top with my favourite UA-cam James Shack. Keep up the good work!
Welcome thanks for watching!
Great video as always. You touched on it a few times throughout the idea of feelings and emotions affecting rational investing decisions. This is I feel the single biggest factor in investing, and one that is really overlooked.
Thanks buddy. Indeed it’s probably what makes investing so hard, and why I do truly want people to find what works for them.
Thanks for another great video, as always your understanding of the market and ability to break it down is a huge help to us plebs trying to make a few bucks for retirement.
What are your thoughts on Covered Call ETFs? they have become very popular lately and I am concerned that there is a huge downside to the promises of regular and substantial dividends.
Would you recommend having funds like HMAX, HYLD, or ZWB as part of a portfolio alongside S&P index funds?
Thank you! Great question. Short answer is that covered call ETFs have no place in a long term investing portfolio.
Longer answer is that they will work for as long as they work and any yield that sounds too good to be true is not magically sustainable in the long run I'm afraid. you cannot get 20-50% yield a year (whilst increaseing your capital!) otherwise you'd be the richest person on the planet. There is no magic money tree.
These investments are sold to people who have no idea what they are doing and who are chasing yields...unfortunately that tends to be new investors. Guess who's making the real money....the providers of these funds. No wonder they are not allowed in the UK.
@@TobyNewbatt well.... Global X NASDAQ 100 Covered Call UCITS ETF Acc (QYLU) IE00BM8R0H36 is on LSE, and QYLD the dist version
I think you might have to give us an update on the fractional shares stuff soon. Trading 212 has halted trading on a lot of funds- VUSA included
Interesting, although I'm not 100% sure why this is, as if this was to do with fractional shares then all share trading would be halted. You can still buy fractionals on every individual share. An ETF is not the issue that HMRC were going after
@@TobyNewbatt everything in the ETF section has halted. When I asked for a comment from T212, I had a “we are reviewing this and will get back to you asap”. They say it could be news to be released or high volatility. So it’s either the regulator or the stock exchange?
Corporations pay tax on their profits. When they pay a dividend you pay tax too, so the profits are taxed twice.
In the UK aren't dividends received by individuals taxed at a higher rate than capital gains?
Capital gains is actually slightly higher for basic rate and then a bit cheaper for higher rate tax payers. But don’t forget that there’s no dividend taxes if you use a stocks and shares ISA. There’s no reason a uk investor should be paying dividend taxes unless you’re super rich and invest more than £20k a year!
But corporations pay taxes on their profits no matter whether they decide to keep it or distribute them the shareholders. That’s a sunk cost and not a valid argument against not paying dividends.
Just follow Warren Buffets advice and just buy the index and reinvest the dividends for decades.
Index and chill
I’m investing very similarly to you. I probably don’t need the answer to this for another 20 years 😅but…… when we need to draw money out for an income, I’ve heard people say that having money invested in dividend paying companies is better as you never sell any shares, whereas we would have to sell our shares….which is all well and good when prices are high, but rubbish if we have to sell shares for income if the markets have dropped 10-30%. So my question would be, when we get to that retirement age are we best off sticking and selling our ETF’s or switching and buying dividend paying companies. Hope all that made sense 😅
I’d never buy dividend stocks as a reliable income generator I’m afraid that’s not a good plan. If you need income you have bonds and you should sell your stocks. That’s what they are there for 👍.
Not wanting to sell stocks is weird, that’s like owning a car but not driving it. And it means you only rely on dividends that’s just insanity.
@@TobyNewbatt What if we both had $ 1 000 000 worth shares as of 2007. I had 10 000 shares in an index fund only and you had 10 000 who were diversified in stable, proven, profitable boring companies that paid 3% dividend - and growing over time (aristocrats, kings, contenders)? We were both looking to retire by 2008 and suddenly both of our portfolios were worth half of that by Feb 2009? Yours most likely still worth quite a bit more, as those companies are better off in down times even share price-wise. Your 10 000 shares of dividend growth companies and some that reduce or even cut dividends during that time, paid 3 dollars (or pounds) per share in 2007. So you recieve 30 000 in 2007, most likely a bit more in 2008 and even a bit more in 2009. Without selling a single stock.
While I had to sell of shares to pay my bills in retirement, while they're plummeting. Even If I still had 500k as of Feb 2009, it'd take another four years until they'd be back to $ 1 000 000 in medio 2013. That's without considering either inflation, or that I'd sold off quite a few shares as the price reduced along the way. So while you'd have 500k as of 2009 with a nominal 3 dollars per share (maybe higher, maybe a bit lower), I'd be on a lower amount of shares and therefore lower investment sum than 500k and a considerably slower return in money on the way up again. As your 10 000 shares still pay a divididend (growing at that) as we go from 2009 to 2013; I'd have to cut my holdings considerably and to get my 30 000 I'd have to sell a lot of shares at a huge discount. That's not taking selling off shares in 2008 into consideration and on the way up again. If we were both to live to 90 from retirement at let's say 55 or 60, I'd much rather keep those 10 000 shares than cutting into them at that time.
