PP vs Dividend Growth Investing

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Re: PP vs Dividend Growth Investing

Post by Xan » Sat Feb 15, 2020 10:24 pm

boglerdude wrote:
Sat Feb 15, 2020 10:14 pm
eg Amazon can take cash a build a warehouse that will deliver 10% return. No reason to return that cash to you if you cant put it to work for more than 10%. Maybe they'll be able to pull that 10% for another 100 years. No reason to overweight dividend payers.
I'm not endorsing overweighting dividend payers. Just pointing out that dividends are the only mechanism for stocks to deliver value to shareholders as a whole. In your Amazon example, the reason to invest in warehouses rather than pay out a dividend is in order to be able to pay out a bigger dividend later.
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Re: PP vs Dividend Growth Investing

Post by boglerdude » Sat Feb 15, 2020 11:33 pm

Buybacks
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 2:43 am

Xan wrote:
Sat Feb 15, 2020 10:24 pm
boglerdude wrote:
Sat Feb 15, 2020 10:14 pm
eg Amazon can take cash a build a warehouse that will deliver 10% return. No reason to return that cash to you if you cant put it to work for more than 10%. Maybe they'll be able to pull that 10% for another 100 years. No reason to overweight dividend payers.
I'm not endorsing overweighting dividend payers. Just pointing out that dividends are the only mechanism for stocks to deliver value to shareholders as a whole. In your Amazon example, the reason to invest in warehouses rather than pay out a dividend is in order to be able to pay out a bigger dividend later.
stock buy backs , acquisitions , mergers , new products , gaining market share , increasing margins or losing competitors ARE THE ONLY WAY ALL STOCKS CAN APPRECIATE .


PAYING OUT A DIVIDEND WITHOUT APPRECIATION FROM THE ABOVE , the same as any stock , dividend or not there IS NO ROI -ZERO -NADA . NOTHING.

total return IS TOTAL RETURN. you may as well have stuffed it in a mattress because zero appreciation is zero return regardless what they give you back in your own money .

without appreciation in share price from the above you give them 100k and they hand your money back to you with zero return with each payout



total return is total return no matter how it is arrived at . it can be all appreciation , all dividend or a combination of the above ...that dollar spends exactly the same if you create a cash flow from that appreciation or they do it for you ..
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Re: PP vs Dividend Growth Investing

Post by Xan » Sun Feb 16, 2020 7:03 am

Why do you keep saying that, mathjak? Nobody is disagreeing with that. I'm saying that the ultimate raison d'etre of stocks is a dividend. This shouldn't be particularly controversial: after all that's the mechanism for a company to distribute earnings to shareholders, which is the whole point.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 7:22 am

and i am saying that is untrue , false and poor logic ... appreciation and cash flow from an investment has nothing to do with a dividend or not .. that is ridiculous assumption in my opinion . i can take a draw from anyone of my investments at anytime and take an equivalent draw as compared to any dividend . i don't need them to give it to me , i can take it myself when i want right from appreciation like they do .

i can sell my gold anytime too and assuming it is up i can create a dividend of my own off it if i want to tap that appreciation .

so you are trying to tell us if my gold appreciates 4% and i take a 4% draw off it , that except for maybe taxes it is different than a 4% dividend . that would be illogical . balances and total return as well as cash flow are the same as your dividend payer . .
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Re: PP vs Dividend Growth Investing

Post by Xan » Sun Feb 16, 2020 7:32 am

No. You're still looking micro while I'm talking macro. Did you even look at my long post with lots of tables and numbers that I spent a lot of time on? Investors as a whole only get paid when there's a dividend.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 7:41 am

it is mathematically impossible to be any different ..... i am not wasting time proving out those numbers ...

maybe someone else here can convince you you are logically and mathematically off base here but i am done ........
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Re: PP vs Dividend Growth Investing

Post by Xan » Sun Feb 16, 2020 7:45 am

mathjak107 wrote:
Sun Feb 16, 2020 7:41 am
it is mathematically impossible to be any different ..... i am not wasting time proving out those numbers ...

maybe someone else here can convince you you are logically and mathematically off base here but i am done ........
I invested a lot of time trying to prove what I'm saying and succeeded. And you won't even look at it because you're so sure you're right.

