“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” -John D. Rockefeller “I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” -Mark Cuban “A stock dividend is something tangible - it’s not an earnings projection; it’s something solid, in hand. A stock dividend is a true return on the investment. Everything else is hope and speculation.” -Richard Russell
Pray Unceasingly I generally look for stocks between a 3-6% dividend and then screen for additional factors (P/E ratio, payout ratio, debt, industry comparisons, dividend history, percentage dividend increase, etc.). Yield on cost is a major consideration. If you take a $100 stock that pays 2% dividend that doesn’t seem very good. If you bought that stock for $50 and it rose to $100... not only did you double your money but your dividend yield (on cost) is 4% even though the actual yield is only 2%. You want to buy undervalued stocks that have strong fundamentals. As Buffet likes to say, “Price is what you pay and value is what you get.”
For almost any investor, there are only 3 things that matter: 1. Total Return 2. Total Return 3. Total Return Whether you get maximum return through dividends, stock price growth, buybacks or some combination thereof does not matter. It isn't that dividends themselves are irrelevant, but rather that they are only one facet of total return. To chase dividend payout alone is not appropriate unless the other factors are considered. That said, it is very difficult to get charts of stocks based on total return, so TR is more difficult to determine. It takes a lot more work.
Joseph, just wanted to drop by to show my support! The hardest thing about being a UA-cam content creator (as I'm sure you experience too) is we don't have much time left to watch the videos. However, I wanted to carve out time for this one and was not disappointed. Fabulous logic, and I really enjoyed seeing you pick apart the dividend irrelevance theory from a logic-based standpoint. I like how you think! SO many assumptions in these academic theories that just do not translate into the real world. Wishing you all the greatest!
Hey Ian, I appreciate that! And yes, I know exactly what you mean. Spending so much time in the world of creating videos and making content certainly takes away the free time to consume it. Thanks for the kind words!
Do you think it’s wise to throw out an entire theory because the assumptions arnt true? Afterall the theory is merely attempting to explain what is evident in the data is it not? If the theory is false the data doesn’t change you just need a new way to explain it. Rejecting the theory doesn’t automatically mean dividends are relevant either , when regressions are run on stock returns , dividend policy is found NOT to be a factor that influences returns. These ‘academic theories’ are not designed to describe the world perfectly, it’s not the same as physics , finance is a soft science, the theories are meant to explain what we see represented empirically in the data. I think the assumptions are more or less included more to keep the explanation simple. By dropping any of the assumptions you havnt disproven the theory , it’s just incomplete and you’ve still got all your work ahead of you. For example , taxes do exist, but if we revise the theory to include taxes it gets much more complicated as tax systems are not static across income levels , regions or even through time. Assuming taxes do exist with the theory doesn’t make the theory redundant it only makes it more complicated, and the conclusion doesn’t automatically become that dividends are relevant. If we are indeed happy to drop theories because the underlying assumptions are not empirically true there are a lot of useful theories we can ignore. For example much of economic theory centres around the concept of equilibrium but if drop the concept that people are rational , or that their incentives arnt aligned then you can pretty much toss out every economic theory mankind has every produced , despite how useful they’ve been.
You're missing the crux of the Theory: The Theory says dividends are irrelevant (not better or worse), not that dividend-paying companies suffer lower total returns. It's akin to how a more trivial distinguishing feature would be irrelevant, such as companies' names beginning with the letter "A".
Revisiting an old comment here just in case any new viewer passes by. This theory has been proven wrong time and time again. The Dow Jones dividend 100 index that SCHD has outperformed SPY since inception in 2000 so over 20 years now and through multiple market cycles. Multiple studies have confirmed that top divided paying companies have outperform the broader market over time. It is accurate to say that this isn’t due to them simply paying a dividend, but that a dividend in a good dividend paying company is a rough filter for companies that grow earnings on a consistent basis. So while it’s easy to say you could skip the dividend filter to begin with. I think that’s easier said than done.
@@alankoslowski9473 I don’t think their incidental. And doing regressive testing to try to find all the underlying factors does not prove the dividend policy has no impact. This reverse engineering is not a perfect science no matter how academic people try to make it. Low reinvestment leads to superior returns over long periods of time. Dividend companies have a social contract or strong incentive to continually pay an increasing dividend which means they have less money for reinvestment and are forced via social contract to run a more conservative investment policy than a similar firm. Acting as though the long term reputation of being a dividend grower has no impact on future investments is plainly wrong. Other firms that do not have a long standing dividend payment are more likely to abandon their investment policy and have aggressive reinvestment with new management. They have no reputation or social contract to uphold. I don’t think it’s happen chance or coincidental that every regression test shows that dividend growth companies have strong correlation to robust profits and low reinvestment. They have lower reinvestment precisely because they’re socially obligated to continue paying a dividend.
@@alankoslowski9473 I’m in agreement with most of what you said. I own non dividend stocks too. There’s many other factors that are incredibly important to look at that give information about future expected returns. I just look at a dividend (or buyback) policy as one more additional factor. Not even the preeminent factor, just an additional one. The basis of dividend irrelevance theory relies solely on efficient market hypothesis which Buffett and munger compared to flat earth theory and said they wished more people believed it so they could outperform the market easier.
@@alankoslowski9473 I knew you would say that Buffett’s performance is explained by factor exposure. Classic. Efficient market hypothesis theory believers think Buffett got lucky for 40 years in a row and just so happened to have the right factor exposure. Ya can’t make this up. To each your own. I think it’s silly. You can believe in these if you want. I don’t. Neither does Buffett, munger, Howard marks, or many of the brilliant minds that have studied the issues for 20+ years and have outperformed the market for 20+ years. Theories and models are not perfect and don’t explain everything. Regression testing has major limitations. Dividend stocks have outperformed the broader market for over 60 years. That’s a fact, not a theory.
@@alankoslowski9473 I'm aware of Ben Felix's work and beliefs. He is a believer in the strong EMH theory. Like always - anyone that typically believes longstanding dividend policy is irrelevant, or buyback policy is irrelevant, also usually believes in EMH. There's a reason I keep bringing up EMH in relation to dividend irrelevancy, they are close sister beliefs and I have never met one person that believes in one without the other. Among the contradictory things Ben has said in his videos dividend growth irrelevancy is one of them. His own PWL research admits that there's very good logical explanations of why dividend growth has led to outperformance that are not accidental or coencidential. Here's from his own firm, PWL "By nature of the fact that they pay consistent and growing dividends, it is sensible to think that dividend growth stocks are likely to be larger stocks with robust profitability that reinvest conservatively - robust profits and conservative investment should result in the cash to pay consistent growing dividends. It would also be reasonable to expect that companies with long histories of growing their dividend to have low prices relative to book value of their assets - growth stocks with high prices relative to their book value do not tend to be dividend growth stocks" Hey look - his own firm states that there's logical explanations that companies which have grown dividends for a long period of time naturally have exposure to attractive factors in stocks! But then in his video he states that it's no better than picking stocks that start with a random letter. It's fine if you disagree with me and agree with ben. Buffett recognized factor investing "before it was academically quantified". Then what explains is consistent outperformance *after* it was academically verified in the 70's? I'm sure there's another great explanation for that as well? You (and ben) can have your view, but that doesn't make it true. These are theories based on flawed models where most of the factors they rely on are not accurate in the real world. If you want to read about someone that is incredibly well read and researched try out Howard Marks. He has been asked about all the same things Ben Felix speaks about and he comes to completely different conclusions based on the same data.
The thing is - Ben stated in his video that he is NOT against investing in dividends. He's simply saying that companies that pay dividends aren't successful just because they pay dividends, but rather other underlying factors. [See: Fama French Three Factor Model] I.e. People should understand WHY dividend stocks do well, rather than just blindly investing in them. Everything in this video can be attributed to the HML factor, where value stocks are more likely to invest in dividends than growth stocks, for obvious reasons. Also, he says by limiting your market exposure to only companies that pay dividends, you decrease your diversification. Quoting Ben: "Dividend stocks do indeed do better than the market. I'm not denying that. On average, dividend growth stocks beat the market. But dividends are not the reason. Dividend growth stocks, on average, have excess exposure to the value, profitability and investment factors. That is what explains performance differences" "To be completely clear, I have nothing against dividends. They are an important component of returns" "It would be just as relevant to tell me the names of stocks starting with the letter 'A' with great past returns" --- --- --- --- --- I personally would like to point out that Joseph himself quotes Warren in the video 'It depends' - which I think he misinterprets. Warren says that some companies do better by reinvesting, some companies don't. I think a lot of people interpret 'Irrelevance of Dividends' as ANTI-dividends, which isn't the case. Warren implies you can still find profit in companies that don't use dividends. If anything, all Warren extracts point to the fact that you should invest in dividends, but also other things. Which is exactly what Ben is implying. I don't think Joseph made this video as a counter to Ben's, but if he did, I feel like he missed a basic understanding of what Ben was trying to say, and calling Ben a 'hater' is a bit rude, especially when Ben simply states that people should be more aware of the underlying factors driving dividends. A lot of good companies happen to pay dividends to shareholders, which makes dividends seem attractive. So, it's not the worst idea to invest in those companies. But you shouldn't just invest in dividends. Even Joseph himself invests in Real Estate and Bonds. Why? Because he wants to diversify. Ben simply wants people to diversify in addition to investing in dividends.
@@AwesumBear great comment. I think the one critique i would give Ben is that he gives fairly provocative titles to his videos at times. It's great for youtube and views, but it can throw people off if they don't actually watch the video. Ben is very aware that dividend policy is relevant to consider. He is just stating there would be a lot of missed opportunity if one solely focused on a dividend income strategy, and that a dividend policy and history alone does not prove a company is worth investing in. I know Joseph is aware of this too, but it's painfully obvious that some of his viewers with the "hater" comments are not aware and are overly defensive of a single strategy for the wrong reasons.
Maybe I missed it, but you didn’t address his main point. Dividend policy is not what drives return. Period. End of story. Companies who pay dividends/grow their dividends have excess exposure to profitability, value, and conservative investment factors. These are well documented factors across 100 year and nearly every market. A company does not pay a dividend, then make profits - it is the opposite. Dividends are a result of profitability and conservative investment. That is why dividend growth companies outperform. However, there are plenty of companies who have exposure to those same factors who do not pay a dividend. If you follow an exclusively dividend focused portfolio, who are limiting diversification and the predictability of your outcome. You would be better off targeting profitability and investment factors directly, because you will capture the dividend growers and other companies with similar risk return profiles.