That''s why not wanting to sell stocks isn't_weird_. As you say, total returns is all that matters, but you have to take risk into that. So these kind of companies is a damn good hedge against down times and black swans and the like. Obviously you cannot say that any of them are bound to pay a growing div for all time, but we cannot say the stock market will return 9-10% CAGR going forward either. We can base that on the best of our knowledge and stability, profitability, earnings, cash flow and solidity are as good metrics as any other. It's like selling (part of) your cow, when you can get your milk for free (don't take this as the 'free lunch' myth of dividends - I understand fully what they are), even as the cow get's more valuable and producing even more milk year over year, in stead of selling parts of the same cow to pay for milk. Or having a rental appartment that fluctuates in market price, while the rent slowly increases over time. The market will most likely return the value of the appartment over time and then increase it, but in down times you'd have to sell off square feet if you didn't rent it out (dividends).
As stated in another comment, I own mostly index funds, two rental appartments and growing my dividend companies portfolio. I'm not (only) buying more there because of the dividends, but because they're great companies and they tend to be great companies over the long run. So high yield doesn't bother me, it's the steady growth of it. (and several more things, like cash flow). My terminal goal is that most of my shares will be left to my daughters, so they can get both invest more in them as dividends are there to both add to their income and be reinvested. Even in the last 50 years, as tech has soared and the Nasdaq has left the utilities section in the dust growing over 10folds, when dividends are considered into that, the utility sector actually beat the Nasdaq, even before risk adjustment. At least according to Charles B Carlson and a study he refers to in his book.
@@LeedsDee84 so two things here. Firstly the number of shares is totally irrelevant all that matters are the total returns and the total amount of money invested.
Secondly nobody knows the future. We cannot just assume a company pays a dividend nor that it will grow as it might have in the future. The sooner we acknowledge that we do not know the future the better. Everything else is just speculation and investments are just one part of a solid portfolio.
On your great companies that you own that’s fine sure! But everyone else thinks they’re great too, this is priced in. Remember the part of the video I showed. Less than 3% of all companies who paid a 2% yield or more managed to match or beat the S&P 500 over the last decade. Betting on companies that pay a dividend is actively seeking to underperform the market. Obviously we don’t know the future…but why bet the house? 😎
@@TobyNewbatt Well, I agree with some of what you say, as said before, but not all. As for the example with # of shares vs total returns. Yes, obviously, it doesn't matter if a share costs 100 or 1000. But if you have to sell # of shares as the price is going down everywhere to pay for a living, vs getting the same amount of money from dividends throughout a bad time in the stock market (without investing anything in either example), you will have less money when the market turns. You still have your initial balance, getting paid along the way, while I had to sell of a lot of my holdings to pay for my bills and the rebound of the stock market will make your returns higher. You had 500k at the bottom, I had to sell my to get my 30k i 07, 08 and 09, so my sum would be lower than 500k. If I had hold onto the same amount, it'd be the same, but I needed money in those years... If the market returned 100% from 09 to 13 (down 50% from 07-09), you'd be back at 1 mill, having gotten 90k (in example) div along the way, while I had gotten the same out of it, but "started" with a lot less at the bottom. Therefore, back at before 07 level, I'd need to make a lot more than 100% return to match 1 000 000 when I sold a lot of shares along the way.
BTW S&P 500 Dividend Aristocrats have outperformed S&P500 Total Returns over the last two decades (mostly tech boom and low rates), by about 1% each year. So it's not like you're 100% going to lose against the market as a whole. Solid, proven companies will usuallly be solid, proven companies in 20 years. Studies about RoE show that. Not 100% sure, but with a pretty good probability none the less. Does anythink think KO or Pep will disappear in that time? As for KO, you'd be much better off betting on that stock from 1980 or 1990, than in index funds / market as a whole. A lot more risk yes, but it's not like it's a lottery with a company like those. And you can sell up, invest in others and rebalance your portfolio along the way.
And as for total returns, I'll happily pay a little premium on getting less risk and volatility as I get closer to retirement. As Carlson says in his book. If the market makes 8%, it's got a 100% downside to that return. When a company states it's going to pay a 4% dividend and the company's share price rises another 4% over the years, it'll have a 50% down side. The 4% is more or less sure that year.
I know the last paragraph states I'm not looking for max returns there, but you need to calculate risk into your holdings. Being 100% into one thing, even index funds, is risky. In example, in my part of the world, I'd protect my money a lot better in real estate as the down side's are a lot less. But it's less liquid and either way I want to spread my risk.
So a couple of things. The value of the stock does not always go down by the amount of the dividends. There have been a couple of studies on this where sometimes it does and sometimes it doesn't because the market price is based on investor behaviour in the period and related to the specific company.
Second there is nothing to say that the person will reinvest automatically in the same company. There is a point where a person collects multiple dividends then buys stocks in something else with them.
Third the assumption is that the company value of your investment in both examples match and pre supposes the answer. It is like saying if my company and your company had the same investment and yours performed worse than mine then I won. Well of course. But it is reaching the same answer with extra steps. It supposes that a dividend paying company will perform equally as an investment based on public perception of value. As you said we can not guarentee they will be worth the same value at all.
