mathjak107 wrote: ↑
Sun Feb 16, 2020 4:06 pm
Markets trade on fear greed and perception of future GROWTH in the real world not formulas ....the markets and growth stocks speak for themselves as they create wealth for their shareholders dividends or not..in the real world a forced withdrawal by the company of my own invested dollars which is what that payout is does not make or break a stock.
It reminds me of when people are thrilled they are getting a tax refund like it’s found money.
dividends are simply a withdrawal forced upon you by the very company you’re invested in. If you’re truly investing with a long time horizon, chances are you don’t need the dividend distribution as income monthly, quarterly, or even annually. Even if you did, you could simply withdraw what and when you wanted as discussed above.
Instead, dividend distributions force you to withdraw money at regular intervals regardless of whether or not you want to. This can be particularly problematic if you are purposely trying to keep your taxable income low in a specific year.
This seems to be one of those debates - abortion, death penalty, slavery, gun ownership - wherein one firmly falls into one camp or the other.
I'm definitely with Mathjak in his camp.
Companies create perceived value. They can pay out some of this increased value along the way in the form of dividends. Or, it can retain it all and you get all its value either when the company ends or you sell your investment in it.
The problem with the dividends is that they are at the company's choosing and timing and they cause a taxable event for you and, a short-term one at that.
If you really desire the cash amounts that those dividends provided then you can create your own "dividends" by selling an equivalent amount of stock. You'll also have a taxable event but a) it will only be on the gain portion of that "dividend" and b) you can also time it so it is taxed at long-term rates.
We'll see if Mathjak agrees with another simple example of mine.
A private company goes public and has a $200 million valuation. You bought 1% of it, thereby investing $2 million.
For ten years its valuation is flat. You sell and get back your $2 million.
Now assume that the company had paid out 10% of its valuation in the form of dividends. So you were paid $200,000 ( along with everyone else).
Now again assume valuation is flat except it has to take into account the dividends that were paid out.
Therefore, the company is now valued at $180 million and you only get back $1.8 million. Add back those $200,000 in dividends and it is equivalent to the $2,000,000 no dividend scenario.