Thanks for your response! I think what is relevant about negatively-toned videos calling dividends irrelevant is that those authors accomplish (what I believe is) their primary goal -- it gets views and thus $ in their pockets.. it gets the community up in arms.. it gets the conversation flowing. A down thumb is as financially useful (at least in the short term) as an up thumb in terms of engagement on a video (so I've heard). Billions of dollars aren't being allocated to dividends each year by board of directors and executive management because they are irrelevant (though I acknowledge that's not how the term is being used in the theory). Lynch's "One Up On Wall Street" has some great perspective of his on dividends.
Hey I just wanna throw this out there for anyone who doesn’t want their dividends.. just send them my way, I’d be glad to put them to work if they are ever irrelevant to you..lol. Great work again Joseph!
That's not what Ben is saying. He clearly said they were an important part of returns. His point was it doesn't matter how the company returns it's value to you, only that they do. I'm not agreeing or disagreeing with Joseph or Ben becuase I'm honestly not sure. On one hand Joseph makes alot of sense, the other is that Ben seems more qualified to talk about finance and also poses interesting views backed by academic research (not investopedia or wikipedia (not hating on Joey, love his method and videos)). I also detest the idea of selling parts of my portfolio for cash, however according to Ben this is also irrelevant. I dunno, lots of other things on both sides of the argument makes me unsure which style I would prefer. Basically the research shows that buying index funds gives a better return than buying dividend stocks in the long run of 30-40 years, but cashflow is an important factor for me also. Or is it actually? I dunno lol.
@@nickspacemonkey That is true, and I don't want what ben said to be mischaracterized. He never said dividends weren't an important part of total return. He has said that they are irrelevant as a factor when picking companies to invest in, which I disagree with. I just want to point out. Most the information I shared was not from wikipedia or investopedia. The majority of it is studies done by financial experts working at our largest banks (bank of america and Jp morgan). Although I think it's not the best to attribute someones argument to their credentials, these studies are done by people working in finance with extremely high credentials: JP Morgan: am.jpmorgan.com/blobcontent/1378404661562/83456/11_295_Dividends%20for%20the%20long%20term.pdf Merrill Lynch: mlaem.fs.ml.com/content/dam/ML/bulletin/what-dividend-stocks-can-offer-in-todays-markets/ml_dividend-investing.pdf Additional study on high yields: www.researchaffiliates.com/documents/FAJ_Jan_Feb_2003_Surprise_Higher_Dividends_Higher_Earnings_Growth.pdf Info on Buyback abuse: fortune.com/2019/03/12/are-ceos-really-abusing-buybacks-to-get-richer/ From the WSJ as well: www.wsj.com/articles/the-real-problem-with-stock-buybacks-1530903118 Studies of course can be used to prove any point and data can be tortured enough to confess any results. In my experience the most honest way to argue a point is through basic logic that everyone can follow.
@@JosephCarlsonShow JP Morgan: "In what is likely to be an unusual market environment, investors are getting income from companies’ bonds comparable to the dividend payouts on the companies’ stock, making dividend-paying stocks, which also have the potential for capital appreciation, an attractive option." - emphasis on 'unusual market environment', implying that JP Morgan doesn't think dividend investing will necessarily be sustainable in the long run Merrill Lynch: "Past performance is no guarantee of future results" "Generally speaking, younger companies tend to be focused on growing their businesses, so they will often reinvest most, if not all, of their profits back into the company, not leaving much for dividends. But as the business matures and begins to accrue a steadier stream of earnings, the company’s board of directors may begin to consider returning the earnings to shareholders creating an opportunity for some shareholders to use this dividend payout for other potential investment opportunities. " - which lines up with what Bens states - yes, companies that issue dividends have had success, but they can be explained by the HML factor of Fama French's three-factor model. High Yields research paper: "At this point, these explanations are conjectures; more work on discriminating among competing stories is appropriate." - the authors of the paper note that correlation is not equal to causation, and Ben states that he doesn't deny that dividend stocks do better in the market Fortune: "That view is questionable. CEOs and other top managers get most of their comp in equity awards, chiefly restricted shares and stock options. Those grants typically vest over four or more years. C-suite executives might have an incentive to cash out using buybacks that deliver a quick bump, but weaken the enterprise and depress the share price in the years to come, if they held--and were systematically selling--a lot more unrestricted stock than they hold in equity awards they’ll collect in the future. The SEC letter to Van Hollen does not cite the dollar amounts of the buyback-related insider sales for individual executives, or compare them to the trove they’re still holding, either in unvested awards or in unrestricted accounts." - Fortune criticizes Van Hellen's letters and also states that the SEC's studies show that it isn't the case, and either way - abusing the system isn't guaranteed to hold up in the long run, and is ultimately unsustainable I don't think Ben is the enemy here. Ultimately, even you invest in bonds and real estate for diversification reasons, which is what Ben is ultimately advocating for.
I have a coworker that subscribed to this view and doesn’t understand why I invest in dividends so young. He says growth is what I need now and dividends are for once you have wealth. I tried to explain yield on cost and how I’m picking growers not yielders, but it always goes back to “chasing pennies and missing out on the next Amazon”. In the end, I just had to say I’m seeking non traditional retirement so I’m investing to that end.
Growth has done well for the past while, so I see his point. This is being said during the 11th year of an expansion. Most people my age investing have only ever invested during a bull market. I wonder how people will speak about it during the next bear market/recession. Generally speaking I think it’s best to let people invest how they’re most comfortable with as long as it has a proven track record of doing well.
I get the same shit from two of my older co-workers with established portfolios. I always bring up the importance of cash flow and getting paid for my the use of my money now n
@@Widemouth1832 So do you reinvest or do you spend the distributions on expenses? If you're not reinvesting you're a fool, if you are you might build a growth portfolio and sell the shares you need for capital when you need it. Your paying taxes on both, so it's only a matter of how you get the money.
Very well said. I have seen some of these guys on UA-cam, and all I'll have to say is that's there loss. I'm investing in dividend stocks, growth stocks and any other stock where I can find true value.
I am sticking to dividend investing. These guys need to look up history of some of the richest people in America. Dividends is king and will never change.
Also, passive investors don't believe markets are perfectly inefficient. They believe that thouse inefficiencies cannot be systematically made profit of.
Dividend is definitely relevant. The video focuses more on stocks in the positive side. I can add something in terms of dividend in managed funds and tax implications in its negative side. I’m an investment analyst managing a multi asset class fund with quarterly distribution. Every quarter we have to basically force sell / rebalance the portfolio every quarter which definitely added transaction cost. A lot of our investors, ultimately will reinvest back the distribution some time later simply because they forgot about it. From retail perspective for ETF, transaction cost to reinvest add up quickly. For tax, As an Australian, I have to pay full amount of tax for dividend. but I only need to pay half amount if it is capital gain if I hold for more than 1 year. This applies for any investments, including stocks or funds. In a trivia example, if there are two identical funds/stocks with the same total return, one pay 10% dividend per year, one pay 0%. assuming my tax rate is 30%, I will earn 1.5% more in a fund with no dividend every year.
Hey Joseph, I am afraid you got it wrong. Of course dividends are important part of the revenue. Nobody questions it. The thing is that it doesn't really matter whether you reinvest the earnings, do buybacks or pay dividends - as long as those options are for a particular company equal. The fact that a company pays dividends doesn't have any additional value. If the price of a company is fair, there is no difference in paying dividends and doing buybacks. The main point of dividend irrelevance theory is that non of those options is superior so there is no reason to pick stocks simply based on a fact that a company pays dividends.
Respectfully, I think some of these points are strawmen. No credible person disputes the necessity of or reason for companies paying dividends. Secondly, for the value lost by paying a dividend not to be also lost in the share price, markets would need to be inefficient always in the same direction, undercounting the loss. Wouldn't it be more likely that market valuations are sometimes too high, sometimes too low, but in aggregate reflect the dividend loss? Lastly, it's a mischaracterization to say that the anti dividend argument posits that risk is the only way to increase expected returns. Factor investing such as screening for value and quality are said to increase risk adjusted returns and relate to your Buffett example. The argument goes that dividend payers are more likely to exhibit these factors and that screening for factors rather than dividends would more accurately capture these overperformers.
Definitely agree. While I think that there ARE arguments to be made for FOCUSING on dividend investing, Joseph doesn't present them too well, and makes some weak arguments. Either way, I do think a healthy discussion from both sides is needed, so even though Joseph could work on his rebuttals, it's important to have this sort of discussion.
The whole point is overperformance doesnt mean anything if you arent getting the money. There's lots of saying about this like Cash is King, a Bird in hand is worth two in the bush, the proof of the pudding is in the eating etc. At the end of the day a buy and hold investor is gonna make money on dividends cuz he is holding his stock not selling it. Even if it goes up a lot in share price why does that matter if you arent gonna sell it? What matters is the money you are receiving now and will continue to receive in the future.
@@roslolian11 I agree a dividend can ensure you collect some of the overperformance. Can also be done by selling shares at various increments. However, a lot of the dividend fans also promote DRIPping shares. Reinvesting makes the whole process irrelevant.
I've learned overtime every "investor" thinks they have the answer. But really the market does what the market does. It's like predicting a wave in the ocean. There are too many factors to calculate for anyone to consider themselves an expert. The truth is, step back and have a look as a whole. If you long term invest and diversify you will do just fine. Gamble on stock but keep that a small portion of your investment and make that number smaller as you age and your portfolio grows. Add when you can and buy on the dips, but if you miss them don't chase. The market will go back up, don't sell when it falls. If you are diversified enough you'll survive any crash.