I found this video a little too black and white personally. What about if the company is massive with a large debt to service? Surely the payment of a dividend is not so direct on the share price then?
That said he's spent a lot more time looking into this than I and explains his working out so I'll certainly not be disregarding what he's said.
@@M896 Oh I accept the principle. But it is saying that 63+45-106=2 is inferior to 1+1=2 as it has extra steps. In fact it should be a comparison of a+b-c=d and a+e=f. We know what we put into it and how we want to operate, but not what the results will be until after the fact. Only later can we see that d=f and that a=e. We do not ever know how the value of a stock will perform. I can tell you that stocks can drop value worse than the dividend or hold value to more than what was taken out. There was a study done in the mid twentieth century where the value held true overall to the dividend and in the 90s when another study was done it did not hold true, the value did not decrease up to the amount of the dividend. Time, place, company and market participation with narrative play a part. It is still a terrible idea to chase dividends though, not a reliable strategy. But holding dividend paying stocks is a different thing.
I don't understand why the share price would go down just because they paid out a dividend. I mean, it could but aren't stock prices based on the present value of all future cash flows? If so, the dividend would already be priced in- even the most basic retail investor knows which companies pay a dividend well in advance of it actually happening.
Even if I'm wrong about how stocks are valued, it would be quite miraculous if the market as a whole managed to time things perfectly to reduce the value of the share by the exact amount of the dividend paid without going too far.
Does the book value decrease? Sure, but people don't buy and sell stocks based on book value or we'd never buy anything. Regardless of the why, a market is based on supply and demand and I find it almost impossible to believe that disparate groups of people from around the globe could choreograph their activity to bring down a share price by the precise amount desired.
I'm clearly missing something here but I can't think for the life of me what it is.
Hey Mark in very short answer terms it’s all down to the market. As you say if a dividend is known about then the market aka everyone! Is pricing it in. Think of it like this, if everyone bought a dividend stock the day before the dividend and then sold it a day later so they got paid the dividend it would be free money. The market stops this happening because there is no free money it has to come from somewhere. As usual supply and demand sorts this out but it’s not a magical thing or done by some computer. Hope that helps 👍
Dividends matter. It may not be for some people.
Tell that dividends don’t matter to dividend millionaires like GenEx or Kevin Burgees, they’ll laugh and collect that income of +60K$ a year which is also growing YoY while they’re watching your vid 😅 I agree total return matters, having mix of growth stocks and dividend growth stocks is way to go, that’s why you have to also look at cash flow… or just pick 3-5 etfs and don’t worry about anything
I'd happily tell them that dividends are irrelevant, because they are. It is no different than selling stock, and I say this as someone who likes dividend investing.
I collect that kind of income from the dividends in my index fund and I reinvest every single penny back into the index.
Staying in the total market, never selling and reinvesting dividends is how you accumulate wealth.
I stopped working 4 years ago. I keep three years of expenses in cash. Every now and then I sell a slice to top it up.
@@zxr250 right then go and tell genex, that they are but right before that, watch his videos explaining why dividends matter to naysayers 😊
Thanks for the video. Very interesting. I completely agree with you about dividends. I started investing in dividend companies, but I don't anymore. It also occurs to me that if you ever did want to make a decent passive income from dividends, you'd need a lot of money to invest to make it worthwhile. I'm sticking with the S&P500, and I have a few companies that I think will do well in the future. I'm in it for the long-term 😂
Wether you agree or not thought provoking as ever Toby which can only be a good thing
i’m not going to say that you’re wrong, but you’re point contradicts itself 2 the 3 times in the video. you showed that of the stocks that paid dividends would have only realised a growth of 33k but with reinvesting the divs its 89k? that tells me that i have larger volume of capital growth. you also started with the initial investment was the same, 1 share for £10, after 10years the gains on the stocks were £100. however you then go on to state that over the same time reinvesting the dividends it would equate to 2 shares, so in total thats £200. again this is all assuming its a golden goose of a stocks. Despite this i see you’re point’s because if there is no growth in the stocks then the dividends cancel out. however, take IBM and coke a cola, their shares have always performed strongly over the last 50years, and generally stayed above $100~ price and will probably continue to do so for the next 10years at least. i’m might be wrong, but i am okay with that. I have a mixture of stocks that pay dividends and have shown growth over the past 5-10years, and i also have indexes for longer term investments. Personally, i think bonds are better than dividends but i haven’t ventured there yet.
So you’ve not listened sorry I was very careful with my words. 😉
Point 1 I never said you only bought 1 share of each company I merely said you invest $10 and it becomes $100 in both companies. In example 1 you may end up with two shares but each would be $50.
For point two in the graph for total returns I am merely showing why dividends make up part of the market. It’s not better or worse to pick a dividend stock, but I’d not bet on them to beat the market.
Final point you are welcome to believe whatever stocks you like and invest where you want. But most retail investors lose out to returns of a basic index fund and don’t even realise this is the case 👍
@@TobyNewbatt the learning curve is real, and like i said, you are not wrong but you over simplify it. I do not bet on stocks to “beat the market”, nor do i believe an index fund to be the only answer although the risk reward is perhaps lower. Picking stocks is not a simple thing, investing as a whole is not easy. Yes, reinvesting your dividends adds to the market, whether it’s directly invested back into company x or is reinvested in company y, ultimately you have the choice. its a great way to speculate your future.
