Duke it out - Dividend style

[USSFI]

When I first started reading about investing, and early retirement I was told to follow a total return strategy. For the most part I was able to stick with that mentality, especially with gold providing only returns and no type of payout - interest or dividend. As my investing experience grew, so did my desire to see some type of cash generated by my portfolio. Even if it doesn't change alter total return, I would always ask myself the following:

"Would I invest in a business if it didn't out anything to me?"

The answer I gave myself was "Nope.".

So after a long time of investing I've decided to throw some money into some dividend etfs. Since I threw in an unequal amount into each, I'll record all of these etf amounts as of todays ending price * shares as 100. Going forward I'll divide the capital appreciation & dividends (all reinvested) divided by todays value and obtain a 1xx value (hopefully).

The etf's that I'll be using are the following:
SDOG -ALPS SECTOR DIVIDEND DOGS ETF
IDOG - ALPS INTL SECTOR DIV DOGS ETF
VIG - VANGUARD DIVIDEND APPRECIATION ETF
DGRE - WISDOMTREE EMERGING MARKETS DIVIDEND GROWTH FD ETF

Today's I'll list the shares, and value of each share below:



Let the best dividend etf win!

[mathjak107]

at the end of the day it is only about total return .

your balance couldn't care less if a 6% return is made up of a 2% dividend and 4% appreciation or 6% appreciation .  it is all about roi .  you can pull the same amount of return out of any portfolio you like with similar results as long as the total returns are the same .. 

[Greg]

at the end of the day it is only about total return .

your balance couldn't care less if a 6% return is made up of a 2% dividend and 4% appreciation or 6% appreciation .  it is all about roi .

To a certain extent I disagree. You would be having to pay your ordinary tax rate on dividends versus you could potentially based on your tax bracket pay less in taxes through long-term capital gains. Now that may be a different situation though for someone wanting to live off of these dividend returns such as in retirement. Even then though, I'd think I'd rather let things appreciate then sell them.

[mathjak107]

if in a retirement account  taxes are a moot point .

the issue with  dividends  if they are in a taxable account you can't control the taxable event  . as an example i can't stop the flow in dividends from my funds  now that i retired and was hoping to get an aca  subsidary .

that taxable income coming in is beyond my control . so they are not always a good thing compared to appreciation only . it depends on the situation .

as far as living off dividends ?  it has been shown you get better results reinvesting the dividends so they can grow and just generating the income off the portfolio for the same amount  preferably from lower returning investments while the reinvested  money grows ,

i like dividends at times because it is easier to just take the cash flow if you want to reduce equity's rather then sell a bit on your own .

what you have to remember is if you have 10k in a dividend  stock you have 10k compounding for you  .

if you get a 10% dividend  overnight that  stock goes from 10k worth of stock to only 9k worth of stock and a 1k dividend .

exchange computers automatically reduce your value compounding at the open by the same amount ,  . it does this by reducing all  bids by the equal amount lowering all the prices in the system  so when the bell rings and the markets take over they are compounding on less dollars invested .

now all the market action is on a 9k investment at the opening bell  if you do not reinvest  that money .

so if you reinvest and the stock goes up 10% it is 10% on 10k .  if you spent the dividend the 10% compounding is on only 9k .


it is not like interest where you  got 10k invested , wake up the next morning and have  10% interested added to it .

dividends always have an automatic offset by the amount paid out .  that gives you less invested the next morning for the markets to compound on .  your remaining money invested plus the dividend equal just what you had the night before .

now don't get me wrong , i do like dividend stocks but for the reason that a company that constantly hands you  back more and more of your invested money and says here i don't need this can only do so because they are healthy .

so in the past dividend payers tended to outperform because it was a show of good health .

that may not be true anymore as they have been lagging  their non dividend paying brothers 6 out of the last 7 years .

but the mecahnics of the dividend are essentially still a non event and will leave you with less and less invested in equity's then had no dividend been paid and hypothetically total return was the same .

to think that your balance is not dependent on total return because you get a dividend  is flawed logic .

[mathjak107]

at the end of the day it is only about total return .

your balance couldn't care less if a 6% return is made up of a 2% dividend and 4% appreciation or 6% appreciation .  it is all about roi .