@@mattvandy6 This. No one is collecting their dividends to use for expenses. They're using it to buy more shares to... wait for it... get more dividends to buy more shares! Unless your portfolio grows to such an amount that you can just collect dividends and live off of that, it wouldn't make much difference. The value of the stock drops with the distribution of a dividend, so having a growth portfolio and a dividend portfolio doesn't make a difference in the end if you're just holding. If you windfall into millions and want to invest it to get dividends today, sure, go for it. But for everyone else, you're just going to hold and hold and hold. The difference is you're waiting for dividend distributions when you want money at retirement, versus just selling as many shares you need for your expenses. Plus there's taxes etc. Idk, the whole thing just seems so redundant to me.
What a great video! You also articulated this in such a well thought out and easy to understand way. I own both dividend and non-dividend stocks. However, I do evaluate these types of companies differently. For a company that been around for many decades and does not have a dividend, if they also do not have a clear path towards distributing there cash flow to grow more I really really really question their lack of a dividend and will not buy shares.
While your video is based entirely on generalities, and companies like Amazon and Berkshire Hathaway are obvious exceptions, I agree with most of it. However, the fact is that buybacks are absolutely, unequivocally better than dividends for shareholders of undervalued companies. A company buying back its own undervalued stock is A) more valuable long term for the shareholder than cash assuming it is indeed undervalued B) it is tax-advantaged to the shareholders to buy back stock vs. paying a dividend.
I have to be honest here. You have clearly misunderstood the argument of many of the people who claim that dividends are irrelevant. First of all, you go through the assumptions in the dividends irrelevance theory as if the people who promote that theory believe those assumptions to be true. This is false. The assumptions are there solely to explain why dividends shouldn't be considered. They are there to allow an easy to understand example, not to simulate the real world. Let me explain in even simpler terms why you shouldn't consider dividends when buying companies. If a company you own pays out dividends, they now have less money, and so the part of the company you own now dropped by an equivalent amount. Note that the intrinsic value of the company is independent of the share price. Companies that pay dividends may yield a higher return, but it does not do so because of the dividend, as an equally well-managed company could give an equivalent return without paying the dividends. Let me address a few specific points from your video as an example. GS said that dividends encourage conservative investments in a company. Which may be true, but you can and should look at a companies return on invested capital before you buy it anyway, and a none dividend-paying company can absolutely have a great return on invested capital, and avoid risky investments even if they don't pay a dividend. So saying that a company needs to pay a dividend to have effective management is simply false. Buffet negotiates a higher dividend on his preferred shares because he wants the highest possible return and because he knows that preferred shares carry extra risk. They also dilute the outstanding shares. Trust me, buffet didn't choose to buy GE because they were willing to pay a 10% dividend, but because he thinks it's a great company selling at a great price. You literally showed a clip with buffet that disproved your point. The dividend of KO is irrelevant for the value of the company. The only reason the company pays the dividend is that it can't use that money to grow, so it returns it to shareholders. He is literally perfectly fine with that money being reinvested if KO was able to do so. So he does not care about the dividend. He cares about shareholder return, and he doesn't think a company needs to pay a dividend to do so. Peter Lynch said that growing dividends increase the value of a stock. Obviously, it's increasing the value of the stock. Not a single person I have seen or met have claimed anything else. However once again it is not the dividend itself that is causing that increase in value. It is a result of the company doing better, and it being a good company. The company would increase in value the exact same way by simply just growing faster. So again the value of the company goes up not because of the dividend, but because it's a good company. I'm not saying you can't or shouldn't do dividend investing. Dividend investing is a perfectly fine investment strategy to use, but the information given in this video is simply inaccurate.
@@JosephCarlsonShow I know you retracted your previous comment, and I understand you may not want to engage in a discussion on the topic, but I want to address it anyway. Yes, it is obviously possible to disagree with the argument even if you understand it, but one of us has to be wrong. Either dividends matter or they don't. I'm not saying you can't use dividends as an indicator of other factors, which you can, but by doing so you are missing out on those great companies that don't pay a dividend, but that would otherwise fit your criteria. That is a fine way to invest. I mostly value invest, so I'm missing out on lots of companies that would have been great investments, because I thought they were too expensive, and I'm okay with that. Same way with dividends or growth. But while dividends can be an indicator, I stand by my case that it is not a cause. A good company can and will most likely eventually start paying and increasing its a dividend, but a bad company can't start paying a dividend and suddenly become good. You explained why in your dividend pitfalls video.
I don't keep a percentage in cash outside of just my normal emergency savings. I do keep a percentage in treasury bonds which I believe is as good as cash.
I am enjoying a dividend portfolio of about 7K per yr. I reinvest my dividends except for payments on my new family SUV, so I don't think irrelevance theory apply to my portfolio nor do I think it's correct. Overall, I don't have to spend my hard-earned money to buy my car instead I allow my hard-earned money to make more money in witch will pay my car for me. I keep my cash and get a free car. (the word free I used loosely)
Wow. So good to see another side to the argument. Lots of great points & research here. Thanks for the video, looking forward to digging into this topic more myself.
So we established it's best for a growth company to invest in growing the company, and for a dividend company to return profits to the share holders. But does it mater witch company you invest in as long as each company is doing whats best for them?
His m1 shows a meager 100/mo! That's NOT income. If you need to generate REAL cash flow (i.e 3, 4, or 5 thousand dollars each month), you need to invest 2M or 3M+ 00s dollars! Furthermore he's seeing this 100/mo because for the past 10 years the market has been going in the right direction. Wait till his holdings value drop by 40% or 50% and his dividends are slashed by 60 or 70%, then all these dividend UA-camrs will crawl back to their holes and simply disappear!
@@archimedes7436 My advise (not solution) is to proceed very cautiously and take what these "new dividend fad" UA-camrs are saying with a grain of salt. It's much easier to make $ when the market is in a bull mode year after year. I wouldn't trust my hard-earned money to a "Robot Adviser" like M1!
tawmoss1 but just so you know M1 isnt a robo advisor. It only invests in the stocks that you choose. I didnt copy Joseph’s (but you can). I dont have nearly the money in that he does, but im rocking 20% returns for the year, so no complaints here.
For some companies it makes sense to pay a dividend. Sometime a company can't grow at the same rate anymore because the government won't let them. It's much easier to grow if you're a small company.
@@TheDreamGreenShow there are many more reasons why I expect from some companies a high dividend yield. For example BAT and Altria. They can't really grow anymore but I think they are able to make profits for years. So just give me my share of the profits and continue as usual.
then why berkshire doesn't pay dividends, warren buffett him self said that share holders would be way better if stocks as cocacola didnt pay dividends.
I agree. And just want to say I love this style of a UA-cam channel... you're on punch out facts And then you're off. No bullshit in between... keep it up
Warren buffets returns in excess of the market can be attributed to his exposure to value stocks which historically have outperformed the market. An investor using similar leverage as buffet with exposure to an index with similar factors would have near identical returns
6:50 this is a clear example that you don’t understand the topic you are making a 25 minutes video on. The dividends are a bad thing and don’t have a purpose, even for people who say that dividends are irrelevant when investing, they are irrelevant as in they have no significant impact on the total value in the long run in a diversified portfolio when reinvested (before transaction costs and dividends tax).
@@MrFootyAce he only needs 500k. It is a lot, but not unreachable for most middle class people if they make some right decisions. That said, I agree - I will never hire someone who goes off against a strategy which he agrees makes 3% more.
Great video as always! I'd like it if you could do another video where you talk about your favorite investors, how you follow them, and also how you evaluate stocks to purchase. Also if you have any advice for picking med and small cap stocks that would be very useful to hear.
How much weight do you give to different aspects of a stock that pays a decent dividend? For instance, how important is an attractive "Dividend Yield" percentage and could this be offset by a high "Payout Ratio"? If you do look at these "Payout Ratio's", what do you consider reasonable with respect to the "Dividend Yield" and what would say is high and to steer clear of a particular stock. Example: TGE or FDX as stocks that one might steer clear of or is the yield substantial enough (in the case of TGE) to overlook the high "Payout Ratio"?
Just as a follow up, I did watch your "How to pick a Dividend Stock" video and it really did not cover "Payout Ratio's". Maybe you don't even look at those... I know I didn't until recently and now I'm thinking of selling some stocks that have a very high "Payout Ratio"... Just wondering what your thoughts are.
As I've posted elsewhere, a dividend is like the proverbial bird in the hand. It's irrelevant if the stock price actually did drop by exactly the amount of the dividend, because that portion of the stock price is now in my pocket. Either my dividend stock or my non-dividend stock could go down, even all the way to $0. But with the dividend stock, my potential loss gets smaller each time I get paid.
I follow both you and Ben Felix. You have a different investing strategy vs Ben Felix’s. I personally believe market overall is somewhat efficient. While it is possible to exploit the inefficiencies, there is no way average investors can do so successfully in a long run. Therefore, I value overall empirical data analysis and believe Indexing is probably more sensible, especially for Canadians, and allows you to move on with your life. Having listened to both of you and Felix, I think I am more aligned with his approach.
His approach is great. I think index funds are fantastic and I don’t actually disagree with anything you said. Where I do disagree is where I think he makes an unnecessary hardline stance that dividends are totally irrelevant when picking individual companies. This video was addressing the premise of that argument and where I see its flaws. I don’t have any problems with index funds. I hold them in my Roth and the hands off nature of them is fantastic.
I'm seeing dividend stock like if thousands or millions of people are working for me every day. I put my money in strong and resilient compagnies that work for me instead of me working for them. I don't understand why there is so many people who doesn't like dividends ... it's like having two chances to make money, dividend + stock growth so why not ?
Solid Rebuttal. Dividend Growth Investing works. Momentum/Growth investing works. Value investing Works. Day Trading works. Index Fund Investing works. They are all just vehicles. It all depends on the driver ; ) Keep up the the good Work! Grade=A
gigi duru I bet these numbers are super skewed. I have 5 friends that tried day trading for a very short time and quit after losing a few hundred/thousand dollars. But they didn’t know anything about the stock market and were working with incredibly flawed strategies and small bankrolls.
So you believe markets are inefficient so won't accurately price the book value, which is the easiest thing to price as it's in the reports, and the stock automatically drops in price by the dividend per share paid. And you invest longterm, so you think markets will be inefficient for 10 years?