I get your point, its just, well not realistic because always comparing picking stocks for whatever reason to the s&p 500 is lazy. Yes, you can’t beat the market with dividends alone, but if you want to invest in a handful of stocks that have a good track record of growth and profitability, dividends are a bonus on the top. My opinions on this may change while i learn and progress, because i do listen to what guys like yourself have to say. I worked on the trading floor as an it engineer and ive spoken many times with traders and brokers, but it doesn’t mean i know any better.
why not talk about shcd as one of the best performing index/etf’s. Even the s&p aristocrats is a good example to. “growth” stocks may well be the lion’s share, but picking a stock is picking a stock, its an individual choice. Ive compared over 100stocks over the past 2 years and i come back to the same conclusion, what do i want to get out of it in the long term. good companies will always grow whether they pay dividend stocks or not. compare amazon to astrazeneca or compare intel to broadcom. comparing deferring instruments is more neutral in my opinion.
Again, i’m not saying you are wrong, i understand your points. It just doesn’t represent the reality of the market.
During a ression when all stocks are down you can avoid selling with a loss because the dividends provide a cushion if you need cash
You don’t avoid a loss with a dividend sorry that’s not right. Dividends literally reduce your capital. Your stocks reduce in value.
I know it doesn’t feel like it but the effect is exactly the same as selling and this is a very common misconception 👍
@@TobyNewbatt yes i agree the stock price is reduced with the dividend but what if the whole stock market is down 20 percent. I avoid selling stocks with a loss because i get the dividend and can wait until the stock market is up again.
Lets say the dividend is 5 percent the market is down 20 percent. When the market is up again my stock is up 15 percent, all things being equal, i avoid a loss of 15 percent. Sorry to say youre wrong
@TobyNewbatt it also depends on what price you payed for that dividend stock, which you failed to mention. I've got plenty of high paying dividend stocks that have returned Good growth over the long term
@@dubsdolby9437 good! Of course it depends what price you pay it doesn’t matter whether they pay a dividend or not all that matters is total returns. You know the dividend returns capital and your total stock value reduces?
Dividend taxes and then commisions when you buy more = bad invest
I think these examples maybe skew a little to simplistic. Great for getting the point across, but you are effectively fighting misinformation with more misinformation.
The simple example of the company paying out a dividend and the share price going down by the same amount is fine to explain the point, but doesn't tell the whole story, which is that a lot of the time the share price doesn't drop by the same amount as what was paid out. The company keeps a little back. In the example of Coca-Cola, their share price went from $1.13 in 1983 to $58.42 now, which couldn't have happened if they just reduced their stock price by the amount of the dividend they paid out. I'm not saying the dividend plus stock appreciation matches or beats the S&P (which includes KO also), just that oversimplifying can lead to more misinformation.
In theory if you reinvest every single penny back into the same stock, it's not really different from owning a growth stock (other than paying out dividend gains every period), as you said in the video your stock is still worth the same but instead of 1 share worth $100 you have 10 shares worth $10 each.
I don't know about how it works in the U.S., because a lot of this FIRE strategy seems to have started there, but in Canada we have some retirement accounts which do not get charged capital gains tax or dividend gains tax (I'm making up this term because I don't know what it's called, but it's different than capital gains).
Our capital gains are taxed at 50% of gain added to our current marginal rate (potentially pushing into higher rates).
Married couple making combined $85,000 in Ontario selling $1000 worth of shares would see capital gains tax of 10-14% (depending on who claims it and their salary).
That same couple receiving $1000 of dividends would pay 0%.
Single person making $275,000 in Ontario selling $1000 worth of shares would see an effective tax rate of 26.76% ($267.60).
The same person receiving $1000 of dividends would see an effective rate of 20% ($200).
I think one of the reasons people choose dividends is the ability to change their mind a lot easier. If they have $20,000 in Coca-cola and they don't want to buy more, they could turn off the drip and start using that dividend money for other stocks, or they can easily take it out for cash. They don't have to figure out their strategy for selling some amount of whole shares, or worry about timing the market to get the best return.
The worst thing about Financial UA-cam/Twitter/Instagram is people trying to say that what works for them works for everyone. There is no one size fits all solution and saying "put all your money in dividends" is just as wrong as saying "put no money in dividends", "put all your money in Tesla", "put all your money in Johnson and Johnson", or "put all your money in index funds". The best portfolio probably has a mix of all types.
1.5 euro div for 100 euro stock is scam
With 30% withholding tax on dividends in Belgium, it's just not worth it.
Hi Toby, I follow the “little bit now, more later” philosophy.
I need to have a little bit of income to satisfy my mind and keep me on track for my long term goals. Call it a mental block or whatever, it keeps me sane and motivated to throw more money into savings.
So I have ETFs that pay dividends rather than accumulation funds for myself, and actual dividend stocks in my wife’s ISA.
Although I reinvest the dividends, I like the flexibility of one day being able to take them out as cash without having to sell the underlying holdings.