I suspect the reason you keep saying the same thing over and over is you haven't been bothering to actually read what I've been saying all this time.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 8:50 am

Sorry but your whole premise is just silly no matter what kind of numbers you are trying to come up with .....stocks go up dividends or not for all the reasons above and the same as you have a choice to reinvest the dividends or not in to the same company , everyone has the same choice to draw off some appreciation or leave it dividend or not .

Total return is total return and a draw is draw .....anything else is just a lot of hooey trying to say one method is better than the other mathematically.. I have no way of knowing how you accounted for all the price set backs , because if it worked out differently using same returns your numbers are skewed because it is impossible to come out any different when you compare apples to apples.

If the total returns are the same and your payouts are the same results are always identical or else your numbers are skewed and missing something.. those numbers make my hair hurt trying to decipher them ....but in any case if any part comes up differently there is a factor skewed somewhere
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Re: PP vs Dividend Growth Investing

Post by Xan » Sun Feb 16, 2020 9:15 am

Getting a return by selling requires a buyer. Agreed? That means that investors are passing around money and shares, but the sum total of all investors have not achieved more dollars until a dividend is paid. (Boglerdude might be right about buybacks, but I think that's a sneaky dividend.)

How is it possible for dollars to be created by exchanging shares with other investors?

You are not arguing in good faith if you are assuming your initial presumptions are correct, and then choosing to ignore anything that disagrees with them.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 9:59 am

Xan wrote:
Sun Feb 16, 2020 9:15 am
Getting a return by selling requires a buyer. Agreed? That means that investors are passing around money and shares, but the sum total of all investors have not achieved more dollars until a dividend is paid. (Boglerdude might be right about buybacks, but I think that's a sneaky dividend.)

How is it possible for dollars to be created by exchanging shares with other investors?

You are not arguing in good faith if you are assuming your initial presumptions are correct, and then choosing to ignore anything that disagrees with them.
Ask yourself why gold generates profits as it gets passed around.. perceived value ,, movements in the dollar , fear ,greed , etc why does Berkshire trade and generate profits for investors or any of the 78 stocks in the s&p that pay no dividends and increase their shareholders value as they get passed around ....

Because the companies are worth more from increased profits , acquisitions,stock buy backs ,taking market share , new products ,etc...not one reason pertains to paying a dividend now or ever...anyone who wants can sell or generate a cash flow off those gains .

In fact all our real estate was bought. For appreciation, not cash flow ...we bought 9 co-ops with break even cash flow and stabilized tenants so they would never generate cash flow ....well they are now all sold for multiple 7 figure profits ..yet never generated any income .... the reason is profits always come from appreciation ,income or a combination.
The last 2 in sept that were sold were sold to an investor group with no positive cash flow , it is just break even ..they want it for appreciation.

But real estate is a poor comparison because with every rent check , the amount is not subtracted off the value of the asset like a stock
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Re: PP vs Dividend Growth Investing

Post by shekels » Sun Feb 16, 2020 10:48 am

vnatale wrote:
Fri Feb 14, 2020 7:10 pm


There is one public company. You are its sole owner. When it was started it had $1,000 in cash, $4,000 in real estate (unimproved land) and no liabilities. You paid the net book value for the company - $5,000.

Five years later, you are still the sole owner, the company still has that $1,000 of cash and still with no liabilities, but it's developed that real estate so it is now worth $29,000. You've received no dividends along the way. You decide to sell to me who is willing to pay the current net book value for the company - now $30,000.

You now have a gain of $25,000. No dividends. All from capital appreciation. I purposely kept out any hoped for future valuations to keep it simple.

If you had received dividends of $1,000 along the way, there would have been $0 cash and then I'd have only bought it from you for $29,000. You still received the same total $30,000 minus your $5,000 basis for the same $25,000 total return.

Am I missing something?

Vinny

Where did the money come from to develop that Real estate, so that it is worth 25,000 more?
What was the cost of the taxes on the improved real estate?
The 1,000 in cash could of been used in the expenses for the taxes or the development right?
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Re: PP vs Dividend Growth Investing

Post by shekels » Sun Feb 16, 2020 11:10 am

Xan wrote:
Sun Feb 16, 2020 9:15 am
Getting a return by selling requires a buyer. Agreed? That means that investors are passing around money and shares, but the sum total of all investors have not achieved more dollars until a dividend is paid. (Boglerdude might be right about buybacks, but I think that's a sneaky dividend.)