Love you stuff. Weirdly enough sometimes I just cant sleep so I play your videos and just let my thoughts wander about investing, and eventually fall asleep lol. Quick question, I know you invested in real estate prior to stocks and their dividends. I am currently 24 and have a fair amount into stocks for their dividends. Would you recommend I keep it all there, or sell in a year (to prevent tax fess), and just pile up my money in a high savings account until I can comfortably buy a home/condo/apartment? Thanks for your content! Keep it up!
Hi Joseph I am new to the channel so excuse me if i ask an obvious question, but how much are the transaction costs when you buy these many different stocks as it seems you don't put too much money into each one. Wouldn't the transaction costs be quite high for this strategy?
IMO any company that does not have dividend payouts does not believe it the companies ability to make a profitable product. Which means they want you to believe in something they themselves do not believe in.
Dividend yielding portfolios are worse because they allow the company, not you, to determine when you take profits. This is detrimental to minimizing your tax burden.
Hi Joseph, Amidst Altria Juul ban thing, I was wondering why there is no tobacco stock in your portfolio at all? Is it from a moral standpoint or you do not see a long term future with them? The industry is wildly profitable still and pays massive amount of dividend which is right up your alley. It just the uncertainty in the future or the morality that keeps you away? Same for the alcohol as well. The so-called sin stocks. Thanks for responding Jo.
A few reasons. One of them is I don't like the products personally and don't use them. Other bigger reasons is I like companies with simple business plans that are easily scalable and don't face tremendous amounts of regulatory or political scrutiny. These companies have multiple risks facing them. The third reason is I already have a LOT of holdings and need to go into the direction of trimming them, not adding more positions. So, it's just a matter of picking companies I really want to hold at this point, that doesn't mean these are bad companies.
I think there are two arguments here. Firstly dividend investors have different reasons for investing compared to growth investors. Total return is not the be all and end all for some dividend investors. Secondly asking whether dividend paying stocks produce superior or inferior total returns compared to growth stocks.
As I see it this video delivers evidence that dividends are relevant for the behaviour and results WITHIN a company but it doesn‘t prove the revelance compared to OTHER stocks. Furthermore: even if they were relevant, I see no proof that this relevance is IN FAVOR of paying dividends. It is possible that over the long term and along different companies, these differences work both ways: sometimes good, sometimes bad - and therefore overall irrelevant when it comes to picking a stock. What I think: The allocation of money in itself does not create wealth. In the long term to create wealth you need to create VALUE because in the long term the market IS efficient. Did I miss something?
Bottom line is if you're looking for the quick buck, don't buy dividend paying stocks as they tend to grow slower. Dividend stocks are suited for investors who are looking at long term gains by re-investing dividends which means more stocks. I focus on stocks that cost $30 or less and pay between 3 and 8%. and buy enough shares that the quarterly dividend adds at least 1 more share of stock each quarter.
I really liked the video, but, at 6:07 you use the argument that reinvesting will not bring more earnings to shareholders than pay dividends. However, as I understand it, The argument that the irrelevance of dividends would come from the fact that the company would repurchase its shares, increasing the value. I think that this question returns to its initial point about the market value not being equal to the book value, but if possible I would like you to comment on this point..
Just a thought. All the reasons you cite could go the other way too. Who sais that low dividend paying stocks can't actually have higher returns because of the not so perfect markets?!
Great update on dividends! 👍 I was a growth investor for a while but moved to dividends since I think the market is overvalued and ready for a recession.
I only started investing on my own (can't do individual stocks in my 401k) last February and the market has been overvalued for me from the start (in the account where I have a choice). In overvalued market dividends totally PWN growth stocks. I read a book that pointed out how long secular bear markets can last also. 1966-1982, 2000-2012ish, ect. were periods of times where growth simply didn't happen, having twice the dividend yield of the SP 500 index will provide twice the return over those long periods! I'm in my late 40's and with markets where they are, if indeed a secular bear market is now in the making I know where I need my money to be, QUALITY DIVIDEND STOCKS!!
Seems like a lot of commentators (and presenters) on this channel are living in denial of evidence... and don't understand the theory they are trying to debunk. Nobody is saying not to take dividends but rather saying don't blindly invest just based on a dividend, and to look at your point on taxes... do the math on that too in regards to the portion you could take out that would actually be taxed as a capital gain
I only buy large caps with good yields and a long record of rising dividends as that makes the stock safer with less downside risk and these companies are better managed and have high margins. Some have over 60% margins and over 20% net profit.
There are some really bad arguments you're making here. There's really not much evidence that I've seen that suggests that a company's value will NOT go down when dividends are paid. In fact if that was the case, it'd mean the markets have a systemic inefficiency that would easily be taken advantage of. Also, you talk about Buffett saying he likes dividends, and then ask "does this sound like he thinks dividends are irrelevant?" Well, you glossed over him saying "and we love repurchases at appropriate prices". Buffett likes dividends because he likes to see his investments grow, not because he thinks dividends are superior to other things. Also, it's a strawman to suggest that anyone thinks that dividends are irrelevant. The point is that dividends are balanced with lower stock value. Lastly... people should really read Buffett's letter to investors from 2012. He goes into all this in detail, and explains the benefits of NOT having a dividend paying stock. He points out that with dividends, you're forced to withdraw value from your stocks at the schedule the company wants, not at the schedule YOU want. Also, with dividends you pay taxes on the entire amount. If you, however, just sell stock, you only pay taxes on the capital gains. I would much rather buy a stock that does not pay dividends and watch its value grow faster than if it did, and then only extract money as I need it. I dont need the regular psychological stroking of seeing dividends show up in my account. In fact every time I see that, all I see are more taxes I need to pay.
The 2012 letter is referenced in this very video. Buffett has routinely negotiated higher dividend yields. He must be a fan of “psychological stroking” himself as well. And most the arguments here aren’t mine. They are Peter Lynch’s and managers at JP Morgan’s asset management. Also, the past 100 years, for every major time period the top 20% dividend paying stocks have consistently outperformed the broader market with lower volatility. If warren Buffett thought markets were totally efficient he wouldn’t carry 100 billion in cash would he? Why not throw that in SPY? Either way, I realize I’m not going to convince people that aren’t open to accepting any opposing views. If you don’t think long standing dividend policies are relevant in investment decisions you are more than free to not seek companies that have them. Doesn’t bother me at all that people make different investments decisions. Theres more than one way to skin a cat.
Joe -- you don't need to prove your point to me. If some self-seeking, or delusional individual wants/wishes to believe in the 'Irrelevance..' theory -- let 'em have it.
Joseph, love the content and the portfolio. I hold many of the same stocks that you do and have a "Passive Income" pie that is a part of my portfolio. I was wondering why you don't hold DLR, it is my largest REIT position. It is in a growing industry and has great finances. I would love to hear your thoughts on it! Keep up the great work.
Fantastic breakdown, Joseph. I’d like to pose a tangential hypothetical though, one that I think actually reflects Berkshire’s “superior” cash allocation. Would dividend paying companies generally benefit more from investing their excess cash than paying a dividend?
If a dividend paying company sees its own stock as being cheap/undervalued, would it be wise to stop the dividend for a while and use the free cash flows to buy back shares instead? I never understood the demand some people seem to have that a dividend has to be consistent. To me, it's all situational. If company X does buybacks, company Y successfully reinvests their cash flow to get more growth and company Z pays out a dividend, it all ends up as more future cash flows for me. These studies should put more focus on what is approppriate for different companies. Should J&J pay out a dividend? Probably. Should Snowflake and Tesla? Probably not.
“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
-John D. Rockefeller
“I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.”
-Mark Cuban
“A stock dividend is something tangible - it’s not an earnings projection; it’s something solid, in hand. A stock dividend is a true return on the investment. Everything else is hope and speculation.”
-Richard Russell
I love the first quote. Of course the richest man to ever live would say that.
dude you nailed it !!!!!!!!!!! dividends are everything
@@JosephCarlsonShow Mansa Musa has more weath than any rockafeller dummie
What about stocks with a very small dividend?
Pray Unceasingly I generally look for stocks between a 3-6% dividend and then screen for additional factors (P/E ratio, payout ratio, debt, industry comparisons, dividend history, percentage dividend increase, etc.).
Yield on cost is a major consideration. If you take a $100 stock that pays 2% dividend that doesn’t seem very good. If you bought that stock for $50 and it rose to $100... not only did you double your money but your dividend yield (on cost) is 4% even though the actual yield is only 2%.
You want to buy undervalued stocks that have strong fundamentals. As Buffet likes to say, “Price is what you pay and value is what you get.”
For almost any investor, there are only 3 things that matter:
1. Total Return
2. Total Return
3. Total Return
Whether you get maximum return through dividends, stock price growth, buybacks or some combination thereof does not matter. It isn't that dividends themselves are irrelevant, but rather that they are only one facet of total return. To chase dividend payout alone is not appropriate unless the other factors are considered.
That said, it is very difficult to get charts of stocks based on total return, so TR is more difficult to determine. It takes a lot more work.
Joseph, just wanted to drop by to show my support! The hardest thing about being a UA-cam content creator (as I'm sure you experience too) is we don't have much time left to watch the videos. However, I wanted to carve out time for this one and was not disappointed. Fabulous logic, and I really enjoyed seeing you pick apart the dividend irrelevance theory from a logic-based standpoint. I like how you think! SO many assumptions in these academic theories that just do not translate into the real world. Wishing you all the greatest!
Hey Ian, I appreciate that! And yes, I know exactly what you mean. Spending so much time in the world of creating videos and making content certainly takes away the free time to consume it. Thanks for the kind words!
Do you think it’s wise to throw out an entire theory because the assumptions arnt true? Afterall the theory is merely attempting to explain what is evident in the data is it not? If the theory is false the data doesn’t change you just need a new way to explain it. Rejecting the theory doesn’t automatically mean dividends are relevant either , when regressions are run on stock returns , dividend policy is found NOT to be a factor that influences returns. These ‘academic theories’ are not designed to describe the world perfectly, it’s not the same as physics , finance is a soft science, the theories are meant to explain what we see represented empirically in the data.
I think the assumptions are more or less included more to keep the explanation simple. By dropping any of the assumptions you havnt disproven the theory , it’s just incomplete and you’ve still got all your work ahead of you. For example , taxes do exist, but if we revise the theory to include taxes it gets much more complicated as tax systems are not static across income levels , regions or even through time. Assuming taxes do exist with the theory doesn’t make the theory redundant it only makes it more complicated, and the conclusion doesn’t automatically become that dividends are relevant.