I like dividend investing, but it's also important to understand that dividends are in fact irrelevant. People find this hard to accept, but it's true.
You could also have company C in your example that does share buy backs and is still worth $100. In that case you have one share in the company but its price has risen.
Now I'm going to enjoy a little leaf through the comments section ....
Indeed I was thinking about buy backs but I didn't want to make it too complicated.
I'm awaiting for the comments once the video gets to the die hard investors who insist I'm wrong... :P
@@TobyNewbatt buybacks don't have the marketing cult behind them powering the emotions.
I never ever heard of a "buy back investor" who is totally in love with his buy back snowball that passively increases his ownership in the company.
@@ChrisShawUK maybe we can make it fashionable 😂. Start a new UA-cam channel called the buyback investor 😉
@@TobyNewbatt you're not thinking big enough Toby. We should call it The Buyback Kings and film it in the back of a private jet.
That's the trouble with your channel. You don't wear nearly enough chunky gold jewelry to be remotely credible.
🤣🤣🤣🤣🤣@@ChrisShawUK
Good (Not Financial) advice 👍
I think another point missed is that dividends can't be faked. It's harder to cover up fraud when there is cash being paid to you from the company, compared to financial engineering where companies are just passing things around internally between themselves.
Yes true. But a company can still dilute and go into debt just to keep up dividends as well! Also, as you know if you want to operate a fraudulent company people will always find a way 😉
Enron used to pay a big dividend before it was discovered to be fraudulent.
The best way to stop fraud is to have the CFO be afraid of going to jail.
The best way to accumulate wealth is to make regular contributions to an index fund with dividends reinvested.
Hi Toby, interesting video on what is a pretty controversial topic, well done for tackling it, I do think there are a few cherry picked dividend stocks that behave a bit differently to others, your point about 3% of those dividends stocks actually beating the market is a very important one and often overlooked, as I guess everyone thinks they can pick the winners better than others.
I do think that some stocks benefit from paying a dividend as increased dividend, growth often correlates with share price, appreciation, however, having owned AT&T, Realty income, medical properties trust, and a few other losers, total returns is 100% the only thing that matters.
I do agree with you and Toby, even in the 100% of return is the only thing that matters. I'd absolutely argue you should diversify in several assets, both in the stock market (even bonds, some cash), paying off your mortage etc etc though, but return is obviously what matters. Dividend investors who writes book on the matter also agree with you.. And in my example, I use one fictional company as an example, but read it as a mini fund of 20-30 companies in large, mid and small caps and across a few, mostly non-cyclical, industries. My point is, risk can be reduced with DGC companies also. As a matter of fact, it pretty much is, as these companies are proven, stable, profitable and do less bad in economic down times. That's share price wise, as many of these companies do very well economically in recessions. Not all by any strectch, but many and they're not that hard to spot. Some state you cannot know what industries will do best in down times/black swans, but that's not correct. Or at least, you can know pretty much which industries who will NOT do well/less bad in those times. At least if you put 100+ years of history to the equation.
Example (simplified, but so are TNs example in the vid):
Let's say you had 10 000 shares of a company that pays growing dividends each year (called DGC - dividend growth companies). They're stable, have a 75 year history, can adjust price on their product (wide moat), low debt ratio, responsible div payout ratio, have a big market share in an industry that's easy to understand and will be here for all time and in every economy, like consumer staples. It's not rocket science, there are many of these type of companies. Not everyone will stay that way over the long run, but few of them fail and fall hard in a short space of time and if you diversify as stated above, you'll reduce that risk a lot. If one or two out of 25 plummet within a short space, you're still pretty well off.
On the other hand, I have all my money in global index funds. My money goes hand in hand with the mean of the market and will in most instances outperform every active fund and most other shares over time. And the risk is small, compared to funds that take 1% or more of your money each year or holding only a handful of shares.
It's now spring 2007 and we're looking forward to our retirement. We've worked hard, we're debt free but all in, in the stock market. (Might not be a good idea to be 100% exposed there as retirement looms, but let's say we are for the sake of this). Your portfolio of diversified DGCs are worth $ 1 000 000 and you own 10 000 shares that currently pays $3.00 per share in dividends in 25 companies. Several companies in your portfolio are dividend aristocrats, some are kings, many aren't A/K but grow their dividend stable over time and a few are high yielding, but a lot more fluctuating.
I, on the other hand, am all in on S&P500. My 10 000 shares of a so called S&P 500 Index Fund (SP) are also worth $ 1 000 000, but my dividends are nominally lower than you have - as I have focused on the whole market (well the 500 biggest companies at least), including high soaring tech companies that don't pay much but pull the return up and include poorer companies that haven't got the economy who pull the opposite way. Your yield is at 3% (which is nothing out of the ordinary, but not too conservative either). Snowball and like not included.
Then fall of 2007 comes. I planned to sell off shares of my investment (like a dividend) to pay my bills and drinks in the shade. Suddenly though, my $ 1 000 000 investment is only worth $ 500 000 by Feb 2009. If I plan to live off of $ 30 000 a year, I'm now currently selling off 6% of my investment. This is NOT including what I had sold off during 2008, so my remaining sum as of Feb 2009 would be lower. Yes, there's some dividends in here, but many have reduced or cut those all together. (The yield is high, but that's because of the huge drop in share price). Nominally I'm getting less dividends than before the crash. And as I said, I had to pay my bills in 2008 also...
