one of the confusing parts to the whole thing is people use the wrong words at times .. dividends are never just a distribution of profits . they are a distribution -period even when money is being lost ...
once companies pay dividends and hit a rough spot it can be the kiss of death suspending them . so it just compounds the downward spiral .
a company sliding down and paying out has the damage compounded . if markets take the stock down 5% and that dividend is 5% that is a 10% drop in share price .
so dividends are not a distribution of profits . they are merely a forced withdrawal of your already invested dollars .those profits if any are reflected in the share price already pre ex div .. what dividends represent and how they work are one of the misunderstood topics in investing because people look at it like interest . interest goes on top of your balance , dividends are a withdrawal off your balance ...
so all profits must be represented in that share price pre ex div because there is nothing else to give you ..your total return is the share price plus distributions which were subtracted off the share price . that is identical to a total return on a portfolio which is the portfolio value plus all distributions off the portfolio .
no difference except taxes .
so people confuse themselves by the words dividends are a paying of profits , because there does don't have to be any profits at all that year or years . , plus they don't understand that there is a subtraction of equal dollars off their invested balance represented by number of shares x share price . .
how may times do you hear i don't care what the stock is doing because i am getting paid a healthy dividend .. well all that means is you are taking a bigger withdrawal in a down market and the dollars compounding in the recovery will be that much less .
it really is hard to understand the fact that reinvesting dividends in a down market has no advantage either . that is because of the fact they hand you money off your balance , call it 100k ... they pay you 10% so you have 90k invested 10k to reinvest . the price per share falls the same 10% ... so your 10k being put back in gives you back the same 100k again for compounding. actually less because before you can put those dollars back they are taxed in a taxable brokerage account . how many shares make it up is irrelevant . all compounding is on total dollars invested .
so this is why there are and always will be discussions about dividends , simply because they are just not understood even by the most experienced investors .
whether the dividend payers do better or worse is a whole other topic and has nothing to do with the mechanics of that withdrawal