If we are indeed happy to drop theories because the underlying assumptions are not empirically true there are a lot of useful theories we can ignore. For example much of economic theory centres around the concept of equilibrium but if drop the concept that people are rational , or that their incentives arnt aligned then you can pretty much toss out every economic theory mankind has every produced , despite how useful they’ve been.
You're missing the crux of the Theory: The Theory says dividends are irrelevant (not better or worse), not that dividend-paying companies suffer lower total returns. It's akin to how a more trivial distinguishing feature would be irrelevant, such as companies' names beginning with the letter "A".
Revisiting an old comment here just in case any new viewer passes by. This theory has been proven wrong time and time again.
The Dow Jones dividend 100 index that SCHD has outperformed SPY since inception in 2000 so over 20 years now and through multiple market cycles. Multiple studies have confirmed that top divided paying companies have outperform the broader market over time. It is accurate to say that this isn’t due to them simply paying a dividend, but that a dividend in a good dividend paying company is a rough filter for companies that grow earnings on a consistent basis. So while it’s easy to say you could skip the dividend filter to begin with. I think that’s easier said than done.
@@alankoslowski9473 I don’t think their incidental. And doing regressive testing to try to find all the underlying factors does not prove the dividend policy has no impact. This reverse engineering is not a perfect science no matter how academic people try to make it.
Low reinvestment leads to superior returns over long periods of time. Dividend companies have a social contract or strong incentive to continually pay an increasing dividend which means they have less money for reinvestment and are forced via social contract to run a more conservative investment policy than a similar firm. Acting as though the long term reputation of being a dividend grower has no impact on future investments is plainly wrong. Other firms that do not have a long standing dividend payment are more likely to abandon their investment policy and have aggressive reinvestment with new management. They have no reputation or social contract to uphold.
I don’t think it’s happen chance or coincidental that every regression test shows that dividend growth companies have strong correlation to robust profits and low reinvestment. They have lower reinvestment precisely because they’re socially obligated to continue paying a dividend.
@@alankoslowski9473 I’m in agreement with most of what you said. I own non dividend stocks too. There’s many other factors that are incredibly important to look at that give information about future expected returns. I just look at a dividend (or buyback) policy as one more additional factor. Not even the preeminent factor, just an additional one.
The basis of dividend irrelevance theory relies solely on efficient market hypothesis which Buffett and munger compared to flat earth theory and said they wished more people believed it so they could outperform the market easier.
@@alankoslowski9473 I knew you would say that Buffett’s performance is explained by factor exposure. Classic. Efficient market hypothesis theory believers think Buffett got lucky for 40 years in a row and just so happened to have the right factor exposure. Ya can’t make this up. To each your own. I think it’s silly. You can believe in these if you want. I don’t. Neither does Buffett, munger, Howard marks, or many of the brilliant minds that have studied the issues for 20+ years and have outperformed the market for 20+ years. Theories and models are not perfect and don’t explain everything. Regression testing has major limitations. Dividend stocks have outperformed the broader market for over 60 years. That’s a fact, not a theory.
@@alankoslowski9473 I'm aware of Ben Felix's work and beliefs. He is a believer in the strong EMH theory. Like always - anyone that typically believes longstanding dividend policy is irrelevant, or buyback policy is irrelevant, also usually believes in EMH. There's a reason I keep bringing up EMH in relation to dividend irrelevancy, they are close sister beliefs and I have never met one person that believes in one without the other.
Among the contradictory things Ben has said in his videos dividend growth irrelevancy is one of them. His own PWL research admits that there's very good logical explanations of why dividend growth has led to outperformance that are not accidental or coencidential. Here's from his own firm, PWL "By nature of the fact that they pay consistent and growing dividends, it is sensible to think that dividend growth stocks are likely to be larger stocks with robust profitability that reinvest conservatively - robust profits and conservative investment should result in the cash to pay consistent growing dividends. It would also be reasonable to expect that companies with long histories of growing their dividend to have low prices relative to book value of their assets - growth stocks with high prices relative to their book value do not tend to be dividend growth stocks"
Hey look - his own firm states that there's logical explanations that companies which have grown dividends for a long period of time naturally have exposure to attractive factors in stocks! But then in his video he states that it's no better than picking stocks that start with a random letter.
It's fine if you disagree with me and agree with ben.
Buffett recognized factor investing "before it was academically quantified". Then what explains is consistent outperformance *after* it was academically verified in the 70's? I'm sure there's another great explanation for that as well?
You (and ben) can have your view, but that doesn't make it true. These are theories based on flawed models where most of the factors they rely on are not accurate in the real world. If you want to read about someone that is incredibly well read and researched try out Howard Marks. He has been asked about all the same things Ben Felix speaks about and he comes to completely different conclusions based on the same data.
epic rap battle of finance: Joseph Carlson vs. Ben Felix
Ben is in another weight category
The thing is - Ben stated in his video that he is NOT against investing in dividends.
He's simply saying that companies that pay dividends aren't successful just because they pay dividends, but rather other underlying factors. [See: Fama French Three Factor Model]
I.e. People should understand WHY dividend stocks do well, rather than just blindly investing in them.
Everything in this video can be attributed to the HML factor, where value stocks are more likely to invest in dividends than growth stocks, for obvious reasons.
Also, he says by limiting your market exposure to only companies that pay dividends, you decrease your diversification.
Quoting Ben:
"Dividend stocks do indeed do better than the market. I'm not denying that. On average, dividend growth stocks beat the market. But dividends are not the reason. Dividend growth stocks, on average, have excess exposure to the value, profitability and investment factors. That is what explains performance differences"
"To be completely clear, I have nothing against dividends. They are an important component of returns"
"It would be just as relevant to tell me the names of stocks starting with the letter 'A' with great past returns"
--- --- --- --- ---
I personally would like to point out that Joseph himself quotes Warren in the video 'It depends' - which I think he misinterprets. Warren says that some companies do better by reinvesting, some companies don't. I think a lot of people interpret 'Irrelevance of Dividends' as ANTI-dividends, which isn't the case. Warren implies you can still find profit in companies that don't use dividends. If anything, all Warren extracts point to the fact that you should invest in dividends, but also other things. Which is exactly what Ben is implying. I don't think Joseph made this video as a counter to Ben's, but if he did, I feel like he missed a basic understanding of what Ben was trying to say, and calling Ben a 'hater' is a bit rude, especially when Ben simply states that people should be more aware of the underlying factors driving dividends. A lot of good companies happen to pay dividends to shareholders, which makes dividends seem attractive. So, it's not the worst idea to invest in those companies. But you shouldn't just invest in dividends. Even Joseph himself invests in Real Estate and Bonds. Why? Because he wants to diversify. Ben simply wants people to diversify in addition to investing in dividends.
@@AwesumBear man you just summed it all up great comment
@@AwesumBear great comment. I think the one critique i would give Ben is that he gives fairly provocative titles to his videos at times. It's great for youtube and views, but it can throw people off if they don't actually watch the video. Ben is very aware that dividend policy is relevant to consider. He is just stating there would be a lot of missed opportunity if one solely focused on a dividend income strategy, and that a dividend policy and history alone does not prove a company is worth investing in. I know Joseph is aware of this too, but it's painfully obvious that some of his viewers with the "hater" comments are not aware and are overly defensive of a single strategy for the wrong reasons.
Ben is using finance literature, based on evidence and research.
Maybe I missed it, but you didn’t address his main point. Dividend policy is not what drives return. Period. End of story. Companies who pay dividends/grow their dividends have excess exposure to profitability, value, and conservative investment factors. These are well documented factors across 100 year and nearly every market. A company does not pay a dividend, then make profits - it is the opposite. Dividends are a result of profitability and conservative investment. That is why dividend growth companies outperform. However, there are plenty of companies who have exposure to those same factors who do not pay a dividend. If you follow an exclusively dividend focused portfolio, who are limiting diversification and the predictability of your outcome. You would be better off targeting profitability and investment factors directly, because you will capture the dividend growers and other companies with similar risk return profiles.
Thanks for your response! I think what is relevant about negatively-toned videos calling dividends irrelevant is that those authors accomplish (what I believe is) their primary goal -- it gets views and thus $ in their pockets.. it gets the community up in arms.. it gets the conversation flowing. A down thumb is as financially useful (at least in the short term) as an up thumb in terms of engagement on a video (so I've heard). Billions of dollars aren't being allocated to dividends each year by board of directors and executive management because they are irrelevant (though I acknowledge that's not how the term is being used in the theory). Lynch's "One Up On Wall Street" has some great perspective of his on dividends.
It was a fun rant. I should have a more typical video out soon with portfolio update, commentary, and more questions/answers.
Joseph Carlson I didn’t hear it as a rant, more as a positive disagreement to another’s perspective. :)
Hey I just wanna throw this out there for anyone who doesn’t want their dividends.. just send them my way, I’d be glad to put them to work if they are ever irrelevant to you..lol. Great work again Joseph!
Lol good one
That's not what Ben is saying. He clearly said they were an important part of returns. His point was it doesn't matter how the company returns it's value to you, only that they do. I'm not agreeing or disagreeing with Joseph or Ben becuase I'm honestly not sure. On one hand Joseph makes alot of sense, the other is that Ben seems more qualified to talk about finance and also poses interesting views backed by academic research (not investopedia or wikipedia (not hating on Joey, love his method and videos)). I also detest the idea of selling parts of my portfolio for cash, however according to Ben this is also irrelevant. I dunno, lots of other things on both sides of the argument makes me unsure which style I would prefer. Basically the research shows that buying index funds gives a better return than buying dividend stocks in the long run of 30-40 years, but cashflow is an important factor for me also. Or is it actually? I dunno lol.
@@nickspacemonkey you mean how Ben Felix admitted that Dividend stocks produce ~3% greater returns than the market?