You on the other hand, own 10 000 shares in KO, PepsiCO, Lowe's and many similar stocks. These companies paid you 3% when your investment was worth $ 1 000 000 at the start of 2007. You take your $ 30 000 and sit in the shade, sipping that drink with me. In Feb 2009, both of our investments are worth $500 000. I have to pull 30k out of that money, to pay off for our Long Island Ice Teas, but you? You recieve dividends of $30 000 in 2007, 31 500 in 2008 and 33 075 in 2009. Without selling a single share in a company. (I have used 5% dividend growth in the example. Some aristocrats raised them by a lower amount, some higher. KO raised them by 11% in 08 and 5% in 09 i.e.). To even reduce the risk and take into regard the one's that were aristocrats (or on their way) up intil that time, you could say the net dividend growth of you portfolio was 2%, 1% or even 0%. Let's even say you portfolio had a net reduce in dividends of 5% in that period. You'd get 28 500 in 08 and 27 075 in 09. Still - this is without cutting shares!
Sipping on my Long Island, I'd much rather pay be in your beach sandals. You pay with a steady income, while I have to sell off my shares.
Take into consideration that over time, our investments would get back to "normality". My fund would grow at 9% or something like that CAGR, while your portfolio of quality stocks would have the same return, dividend and share price combined). But, in this example, my net worth would be considerably lower after the crash. So my money would be lower and grow at the same pace %-wise, while you'd still have the 10 000 shares.
You might say I cherry picked like crazy here. Sure I did, but so does Toby when he states Company A and B are the same when they're $100 dollars. Yes, obviously, but there's no such thing as a sure thing in the stock market. Returns are all that matters you say, but then you HAVE to consider risk adjustment in those returns. Even if my example is pretty simplified and cherry picked, it's in fact not as bad as you think. If I was on $ 1 000 000 in at the start of 2007 (not considering any dividends at all here), my investment wouldn't be back to that number until 2013 - SIX YEARS later. And that's not considering inflation! While, if you had at least 4% dividend growth at that time period, you'd stay ahead of inflation and there's absolutely no chance your companies wouldn't have a hugh return in share price along with the rest of the market. And the kicker here obviously being that I would've sold a lot of my shares between 2007-2013.
And as of cherry picking. Six years is a substaintial period of time, even longer with inflation, to wait for retirement. I'm 40 next year and I'd like to retire and live comfortably off of my investments before I'm 67 as is the age most retire here in Norway. We have very good pension plans here, so most that have worked their whole adult life and paid off their mortages are living pretty comfortably, but I'd like both the option to leave even better and at least have the option and freedom to choose if I want to retire earlier. If so, six years is a hell of a lot of time to wait for that, even three of four. And as said, I'd eat into my shares in that time also. My goal is to leave my shares to my kids so they can grow them further, so my grandkids can were top hats and walking canes.
I'm not saying at all that index funds aren't a good thing, maybe even the very best thing for most people, but - as with dividend growth stocks - it's not the one and only answer to everthing. Remember that the last 15 years or so have been a period of huge tech boom and low interest rates. That should mean dividend companies should perform considerably less than more tech related growth stocks. Well, they haven't. Over the last 19 years, the S&P500 Dividend Aristocrats (dividends reinvested) have outperformed S&P 500 Total Returns (dividend reinvested here also) by almost 1% CAGR. That's a lot of money over two decades, and at lower volatility. So risk adjusted, it scores even better.
Again, not claiming that dividens are the best thing since sliced bread and Toby is wrong with index funds. By no means, but he's wrong as to say it doesn't really matter. Because you have to consider you situation, risk tolerance etc. You just have to.
By the way, as said in another comment here, I'm mostly in index funds, a few growth stocks, putting more and more into dividend stocks, paying off my mortage and even owning (loan financed) a couple of rental appartments. So I'm diversified and not preaching dividend growth stocks as the cure all here. Just saying it DOES matter. I've also tried to "expose" myself to criticism of that strategy, but I've not found a single one to turn my head still. Don't think it's ignorance, but then again, maybe my head is so buried in that future beach sand and long island, I can't see clear? :)
PS. If my examples are wrong or I've not considered something important, please do correct me or comment it. As I said, I'm actively looking for reason as of my strategies might be off, as these are very long term and I'd like not to go down the wrong path.
@@LeedsDee84some good points. Working out what to invest in is the hard part. A mix of growth, dividend, S&P500, international ETFs and a few single stocks I where I am up to. It’s probably still too diversified. Just culling a few more losers and consolidating EFT’s from here.
One of the best metrics I look at is shareholder yield (dividend, buyback and debt reduction) in dividend paying companies / value stocks, along with free cash flow for growth companies like Apple, Visa, Microsoft.