To a certain extent I disagree. You would be having to pay your ordinary tax rate on dividends versus you could potentially based on your tax bracket pay less in taxes through long-term capital gains. Now that may be a different situation though for someone wanting to live off of these dividend returns such as in retirement. Even then though, I'd think I'd rather let things appreciate then sell them.

the tax rates are a mixed bag .

any equity's you hold for a year  can have special capital gain rates .

with dividends there are three parameters to worry about .

whether or not the dividends are qualified or not

how long the fund held the stocks they sold

how long you held the fund .

there are a lot more issues you can't control receiving dividends then appreciation but the good news is qualified dividends can be things you held less than a year .

but the smart thing to do for most is to hold the dividend paying stocks in their retirement money and don't  worry about getting special capital gain rates .

any dividend paid over 1% as well as how much turnover there is  will  wipe out any tax savings over the long term in a taxable account . paying taxes even at low rates over 15-30 years of time will destroy any potential tax savings the special rates would have given you unless you can qualify for zero capital gain rates .

[USSFI]

if in a retirement account  taxes are a moot point .

the issue with  dividends  if they are in a taxable account you can't control the taxable event  . as an example i can't stop the flow in dividends from my funds  now that i retired and was hoping to get an aca  subsidary .

that taxable income coming in is beyond my control . so they are not always a good thing compared to appreciation only . it depends on the situation .

as far as living off dividends ?  it has been shown you get better results reinvesting the dividends so they can grow and just generating the income off the portfolio for the same amount  preferably from lower returning investments while the reinvested  money grows ,

i like dividends at times because it is easier to just take the cash flow if you want to reduce equity's rather then sell a bit on your own .

what you have to remember is if you have 10k in a dividend  stock you have 10k compounding for you  .

if you get a 10% dividend  overnight that  stock goes from 10k worth of stock to only 9k worth of stock and a 1k dividend .

exchange computers automatically reduce your value compounding at the open by the same amount ,  . it does this by reducing all  bids by the equal amount lowering all the prices in the system  so when the bell rings and the markets take over they are compounding on less dollars invested .

now all the market action is on a 9k investment at the opening bell  if you do not reinvest  that money .

so if you reinvest and the stock goes up 10% it is 10% on 10k .  if you spent the dividend the 10% compounding is on only 9k .


it is not like interest where you  got 10k invested , wake up the next morning and have  10% interested added to it .

dividends always have an automatic offset by the amount paid out .  that gives you less invested the next morning for the markets to compound on .  your remaining money invested plus the dividend equal just what you had the night before .

now don't get me wrong , i do like dividend stocks but for the reason that a company that constantly hands you  back more and more of your invested money and says here i don't need this can only do so because they are healthy .

so in the past dividend payers tended to outperform because it was a show of good health .

that may not be true anymore as they have been lagging  their non dividend paying brothers 6 out of the last 7 years .

but the mecahnics of the dividend are essentially still a non event and will leave you with less and less invested in equity's then had no dividend been paid and hypothetically total return was the same .

to think that your balance is not dependent on total return because you get a dividend  is flawed logic .

Please don't misunderstand me. Dividends are non events. Total return is the absolute metric to look for with one caveat - You have to find a buyer. For example take a look at EDOG - it's the same as IDOG or SDOG just for emerging markets. The shares can go up and and up finally peaking, but at that point you have to find a buyer for your shares if you want to cash out. In this respect dividends are no magic, but I like that the money is coming out without me having to find a buyer. Is this something that commonly happens? Absolutely not. There is more than enough liquidity in the system.

Again, my main reason for doing all this is I like companies that pay me something to hold them. Imagine buying into a housing property and you can't take any distributions without having to sell a room, or some other asset in the house (an extreme example). It wouldn't be very nice to own something like that, but that's essentially what total return is doing. On the flip side, that's what dividends are doing well. They are taking an asset, selling it (figuratively speaking), and shooting that cash over to your account.

tl;dr - I agree with you, but I like the illusion of a company paying you to hold it. Also this is 4% of my assets, not the biggest deal in the world.

Thanks for commenting!

[MachineGhost]

that may not be true anymore as they have been lagging  their non dividend paying brothers 6 out of the last 7 years .

It is still true.  We're just in a Fed-induced buyback bubble where corporations have been borrowing from the credit markets solely to pump up their EPS so C-level can get their option bonuses.  The S&P 500 would not have reported any positive EPS this year or something like that without the buybacks.  It's all a con game.  To paraphrase Trump, "It will be terrible when it ends.  Just terrible."