@@nickspacemonkey That is true, and I don't want what ben said to be mischaracterized. He never said dividends weren't an important part of total return. He has said that they are irrelevant as a factor when picking companies to invest in, which I disagree with. I just want to point out. Most the information I shared was not from wikipedia or investopedia. The majority of it is studies done by financial experts working at our largest banks (bank of america and Jp morgan). Although I think it's not the best to attribute someones argument to their credentials, these studies are done by people working in finance with extremely high credentials:
JP Morgan: am.jpmorgan.com/blobcontent/1378404661562/83456/11_295_Dividends%20for%20the%20long%20term.pdf
Merrill Lynch: mlaem.fs.ml.com/content/dam/ML/bulletin/what-dividend-stocks-can-offer-in-todays-markets/ml_dividend-investing.pdf
Additional study on high yields: www.researchaffiliates.com/documents/FAJ_Jan_Feb_2003_Surprise_Higher_Dividends_Higher_Earnings_Growth.pdf
Info on Buyback abuse: fortune.com/2019/03/12/are-ceos-really-abusing-buybacks-to-get-richer/
From the WSJ as well: www.wsj.com/articles/the-real-problem-with-stock-buybacks-1530903118
Studies of course can be used to prove any point and data can be tortured enough to confess any results. In my experience the most honest way to argue a point is through basic logic that everyone can follow.
@@JosephCarlsonShow JP Morgan: "In what is likely to be an unusual market environment, investors are getting income from companies’ bonds comparable to the dividend payouts on the companies’ stock, making dividend-paying stocks, which also have the potential for capital appreciation, an attractive option."
- emphasis on 'unusual market environment', implying that JP Morgan doesn't think dividend investing will necessarily be sustainable in the long run
Merrill Lynch: "Past performance is no guarantee of future results" "Generally speaking, younger companies tend to be focused on growing their businesses, so they will often reinvest most, if not all, of their profits back into the company, not leaving much for dividends. But as the business matures and begins to accrue a steadier stream of earnings, the company’s board of directors may begin to consider returning the earnings to shareholders creating an opportunity for some shareholders to use this dividend payout for other potential investment opportunities. "
- which lines up with what Bens states - yes, companies that issue dividends have had success, but they can be explained by the HML factor of Fama French's three-factor model.
High Yields research paper: "At this point, these explanations are conjectures; more work on discriminating among competing stories is appropriate."
- the authors of the paper note that correlation is not equal to causation, and Ben states that he doesn't deny that dividend stocks do better in the market
Fortune: "That view is questionable. CEOs and other top managers get most of their comp in equity awards, chiefly restricted shares and stock options. Those grants typically vest over four or more years. C-suite executives might have an incentive to cash out using buybacks that deliver a quick bump, but weaken the enterprise and depress the share price in the years to come, if they held--and were systematically selling--a lot more unrestricted stock than they hold in equity awards they’ll collect in the future. The SEC letter to Van Hollen does not cite the dollar amounts of the buyback-related insider sales for individual executives, or compare them to the trove they’re still holding, either in unvested awards or in unrestricted accounts."
- Fortune criticizes Van Hellen's letters and also states that the SEC's studies show that it isn't the case, and either way - abusing the system isn't guaranteed to hold up in the long run, and is ultimately unsustainable
I don't think Ben is the enemy here. Ultimately, even you invest in bonds and real estate for diversification reasons, which is what Ben is ultimately advocating for.
I have a coworker that subscribed to this view and doesn’t understand why I invest in dividends so young. He says growth is what I need now and dividends are for once you have wealth. I tried to explain yield on cost and how I’m picking growers not yielders, but it always goes back to “chasing pennies and missing out on the next Amazon”. In the end, I just had to say I’m seeking non traditional retirement so I’m investing to that end.
Growth has done well for the past while, so I see his point. This is being said during the 11th year of an expansion. Most people my age investing have only ever invested during a bull market. I wonder how people will speak about it during the next bear market/recession. Generally speaking I think it’s best to let people invest how they’re most comfortable with as long as it has a proven track record of doing well.
We can have years of laterality. Nobody really thinks that.
I get the same shit from two of my older co-workers with established portfolios. I always bring up the importance of cash flow and getting paid for my the use of my money now n
I agree with ur coworker. To some extent.
@@Widemouth1832 So do you reinvest or do you spend the distributions on expenses? If you're not reinvesting you're a fool, if you are you might build a growth portfolio and sell the shares you need for capital when you need it. Your paying taxes on both, so it's only a matter of how you get the money.
knocked it out of the park in the first 4 minutes
Very well said. I have seen some of these guys on UA-cam, and all I'll have to say is that's there loss. I'm investing in dividend stocks, growth stocks and any other stock where I can find true value.
I am sticking to dividend investing. These guys need to look up history of some of the richest people in America. Dividends is king and will never change.
Joseph - quite simply your best researched, thought out, and presented video to date.
Thanks
Yes i agree makes it very simply for the normal person to follow along.
Also, passive investors don't believe markets are perfectly inefficient. They believe that thouse inefficiencies cannot be systematically made profit of.
Dividend is definitely relevant. The video focuses more on stocks in the positive side. I can add something in terms of dividend in managed funds and tax implications in its negative side.
I’m an investment analyst managing a multi asset class fund with quarterly distribution. Every quarter we have to basically force sell / rebalance the portfolio every quarter which definitely added transaction cost.
A lot of our investors, ultimately will reinvest back the distribution some time later simply because they forgot about it. From retail perspective for ETF, transaction cost to reinvest add up quickly.
For tax, As an Australian, I have to pay full amount of tax for dividend. but I only need to pay half amount if it is capital gain if I hold for more than 1 year. This applies for any investments, including stocks or funds. In a trivia example, if there are two identical funds/stocks with the same total return, one pay 10% dividend per year, one pay 0%. assuming my tax rate is 30%, I will earn 1.5% more in a fund with no dividend every year.
Yes, a solid rant. Investment theories deserve a balanced critique....well done, thanks.
one things iv learn since iv started investing in dividends is that haters are going to hate....no mater what
Wow Jc, you are passionately dismantling the div irr theory. Well done.
I've got a finance exam coming up and the MM dividend irrelevance theory is one of the things I need to have a firm understanding on.
Thanks for video
Hey Joseph, I am afraid you got it wrong. Of course dividends are important part of the revenue. Nobody questions it. The thing is that it doesn't really matter whether you reinvest the earnings, do buybacks or pay dividends - as long as those options are for a particular company equal. The fact that a company pays dividends doesn't have any additional value. If the price of a company is fair, there is no difference in paying dividends and doing buybacks. The main point of dividend irrelevance theory is that non of those options is superior so there is no reason to pick stocks simply based on a fact that a company pays dividends.
A preference for dividends ignores great companies that use buy backs instead of dividends.
Respectfully, I think some of these points are strawmen. No credible person disputes the necessity of or reason for companies paying dividends. Secondly, for the value lost by paying a dividend not to be also lost in the share price, markets would need to be inefficient always in the same direction, undercounting the loss. Wouldn't it be more likely that market valuations are sometimes too high, sometimes too low, but in aggregate reflect the dividend loss? Lastly, it's a mischaracterization to say that the anti dividend argument posits that risk is the only way to increase expected returns. Factor investing such as screening for value and quality are said to increase risk adjusted returns and relate to your Buffett example. The argument goes that dividend payers are more likely to exhibit these factors and that screening for factors rather than dividends would more accurately capture these overperformers.
Definitely agree. While I think that there ARE arguments to be made for FOCUSING on dividend investing, Joseph doesn't present them too well, and makes some weak arguments. Either way, I do think a healthy discussion from both sides is needed, so even though Joseph could work on his rebuttals, it's important to have this sort of discussion.
The whole point is overperformance doesnt mean anything if you arent getting the money. There's lots of saying about this like Cash is King, a Bird in hand is worth two in the bush, the proof of the pudding is in the eating etc.
At the end of the day a buy and hold investor is gonna make money on dividends cuz he is holding his stock not selling it. Even if it goes up a lot in share price why does that matter if you arent gonna sell it? What matters is the money you are receiving now and will continue to receive in the future.
@@roslolian11 I agree a dividend can ensure you collect some of the overperformance. Can also be done by selling shares at various increments. However, a lot of the dividend fans also promote DRIPping shares. Reinvesting makes the whole process irrelevant.
I've learned overtime every "investor" thinks they have the answer. But really the market does what the market does. It's like predicting a wave in the ocean. There are too many factors to calculate for anyone to consider themselves an expert.
The truth is, step back and have a look as a whole. If you long term invest and diversify you will do just fine. Gamble on stock but keep that a small portion of your investment and make that number smaller as you age and your portfolio grows. Add when you can and buy on the dips, but if you miss them don't chase. The market will go back up, don't sell when it falls. If you are diversified enough you'll survive any crash.
@@mattvandy6 This. No one is collecting their dividends to use for expenses. They're using it to buy more shares to... wait for it... get more dividends to buy more shares! Unless your portfolio grows to such an amount that you can just collect dividends and live off of that, it wouldn't make much difference. The value of the stock drops with the distribution of a dividend, so having a growth portfolio and a dividend portfolio doesn't make a difference in the end if you're just holding. If you windfall into millions and want to invest it to get dividends today, sure, go for it. But for everyone else, you're just going to hold and hold and hold. The difference is you're waiting for dividend distributions when you want money at retirement, versus just selling as many shares you need for your expenses. Plus there's taxes etc. Idk, the whole thing just seems so redundant to me.
What a great video! You also articulated this in such a well thought out and easy to understand way.
I own both dividend and non-dividend stocks. However, I do evaluate these types of companies differently. For a company that been around for many decades and does not have a dividend, if they also do not have a clear path towards distributing there cash flow to grow more I really really really question their lack of a dividend and will not buy shares.
I invest the way I want to invest and tune out the naysayers
there are many different ways to invest, and there is even more haters that are going to hate on any strategy you pick.
While your video is based entirely on generalities, and companies like Amazon and Berkshire Hathaway are obvious exceptions, I agree with most of it.
However, the fact is that buybacks are absolutely, unequivocally better than dividends for shareholders of undervalued companies. A company buying back its own undervalued stock is A) more valuable long term for the shareholder than cash assuming it is indeed undervalued B) it is tax-advantaged to the shareholders to buy back stock vs. paying a dividend.