How is it possible for dollars to be created by exchanging shares with other investors?

You are not arguing in good faith if you are assuming your initial presumptions are correct, and then choosing to ignore anything that disagrees with them.
I hate to type so I will make this brief.
IMHO Dividends are received as a means to extract value or profit from a stock/company.
The other way to extract profit is by selling a stock at a higher price than was purchased, which is not always possible.
The difference I see is from profits from the gain of a company, and a profit from a stock of a company.
Both have a effect on share price.
Yes, stocks go up and down but what is the true real value of a stock? To me It is a Confidence game.
How confident are you in the management,practices,assets and the future of the company.
Take for instance ATT, If no dividend was paid what would the stock be worth with the debt load they have today?
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Re: PP vs Dividend Growth Investing

Post by Smith1776 » Sun Feb 16, 2020 11:26 am

Xan has it right in this debate.

People confuse the idea that dividends are not a factor with the idea that dividends are a stock's only source of value to the investor. A stock is only valuable because it either pays a dividend now, or is engaging in plowback theory to presumably pay more dividends in the future. This doesn't invalidate the fact that dividends are simply a payment of your own property and are not a factor. There's no contradiction there.

I was confused on this issue myself a while back, and engaged in a PM discussion with the king of dividend irrelevance himself: Larry Swedroe.

It really boiled down to this exchange.
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Make no mistake, a stock's only source of return and value is either the dividend being paid in the present, or the fact that its ability to distribute dividends in the future is increasing. Either way, the dividend is the source of the return. This should never be confused with the fact that dividends are not a factor. Totally separate issues.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 11:34 am

I disagree of course ,dividends are part of the total return and roi on your investment. Appreciation from growth of the company shares ,compounds returns on an investors money , the paying of a dividend is just taking some of that growth FROM THAT APPRECIATION and giving the investor the option of taking some out or he can stay as is like any stock that pays no dividend and reinvest the same dollars they handed him back in the same value he had before.

It all stems from growth of the share value or you have no roi at all despite getting that dividend ...shares grow in value for all the reasons above and that is why investors want those stocks like Berkshire or any of those 78 s&p stocks

Rebalancing share appreciation in a portfolio provides cash flow, what is important is the compounding on investor dollars , not how it is drawn off
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Re: PP vs Dividend Growth Investing

Post by Smith1776 » Sun Feb 16, 2020 11:47 am

I see what you are getting at, but again, I think you are taking the idea that dividends are not a factor a little too far.

The gold standard for firm valuation in every finance course, degree, program, and certification in the world is the dividend discount model.

There is just no getting around that fact. The dividend discount model is king.

A firm is only valuable based on its current distribution of dividends or its growing ability to distribute dividends in the future. In the case of Berkshire Hathaway, the firm is as valuable as it is not because of any current dividend (obviously), but because its ability to distribute dividends grows over time.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 12:01 pm

There are loads of mid caps and small caps that will never pay a dividend ever ...so in theory we can make up all the reasons we like for cause and effect

...the reality is that it is what it is and stocks grow and produce wealth for share holders never ever producing a dividend and shareholders produce cash flow from those stocks or sell and gain appreciation and make money ....and that’s the way it works
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Re: PP vs Dividend Growth Investing

Post by Smith1776 » Sun Feb 16, 2020 12:32 pm

Yes, and those stocks, when the market sees that they have diminishing prospects for ever paying a dividend, fall in price. So no conflict there.

It's not made up -- it's the dividend discount model. The gold standard for valuing stocks and firms. Again, this should not be conflated with the fact that dividends are not a factor.

And yes, stocks grow and produce wealth for shareholders without paying a dividend, but that is because their ability to distribute dividends in the future is growing.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 12:53 pm

Really ,the stocks go down because they never paid a dividend ...someone better tell Berkshire , google ,Facebook ,biogen ,Tesla ,amazon and if I had the time I would list over 70 more big names that have never paid a dividend nor intend to , that they need to go down for that reason......