Some of the best points I take from Toby’s videos; the chances of picking winning stocks that beat the market is very low, just investing means you are ahead of most other people, time is your friend and total return is what matters.
lottery numbers? better with ns and i lottery ticket for life tax free winnings and a money back garuntee too
You forgpt taxes. Company A should be 90 amd B 100
Oh sure there’s loads more factors to talk about but this is keeping it simple for now 😉
Great video as always! However, I’m not as certain that passive index fund will always prevail.
Thank you! True we never know what will win everything is just about managing risk. No way to know unfortunately for any investment which makes all of this so exciting 😉👍
Why not?
An index fund with dividends reinvested is guaranteed to give you total market return over every future time period (less expenses, but you have expenses regardless of what you invest in).
So it depends what you mean by prevail. If you mean beating then market, then no it won't.
If you want to beat the market over the next twenty years, good luck. You may find yourself prevailing on the wrong side of total market return though.
So your a divvy if you invest for dividends? 😅😊
😂😂😂
What if you aim to get a good amount of passive income, BUT YOU WANT TO HOLD YOUR STOCKS? Surely this is the purpose of dividends for the hundreds of thousands of dividend investors out there...
Great question and honestly my answer would be that I’d prefer to sell shares to get income. If you insist on never selling then you really restrict yourself on what you can do. I personally dislike relying on a company deciding how much money I can have via a dividend. If I have living costs then I’ll decide what I need.
What do you think?
Receiving dividend = retaining more shares of less value
Selling stock = retaining less shares of more value
It's really that simple. There is no difference.
@@zxr250I partially agree, but in theory if a company re-invests in itself rather than paying dividends, it should improve their ability to improve and grow long term.
Dividends are not income. They are a return of capital. Just like share buy backs are.
The fact that the tax man might treat it as income is another issue.
When a company pays you £1 of dividend, they are handing you £1 that you already own.
Now my maths could be way off but in your example I buy one share of A and one share of B and end up with the same return but if as in your example I now have 2 shares in A and still only one share in B but as B increase by £1 a share I get 101 return but if A increases by £1a share I get a return of 102 if they both perform exactly the same. If they don't then I can't work it out and my head explodes
So listen very carefully to what I say at the beginning. You invest $10 in each stock I never said how many shares that would buy you, and both investments become $100 (again I never said how many shares you end up with)
Hope that clears it up. In company A you might have 2 shares of $50 each which makes $100 total 😁
@TobyNewbatt yes i got that but that's the point I was working on you could invest 100 in A and have 6 shares and 100 in B and have 20 shares working that out would fry my brain But followin the theory that all was eqyal buy the end If I had 2 shares in A at £50 each and 1 share in B at £100 and both shares for A an B went up £1 each share then I'd have £101 return on B and £102 on A. Life I know is never that straight forward or equal but if your not going to at least try and hope you may as well take a list of stocks and pick with a dart although in my case to be fair I'd probably do better
@@alanmorris3854 I see what you were thinking now. So this is why it’s worth ignoring the number of shares and thinking in terms of returns. 👍
@@TobyNewbatt money in verses money out that's all that counts
Very interesting as always Toby
Glad you enjoyed it
With dividends one doesn't have to sell the stocks to cash out.
Yes thats right sure so instead you are letting the company force a taxable event on you, for an amount of money they choose and you have no control over? Seriously it makes zero sense to me :)
@@TobyNewbatt that's why it's important to have a good management. It makes no sense to me that for me as an owner the only way to see profit from the company I own is by selling it. Why would I want to sell a good and profitable company?
Why are you talking in dollars
To get the message to the most amount of people.
@@TobyNewbatt thanks for the reply
Hope i didn't sound rude , slightly confused as you are a uk you tuber and I expected you to refer to money in gbp
Accumulate it till you make it then dividends for the big boys end game
Ya, I guess the 5000 dollars in dividends I received this year doesn't matter. I guess ill just put it in the bank. 😅
My friend I don’t think you watched the video. A dividend is not free money that’s just your capital being returned to you! Your investments dropped $5000 at the same time 😎.
I genuinely hope you understand that. It’s a forced taxable event.
You forgot to add TAX😅
Since 1970, compounded dividends have accounted for 70% of global equity returns.
Only if they get reinvested 😁 into the global equity market…I hope you got to the part of the video where I showed this
@@TobyNewbatt I saw the video. Nice content. I was just commenting that since 1970, 70% of global equity returns has come from compounded (call it reinvested if you prefer) dividends.
nice and easy to understand
Thanks as always mate
Let’s see the company decides to buy back 5% of its stock rather than pay out a 5% dividend
Does that make the dividend investor richer?😊
A buyback in the same amount of a dividend would produce the same total return.
A dividend is not free money. It produces a forced taxable event whether you like it or not
@@TobyNewbatt
That was my point. I depicted it a different way so that the Dividend Cultists got the point😅
@@bornufree 👍👍👍 😂😂😂
@@TobyNewbatt
Keep up the fine work. Your fair mindedness and analytical approach is laudable
His first chart math does not add up. Company A you would have 2 shares = $200 because you reinvested the dividend. Company B 1 share = $100 because you did not reinvest any additional money.
Nope sorry you didn’t listen 😎
You invested $10. I never said how many shares you had. That’s the whole point. It’s all about total returns.