I have to be honest here. You have clearly misunderstood the argument of many of the people who claim that dividends are irrelevant. First of all, you go through the assumptions in the dividends irrelevance theory as if the people who promote that theory believe those assumptions to be true. This is false. The assumptions are there solely to explain why dividends shouldn't be considered. They are there to allow an easy to understand example, not to simulate the real world.
Let me explain in even simpler terms why you shouldn't consider dividends when buying companies. If a company you own pays out dividends, they now have less money, and so the part of the company you own now dropped by an equivalent amount. Note that the intrinsic value of the company is independent of the share price. Companies that pay dividends may yield a higher return, but it does not do so because of the dividend, as an equally well-managed company could give an equivalent return without paying the dividends.
Let me address a few specific points from your video as an example. GS said that dividends encourage conservative investments in a company. Which may be true, but you can and should look at a companies return on invested capital before you buy it anyway, and a none dividend-paying company can absolutely have a great return on invested capital, and avoid risky investments even if they don't pay a dividend. So saying that a company needs to pay a dividend to have effective management is simply false.
Buffet negotiates a higher dividend on his preferred shares because he wants the highest possible return and because he knows that preferred shares carry extra risk. They also dilute the outstanding shares. Trust me, buffet didn't choose to buy GE because they were willing to pay a 10% dividend, but because he thinks it's a great company selling at a great price.
You literally showed a clip with buffet that disproved your point. The dividend of KO is irrelevant for the value of the company. The only reason the company pays the dividend is that it can't use that money to grow, so it returns it to shareholders. He is literally perfectly fine with that money being reinvested if KO was able to do so. So he does not care about the dividend. He cares about shareholder return, and he doesn't think a company needs to pay a dividend to do so.
Peter Lynch said that growing dividends increase the value of a stock. Obviously, it's increasing the value of the stock. Not a single person I have seen or met have claimed anything else. However once again it is not the dividend itself that is causing that increase in value. It is a result of the company doing better, and it being a good company. The company would increase in value the exact same way by simply just growing faster. So again the value of the company goes up not because of the dividend, but because it's a good company.
I'm not saying you can't or shouldn't do dividend investing. Dividend investing is a perfectly fine investment strategy to use, but the information given in this video is simply inaccurate.
Thanks for the input Christian.
@@JosephCarlsonShow I know you retracted your previous comment, and I understand you may not want to engage in a discussion on the topic, but I want to address it anyway.
Yes, it is obviously possible to disagree with the argument even if you understand it, but one of us has to be wrong. Either dividends matter or they don't. I'm not saying you can't use dividends as an indicator of other factors, which you can, but by doing so you are missing out on those great companies that don't pay a dividend, but that would otherwise fit your criteria. That is a fine way to invest. I mostly value invest, so I'm missing out on lots of companies that would have been great investments, because I thought they were too expensive, and I'm okay with that. Same way with dividends or growth.
But while dividends can be an indicator, I stand by my case that it is not a cause. A good company can and will most likely eventually start paying and increasing its a dividend, but a bad company can't start paying a dividend and suddenly become good. You explained why in your dividend pitfalls video.
Absolutely love your videos. You’re such a talented dude. Thanks for the excellent content. 🍻
Do you keep a percentage of cash on the side to use for stock market crash or dip or do you use most of your money to dollar cost average?
I don't keep a percentage in cash outside of just my normal emergency savings. I do keep a percentage in treasury bonds which I believe is as good as cash.
Do you plan on selling the bonds and buying stocks if discount in the market appears or hold the bond as a hedge to the stocks?
I do prefer your old format though, I kept waiting for you to finish this question and move on to something else!
I am enjoying a dividend portfolio of about 7K per yr. I reinvest my dividends except for payments on my new family SUV, so I don't think irrelevance theory apply to my portfolio nor do I think it's correct. Overall, I don't have to spend my hard-earned money to buy my car instead I allow my hard-earned money to make more money in witch will pay my car for me. I keep my cash and get a free car. (the word free I used loosely)
Wow. So good to see another side to the argument. Lots of great points & research here. Thanks for the video, looking forward to digging into this topic more myself.
It's awesome how logical and well put together your vids are. Great stuff. Link to purchase dartboard in description.
I really enjoy your videos. Your use of empirical evidence is delightful.
right! videos that state facts, is much better then so called theories
So we established it's best for a growth company to invest in growing the company, and for a dividend company to return profits to the share holders. But does it mater witch company you invest in as long as each company is doing whats best for them?
Stop wasting time on the haters.
Your ideas are sound and the proof is literally in your M1 statements.
Money Talk he shares his portfolio. You can see his investments.
His m1 shows a meager 100/mo! That's NOT income. If you need to generate REAL cash flow (i.e 3, 4, or 5 thousand dollars each month), you need to invest 2M or 3M+ 00s dollars! Furthermore he's seeing this 100/mo because for the past 10 years the market has been going in the right direction. Wait till his holdings value drop by 40% or 50% and his dividends are slashed by 60 or 70%, then all these dividend UA-camrs will crawl back to their holes and simply disappear!
tawmoss1 and your solution is?
@@archimedes7436 My advise (not solution) is to proceed very cautiously and take what these "new dividend fad" UA-camrs are saying with a grain of salt. It's much easier to make $ when the market is in a bull mode year after year. I wouldn't trust my hard-earned money to a "Robot Adviser" like M1!
tawmoss1 but just so you know M1 isnt a robo advisor. It only invests in the stocks that you choose.
I didnt copy Joseph’s (but you can). I dont have nearly the money in that he does, but im rocking 20% returns for the year, so no complaints here.
What is the source on the JP Morgan study shown on 6:50?
Great video as always! You knocked this topic out of the park. No need to respond to anymore of the dividend hater youtube trolls.
This is my favorite video of yours so far. Thanks for the research and information.
I loved this video so much that I just created a whole playlist and added this as the first video!
For some companies it makes sense to pay a dividend.
Sometime a company can't grow at the same rate anymore because the government won't let them. It's much easier to grow if you're a small company.
hummmmm great point you make there
@@TheDreamGreenShow there are many more reasons why I expect from some companies a high dividend yield. For example BAT and Altria. They can't really grow anymore but I think they are able to make profits for years. So just give me my share of the profits and continue as usual.
Warren Buffett is collecting something like a 64% dividend on his original investment in KO. That’s the power of dividend growth and value investing.
then why berkshire doesn't pay dividends, warren buffett him self said that share holders would be way better if stocks as cocacola didnt pay dividends.
@@UnHermitano Watch the video again. Buffet states KO is a much focused business than BRK.
more*
@@UnHermitano lol you didn't want the video. Buffet said the exact opposite
@@Fredman5551 of course is more focuse, is a soda Company, BK is a holding Company........
Damn Michael, you got Joe fired up!
I agree. And just want to say I love this style of a UA-cam channel... you're on punch out facts And then you're off. No bullshit in between... keep it up
Warren buffets returns in excess of the market can be attributed to his exposure to value stocks which historically have outperformed the market. An investor using similar leverage as buffet with exposure to an index with similar factors would have near identical returns
I *really* enjoy the quality and variety of educational videos on this channel. All I can say is *keep* *it* *coming* ! :)
Boom! Look forward to your videos every week! Keep up the great work. Cheers from the UK :-)
6:50 this is a clear example that you don’t understand the topic you are making a 25 minutes video on. The dividends are a bad thing and don’t have a purpose, even for people who say that dividends are irrelevant when investing, they are irrelevant as in they have no significant impact on the total value in the long run in a diversified portfolio when reinvested (before transaction costs and dividends tax).
I may not necessarily agree, but I appreciate the feedback.
Amen looks like Ben Felix is spreading fear into dividend investors.
Lol that's the vid I watched too. I'm guess that's why all the dividend youtubers are making these videos.
@@investmentguru9920 yeah because he talked shit in the video
Yes I saw that video and thought I'm never giving money to ben felix
@@williexcited unless you have a high net worth, idk if you will have access to Ben to be fair
@@MrFootyAce he only needs 500k. It is a lot, but not unreachable for most middle class people if they make some right decisions. That said, I agree - I will never hire someone who goes off against a strategy which he agrees makes 3% more.
Great video as always! I'd like it if you could do another video where you talk about your favorite investors, how you follow them, and also how you evaluate stocks to purchase. Also if you have any advice for picking med and small cap stocks that would be very useful to hear.
How much weight do you give to different aspects of a stock that pays a decent dividend? For instance, how important is an attractive "Dividend Yield" percentage and could this be offset by a high "Payout Ratio"? If you do look at these "Payout Ratio's", what do you consider reasonable with respect to the "Dividend Yield" and what would say is high and to steer clear of a particular stock. Example: TGE or FDX as stocks that one might steer clear of or is the yield substantial enough (in the case of TGE) to overlook the high "Payout Ratio"?
Just as a follow up, I did watch your "How to pick a Dividend Stock" video and it really did not cover "Payout Ratio's". Maybe you don't even look at those... I know I didn't until recently and now I'm thinking of selling some stocks that have a very high "Payout Ratio"... Just wondering what your thoughts are.
5 out of 5 stars Joseph! Great video as always!!
As I've posted elsewhere, a dividend is like the proverbial bird in the hand. It's irrelevant if the stock price actually did drop by exactly the amount of the dividend, because that portion of the stock price is now in my pocket. Either my dividend stock or my non-dividend stock could go down, even all the way to $0. But with the dividend stock, my potential loss gets smaller each time I get paid.
I follow both you and Ben Felix. You have a different investing strategy vs Ben Felix’s. I personally believe market overall is somewhat efficient. While it is possible to exploit the inefficiencies, there is no way average investors can do so successfully in a long run. Therefore, I value overall empirical data analysis and believe Indexing is probably more sensible, especially for Canadians, and allows you to move on with your life. Having listened to both of you and Felix, I think I am more aligned with his approach.
His approach is great. I think index funds are fantastic and I don’t actually disagree with anything you said. Where I do disagree is where I think he makes an unnecessary hardline stance that dividends are totally irrelevant when picking individual companies. This video was addressing the premise of that argument and where I see its flaws. I don’t have any problems with index funds. I hold them in my Roth and the hands off nature of them is fantastic.