I think that thinking stocks will go down who don’t pay dividends is a poor assumption....you can’t generalize about this , it is going to be an individual case
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Re: PP vs Dividend Growth Investing

Post by Smith1776 » Sun Feb 16, 2020 3:46 pm

You are misconstruing what I said.

If a stock doesn't pay a dividend, the market values the stock based on its ability and capacity to pay dividends in the future. This is why the dividend discount model works for all firms -- even ones that don't pay a dividend. This includes the companies you mentioned like Tesla and Facebook.

If the market judges that the prospect of future dividends has diminished or is in jeopardy, then all other things being equal, the price will go down.

The dividend discount model is a robust mathematical framework, and is taught in every finance class in the world for stock valuation. If the firm never makes a cash distribution, then the numerator in each term of the equation below would be zero. Then the firm value would come out to be zero. There must be either a dividend now, or the expectation of dividends in the future for stocks to have any value to investors.


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Re: PP vs Dividend Growth Investing

Post by mathjak107 » 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.

Buffett says it best

Paying dividends may not always be the best option. In fact paying no dividend could even have a positive impact on the fortunes of companies like Coke. Buffett says, "If Coke had paid no dividends, and simply repurchased shares and developed the bottling system, the shareholders probably would have been even better off...And that's true for Gillette and Disney"


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Re: PP vs Dividend Growth Investing

Post by vnatale » Sun Feb 16, 2020 4:47 pm

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.

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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sun Feb 16, 2020 4:53 pm

Buffett says that if you can retain the money and generate more than a dollars worth of value than dividends should not be paid out ..

The test
Should a company go in for dividend distribution? Buffett says, "The test on dividends is, 'can you create more than one dollar of value with the one you retain?'...If we do that, taxable or not, they are better off if we retain money. But when the time comes that we don't think we can use money effectively, we will pay it out.


To be honest when the time comes a company can’t grow the money I invested with them ,then perhaps it is time to find an investment that can
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Re: PP vs Dividend Growth Investing

Post by dualstow » Sun Feb 16, 2020 7:57 pm

mathjak107 wrote:
Sun Feb 16, 2020 4:53 pm

To be honest when the time comes a company can’t grow the money I invested with them ,then perhaps it is time to find an investment that can
Seems that many companies can do both. Apple is always plowing cash into its business but it has more cash than it knows what to do with, and has been paying a dividend for a few years now. Is it a stodgy, slow-growing company? Not yet.

Amazon was probably smart to put everything back into growing the company for so many years —and, funnily enough, it did not stop the share price from defying gravity (or logic) during that time, anyway. Now, they probably have enough warehouses, and I bet they will pay a dividend by 2025.

Berkshire hasn’t made any great deals lately, but I’ll always hold the stock. I have no idea what they’re going to do, but I sincerely wish they would start paying a dividend, today.
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Re: PP vs Dividend Growth Investing

Post by Smith1776 » Sun Feb 16, 2020 8:27 pm

vnatale wrote:
Sun Feb 16, 2020 4:47 pm

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 think the real issue is that the debate in this case isn't even real. Mathjak and I are not debating. Just talking past each other.

I keep telling him that I agree that dividends are not a factor. Dividends are just payment of your own property. You can just create your own dividend by selling shares. Yet he keeps reiterating this point for some reason.

That's an entirely different topic from whether dividends are the key component in stock valuation à la the dividend discount model. They are. And every textbook used in every accredited finance class in the world says so.

Mathjak has since posted Buffett quotes that have actually supported my argument and not his.

The factor literature says that size, value, and market beta explain over 90% of the cross section of stock returns. Dividends are not a factor. Modigliani and Miller and their dividend irrelevance theorem shows that it doesn't matter how a firm is financed.

However, it is also true that dividends are the only reason why stocks are valuable to investors. The dividend discount model is a simple fact. If all the numerators in terms of the equation are zero (no dividends now and in the future), then the stock has no value. It's really that simple. There must be dividends now or the expectation they will be delivered in the future for the stock to have value.

Again, I'm simply pointing out that the dividend discount model is entirely different from the various Fama-French factor models and the M&M theory of dividend irrelevance. They are all equally valid and do not actually contradict, despite the fact that many seem to think that they do.
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