Funny how you even mentioned you had 1 share. Then gave the example that you gained 2 shares with dividends.
@@RedeadSoultaker yes I explained using a basic example how one share would turn into more after many years of reinvestment. But what was the value of your investment? $100 the same in both companies. Its ok if you didn’t listen to the whole video many people do the same thing 😁
Then you just poorly executed your example.
🐐
You’re mixing up the cards. Mature companies need less reinvestment. They typically pay out a percentage of profits as dividends. Growth companies typically reinvest instead.
Where did I get this mixed up? I literally said companies who are bigger and lower growing pay out dividends? Also what’s a growth company and what’s a dividend company can you define it for me.Apple and Nvidia both pay a dividend so are they dividend companies?
I just got the impression you said dividends companies and reinvestment companies were comparable. Sorry for the confusion if you didn’t
i put 10 dollars in.... i get 50 cent div.... i then have 10.50??? hahahha
wow magic free money! Unlimited! LOL
@TobyNewbatt they pay divs though PROFITS that they make then what ever is left over goes into the company.
@@AzzieTheGamerr I’m not sure if you’re trolling or not Aaron. But if you have a $10 stock and get a 50 cent dividend you end up with a $9.50 stock and 50 cents in cash. You still have $10.
Whoever told you otherwise is a liar. You can’t create free money from nothing. It doesn’t matter where the dividend comes from. It can come from a bank loan and the effect is exactly the same 😎
right well who ever told you that is a liar :) imagine looking at my 10 dollar stock and it goes down to 9.50 but 50 cent in my cash account..... pretty sure i got 500 pounds in one of the companys i invest in and its up 58 pounds in growth and 18 pounds in the dividends i reinvested soo that means i have 576, i mean its infront of my face so i have no idea where you have gotten your info from, no on would invest in div stocks if there just getting there own money back but hayho all too their own@@TobyNewbatt
You are missing the point and the video is wrong on so many level. If dividends matter or not is not a question of math but rather a question of behavioral finance. Average dividend investor have better return on the long run because they don't try to time the market, they are less subject to panic sell and they avoid buying "lottery ticket"
What??? "average dividend investor have better return on the long run because they don't try to time the market,"
You must be joking right.
But you betting most of money on collapsing usa with 33 trillion debt. In long run will see who win, dividends its good option fir diversification.
"In long run will see who win, dividends its good option fir diversification"
Dividends provide no diversification benefit. Where on Earth did you get that idea from?
The greatest investor in the world believes in dividend stocks King Warren even thought Berkshire does not pay a dividend.
Ahhh so a red herring I would suggest here Tim. Berkshire did not buy any stock because they paid a dividend they bought quality companies. And like you say funny thing they don’t pay out a penny to investors.
BH clearly feel they are better with using the money than their investors are. Funny how they always have a heavy war chest to acquire companies in stress (that war chest built up from massive dividend inflows each year) they also very much like companies that do share buybacks. Buffett clearly loves dividend companies and the income they generate which he then utilises elsewhere. Not sure how you see them as a red herring?
Oh and WB also negotiated higher dividend yields from the banks in 08 as part of his bailing them out, he clearly loves the dividends?
It's really amusing how most people assume that the market will go on like this forever and you can't make a bad decision with index funds. Dividends are not the end and be all of investing, but they have a place, becuase they give almost immediate guaranteed returns. This whole video misses one fundamental point: the index can go down. Buying an ETF is not a surefire way of investing, even though it's low risk, the possibility that this bull market we had is ending for the time being is real.
When did I say that an index can only go up?
My friend, not investing is a guaranteed loss to inflation so investing is essential. Nobody knows the future so you are welcome to guess stocks if you like but if the market performs badly over many years all this means is that very very few stocks will ever come out on top.
If you don’t think the market will be higher in 20 years from now you will be living a very pessimistic life. Investing is just a small part of it too 😁
Investing in an index fund with dividend reinvested is guaranteed to give you total market return over every future time period.
You can try to beat the market by all means, but you run a big risk of underperforming total market return.
Dividend is cash flow.
So is selling units in an accumulating index fund.
I'd rather be in control of my own cash flow than leave it to the whim of a CEO
How does this trading stuff work? Am really interested but I just don't know how it go about it. I heard people really make it huge trading..
@leonclarke1104 I used to be a customer of Mary Gail Benner when she worked out of a walk up in Soho. Top girl
@@timg1246 old Mary gets everywhere.
Someone needs to tell Warren Buffett about this. Poor guys been living a lie for decades.
That’s just not true at all. He doesn’t buy a company BECAUSE of a dividend. Berkshire pays none as you know.
A quality company can grow AND pay a dividend but you knew this anyway nice try 😂😂😂
an index fund set nforget acumerlater probabley best
Indeed mate and you get all the dividend stocks you could want to 😂
So how do those videos explain that visa. Mcard. BAK go from 10k to .5 to 1mill in 30yrs? 😮
You are welcome to pick and choose any example you like and there’s plenty that don’t pay a dividend.
So you know the future can you tell me which stocks go from 10k to 1m in the next 30 years?