I'm seeing dividend stock like if thousands or millions of people are working for me every day. I put my money in strong and resilient compagnies that work for me instead of me working for them. I don't understand why there is so many people who doesn't like dividends ... it's like having two chances to make money, dividend + stock growth so why not ?
Solid Rebuttal. Dividend Growth Investing works. Momentum/Growth investing works. Value investing Works. Day Trading works. Index Fund Investing works. They are all just vehicles. It all depends on the driver ; ) Keep up the the good Work! Grade=A
Daytrading is just random, there have been studies showing that something like 98% of people lose money daytrading and quit within 1-2 years.
gigi duru I bet these numbers are super skewed. I have 5 friends that tried day trading for a very short time and quit after losing a few hundred/thousand dollars. But they didn’t know anything about the stock market and were working with incredibly flawed strategies and small bankrolls.
So you believe markets are inefficient so won't accurately price the book value, which is the easiest thing to price as it's in the reports, and the stock automatically drops in price by the dividend per share paid.
And you invest longterm, so you think markets will be inefficient for 10 years?
How can I sort out stock holdings into sector categories as shown in the video in M1 finance ??
Brilliant video Joseph
Great video. Appreciate all your work Joseph
A+ rant, more of a structured debate response
Epic breakdown 👍🙌🙏🏽❤️🎊🎉
Love you stuff. Weirdly enough sometimes I just cant sleep so I play your videos and just let my thoughts wander about investing, and eventually fall asleep lol. Quick question, I know you invested in real estate prior to stocks and their dividends. I am currently 24 and have a fair amount into stocks for their dividends. Would you recommend I keep it all there, or sell in a year (to prevent tax fess), and just pile up my money in a high savings account until I can comfortably buy a home/condo/apartment? Thanks for your content! Keep it up!
Hi Joseph I am new to the channel so excuse me if i ask an obvious question, but how much are the transaction costs when you buy these many different stocks as it seems you don't put too much money into each one. Wouldn't the transaction costs be quite high for this strategy?
The broker I use doesn’t charge for trades.
IMO any company that does not have dividend payouts does not believe it the companies ability to make a profitable product. Which means they want you to believe in something they themselves do not believe in.
Dividends = ❤️❤️❤️
Video was fantastic
Dividend yielding portfolios are worse because they allow the company, not you, to determine when you take profits. This is detrimental to minimizing your tax burden.
Must be season 6 and after Tyrion speaking
Hi Joseph,
Amidst Altria Juul ban thing, I was wondering why there is no tobacco stock in your portfolio at all? Is it from a moral standpoint or you do not see a long term future with them? The industry is wildly profitable still and pays massive amount of dividend which is right up your alley. It just the uncertainty in the future or the morality that keeps you away? Same for the alcohol as well. The so-called sin stocks.
Thanks for responding Jo.
A few reasons. One of them is I don't like the products personally and don't use them. Other bigger reasons is I like companies with simple business plans that are easily scalable and don't face tremendous amounts of regulatory or political scrutiny. These companies have multiple risks facing them.
The third reason is I already have a LOT of holdings and need to go into the direction of trimming them, not adding more positions. So, it's just a matter of picking companies I really want to hold at this point, that doesn't mean these are bad companies.
Such a great video. truly one of your best videos ever!
☼ 17:04 div warren buffet negtns
Just started looking at your channel, you seem down to earth
Great Vid. Thanks Joe.
You've provided consummate response, Mr. Carlson. You lawyered the shite out of the clickbaiters.
Joseph what are ur thoughts on instead of having a seperate savings account for emergency funds have the emergency funds invested into the bonds?
Hi Joseph, how often do you add new companies? Are you actively looking to more companies to invest in?
There should be a dividend relevance theory where the only thing that matters is if the company can continue to give dividends to shareholders
Continue to give & grow it’s dividend.
worthy rant. "dividend is the same as a buy back." is such a ridiculous statement... so many people spreading misinformation.
This video is important discussion for sure
A+ video as usual
I think there are two arguments here. Firstly dividend investors have different reasons for investing compared to growth investors. Total return is not the be all and end all for some dividend investors. Secondly asking whether dividend paying stocks produce superior or inferior total returns compared to growth stocks.
As I see it this video delivers evidence that dividends are relevant for the behaviour and results WITHIN a company but it doesn‘t prove the revelance compared to OTHER stocks. Furthermore: even if they were relevant, I see no proof that this relevance is IN FAVOR of paying dividends. It is possible that over the long term and along different companies, these differences work both ways: sometimes good, sometimes bad - and therefore overall irrelevant when it comes to picking a stock.
What I think: The allocation of money in itself does not create wealth. In the long term to create wealth you need to create VALUE because in the long term the market IS efficient. Did I miss something?
Bottom line is if you're looking for the quick buck, don't buy dividend paying stocks as they tend to grow slower. Dividend stocks are suited for investors who are looking at long term gains by re-investing dividends which means more stocks. I focus on stocks that cost $30 or less and pay between 3 and 8%. and buy enough shares that the quarterly dividend adds at least 1 more share of stock each quarter.
I really liked the video, but, at 6:07 you use the argument that reinvesting will not bring more earnings to shareholders than pay dividends.
However, as I understand it, The argument that the irrelevance of dividends would come from the fact that the company would repurchase its shares, increasing the value.
I think that this question returns to its initial point about the market value not being equal to the book value, but if possible I would like you to comment on this point..
Just a thought. All the reasons you cite could go the other way too. Who sais that low dividend paying stocks can't actually have higher returns because of the not so perfect markets?!
Why is your Energy pie so low in your portfolio? I think you should do a video on your explanation for that decision
Dividend paying companies fall less harder during recessions and bounce back quicker in a market recovery.
Great update on dividends! 👍 I was a growth investor for a while but moved to dividends since I think the market is overvalued and ready for a recession.
I only started investing on my own (can't do individual stocks in my 401k) last February and the market has been overvalued for me from the start (in the account where I have a choice). In overvalued market dividends totally PWN growth stocks. I read a book that pointed out how long secular bear markets can last also. 1966-1982, 2000-2012ish, ect. were periods of times where growth simply didn't happen, having twice the dividend yield of the SP 500 index will provide twice the return over those long periods! I'm in my late 40's and with markets where they are, if indeed a secular bear market is now in the making I know where I need my money to be, QUALITY DIVIDEND STOCKS!!
im going to stake up when the recession hits, when ever that happens
A+++ Video Joseph, Thank You!
Seems like a lot of commentators (and presenters) on this channel are living in denial of evidence... and don't understand the theory they are trying to debunk. Nobody is saying not to take dividends but rather saying don't blindly invest just based on a dividend, and to look at your point on taxes... do the math on that too in regards to the portion you could take out that would actually be taxed as a capital gain
I only buy large caps with good yields and a long record of rising dividends as that makes the stock safer with less downside risk and these companies are better managed and have high margins. Some have over 60% margins and over 20% net profit.
i will give a+
Please do a 1:1 with Ben Felix. It would be worth watching. I'm seriuous, reach out to Ben. He's a nice guy.
There are some really bad arguments you're making here. There's really not much evidence that I've seen that suggests that a company's value will NOT go down when dividends are paid. In fact if that was the case, it'd mean the markets have a systemic inefficiency that would easily be taken advantage of. Also, you talk about Buffett saying he likes dividends, and then ask "does this sound like he thinks dividends are irrelevant?" Well, you glossed over him saying "and we love repurchases at appropriate prices". Buffett likes dividends because he likes to see his investments grow, not because he thinks dividends are superior to other things. Also, it's a strawman to suggest that anyone thinks that dividends are irrelevant. The point is that dividends are balanced with lower stock value. Lastly... people should really read Buffett's letter to investors from 2012. He goes into all this in detail, and explains the benefits of NOT having a dividend paying stock. He points out that with dividends, you're forced to withdraw value from your stocks at the schedule the company wants, not at the schedule YOU want. Also, with dividends you pay taxes on the entire amount. If you, however, just sell stock, you only pay taxes on the capital gains.
I would much rather buy a stock that does not pay dividends and watch its value grow faster than if it did, and then only extract money as I need it. I dont need the regular psychological stroking of seeing dividends show up in my account. In fact every time I see that, all I see are more taxes I need to pay.
The 2012 letter is referenced in this very video. Buffett has routinely negotiated higher dividend yields. He must be a fan of “psychological stroking” himself as well. And most the arguments here aren’t mine. They are Peter Lynch’s and managers at JP Morgan’s asset management. Also, the past 100 years, for every major time period the top 20% dividend paying stocks have consistently outperformed the broader market with lower volatility. If warren Buffett thought markets were totally efficient he wouldn’t carry 100 billion in cash would he? Why not throw that in SPY?
Either way, I realize I’m not going to convince people that aren’t open to accepting any opposing views. If you don’t think long standing dividend policies are relevant in investment decisions you are more than free to not seek companies that have them. Doesn’t bother me at all that people make different investments decisions. Theres more than one way to skin a cat.
Great video your one of the best
Great video
Joe -- you don't need to prove your point to me. If some self-seeking, or delusional individual wants/wishes to believe in the 'Irrelevance..' theory -- let 'em have it.
Joseph, love the content and the portfolio.
I hold many of the same stocks that you do and have a "Passive Income" pie that is a part of my portfolio.
I was wondering why you don't hold DLR, it is my largest REIT position. It is in a growing industry and has great finances. I would love to hear your thoughts on it!
Keep up the great work.
A+ for sure !
Fantastic breakdown, Joseph.
I’d like to pose a tangential hypothetical though, one that I think actually reflects Berkshire’s “superior” cash allocation. Would dividend paying companies generally benefit more from investing their excess cash than paying a dividend?
Just to clarify, by investing I mean in other companies.
If a dividend paying company sees its own stock as being cheap/undervalued, would it be wise to stop the dividend for a while and use the free cash flows to buy back shares instead?
I never understood the demand some people seem to have that a dividend has to be consistent. To me, it's all situational. If company X does buybacks, company Y successfully reinvests their cash flow to get more growth and company Z pays out a dividend, it all ends up as more future cash flows for me. These studies should put more focus on what is approppriate for different companies. Should J&J pay out a dividend? Probably. Should Snowflake and Tesla? Probably not.