Good point on how its all a wash, though.  I tend to think of dividends as interest rather than just an offset.  You can ignore the underlying principal on "forever stocks" and just live off the yield though, so long as it grows above the rate of inflation each year.  I'm not willing to do that yet because an overvalued stock is still an overvalued stock.  Throw in P/E compression and whammo!

[MWKXJ]

Ben Graham used dividends as a sort of window into a company's quality.  From "Intelligent Investor":

4. Dividend Record.  One of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years.  We think that a record of continuous dividend payments for the last 20 years or more is an important plus factor in the company's quality rating.  Indeed the defensive investor might be justified in limiting his purchases to those meeting this test.

5. Current Dividend Rate.  This, our last additional factor, is the most difficult one to deal with in satisfactory fashion.  Fortunately, the majority of companies have come to follow what may be called a standard dividend policy.  This has meant the distribution of about two-thirds of their average earnings, except that in the recent period of high profits and inflationary demands for more capital the figure has tended to be lower.  (In 1969 it was 59.5% for the stocks in the Dow Jones average, and 55% for all American corporations.)  Where the dividend bears a normal relationship to the earnings, the valuation may be made on either basis without substantially affecting the result.  For example, a typical secondary company with expected average earnings of $3 and an expected dividend of $2 may be valueid at either 12 times its earnings or 18 times its dividend, to yield a value of 36 in both cases.

However, an increasing number of growth companies are departing from the once standard policy of paying out 60% or more of earnings in dividends, on the grounds that the shareholder' interests will be better served by retaining nearly all the profits to finance expansion.  The issue presents problems and requires careful distinctions.

...

Shareholders and Dividend Policy

In the past the dividend policy was a fairly frequent subject of argument between public, or "minority," shareholders and managements.  In general these shareholders wanted more liberal dividends, while the managements preferred to keep the earnings in the business "to strengthen the company."  They asked the shareholders to sacrifice their present interests for the good of the enterprise and for their own future long-term benefit.  But in recent years the attitude of investors toward dividends has been undergoing a gradual but significant change.  The basic argument now for paying small rather than liberal dividends is not that the company "needs" the money, but rather that it can use it to the shareholders' direct and immediate advantage by retaining the funds for profitable expansion.  Years ago it was typically the weak company that was more or less forced to hold on to its profits, instead of paying out the usual 60% to 75% of them in dividends.  The effect was almost always adverse to the market price of the shares.  Nowadays it is quite likely to be a strong and growing enterprise that deliberately keeps down its dividend payments, with the approval of investors and speculators alike.

There was always a strong theoretical case for reinvesting profits in the business where such retention could be counted on to produce a goodly increase in earnings.  But there were several strong counter-arguments, such as:  The profits "belong" to the shareholders, and they are entitled to have them paid out within the limits of prudent management; many of the shareholders need their dividend income to live on; the earnings they receive in dividends are "real money", while those retained in the company may or may not show up later as tangible values for the shareholders.  These counter-arguments were so compelling, in fact, that the stock market showed a persistent bias in favor of the liberal dividend payers as against the companies that paid no dividends or relatively small ones.

In the last 20 years the "profitable reinvestment" theory has been gaining ground.  The better the past record of growth, the readier investors and speculators have become to accept a lowpay-out policy.  So much is this true that in many cases of growth favorites the dividend rate---or even the absence of any dividend---has seemed to have virtually no effect on the market price.

...

The market's appraisal of cash-dividend policy appears to be developing in the following direction:  When prime emphasis is not placed on growth the stock is rated as an "income issue," and the dividend rate retains its long-held importance as the prime determinant of market price.  At the other extreme, stocks clearly recognized to be in the rapid-growth category are valued primarily in terms of the expected growth rate over, say, the next decade, and the cash-dividend rate is more or less left out of the reckoning.

...

It is our belief that shareholders should demand of their managements either a normal payout of earnings---on the order of, say, two thirds---or else a clear-cut demonstration that the reinvested profits have produced a satisfactory increase in per-share earnings.

[mathjak107]

Actually the dividend is like that housing you invested in saying here we can't rent the living room so here is the money back you paid for the living room portion.

In effect those dollars they give you are dollars you had the day before the adjustment  , they are just giving you back your own money saying here you go invest this somewhere else.

They subtract off the value of your investment and it no longer gets to compound.

[MachineGhost]

In effect those dollars they give you are dollars you had the day before the adjustment  , they are just giving you back your own money saying here you go invest this somewhere else.

But unrealized capital gains are not "your money" as long as you own shares instead of cold, hard cash.  It's a mirage until you find a willing buyer.

Investors that do take the dividend yield without automatic reinvestment are those living off the income anyway, so I seriously doubt they care about the offsetting or unrealized capital gains losses.  You need some strong chutzpah or advanced old age to not care.

[MWKXJ]

Actually the dividend is like that housing you invested in saying here we can't rent the living room so here is the money back you paid for the living room portion.

In effect those dollars they give you are dollars you had the day before the adjustment  , they are just giving you back your own money saying here you go invest this somewhere else.

They subtract off the value of your investment and it no longer gets to compound.

Granted, Graham wrote the preceding a long time ago.  Perhaps things have changed.

It does seem as if the advantages of ownership in a non-dividend-paying company amount to, in effect, promises: "I'll keep the profits and promise the investor to grow the company with them".  The pickle lies in what this growth actually amounts to.  If it's tangible assets which increase the value of the company then withholding the dividend might be a good idea, however, if it's research into the next "New Coke" or "Pontiac Aztek" an investor might very much have preferred to receive the cash instead.  In other words, the company's retention of the dividend is in no way guaranteed to result in a greater valuation of the company, it's all contingent on what the company does with said cash, and these decisions are largely out of the investor's control save in the case of investor activists ...yet successful investor activism is largely cost and time prohibitive to the average investor.

The ability of a company to consistently pay, or even increase, dividends over decades, would seem to be an indicator that a company is operating at a clip that is at least sustainable, as Graham seems to suggest in the excerpt.  See the recent performance of SeaDrill (SDRL) for an example of a dividend-paying company which did not meet Graham's 20-year payout threshold and grew itself into rough times.  Also, many growth companies seem prone to "feature creep" and "mission scope" when they redirect their profits back into themselves.  See "GOOG" and its uncountable abandoned projects for an example.

[mathjak107]

No one is doubting what a company paying out money it does not need means.
the only point here is the dividend really gives you nothing you can' t do generating the same amount from a portfolio assuming same total return.

[MachineGhost]

I think paying out dividends for a long period of time and/or dividend growth is simply a marker for quality.  There's just no way to fake it.  You either pay out cash or you engage in creative accounting for whatever pseudo-fraudulent reasons.  Hence why buying the top 20% of yielding stocks of the S&P 500 outperforms any other strategy in the long-term at 15% CAGR.  Although I would want to examine performance since the SEC rule change favoring buybacks in the 80's to make sure the early years didn't exaggerate the CAGR.

If so, it may require more difficulty now to determine whether or not a company is also buying back their shares when they are undervalued as opposed to overvalued.  Many companies now pay both dividends and engage in pseudo-fraudulent buybacks, i.e. Apple.  Although Apple actually IS borderline undervalued, the situation can rapidly change if theres a flop, disappointment or slowdown in any of their fanboy products.

"Forever stocks" cannot fall under any definition of pseudo-fraudulent buybacks.  It will NOT work.  Give me 100% pure dividends or give me death!

[mathjak107]

Not just paying dividends is a sign of good health but rising dividends.

We had some pretty crappy company's that were the bluest of blue chips  at one time that ended up paying dividends right up until they fell right in to the grave.

So a company with a history of paying rising dividends has to be financially healthy.

But today many of them are mature company's with not a whole lot of growth potential left.

So it depends what you want .

According to david silverblatt at s&p dividends have actually become the least effective way to compound returns on investor money since any money paid out from the amount invested loses compounding forever.

Today i have a mix of both growth and dividend payers.

The dividend payers that are in my retirement accounts get all dividends reinvested . That keeps the amount of dollars invested in those funds intact.

If the funds pay 2% in dividends i will pull an equal amount from the portfolio as spending money  from slower growing assets like cash and bonds.

Dividends in the taxable account get spent directly since reinvesting them and selling some thing else would get us taxed 2x.

[WildAboutHarry]

Consider: Some wise poster on this board once made the assertion that capital gains (i.e. a component of total return) do not compound unless realized.  Dividends that are reinvested do.

Discuss.

[mathjak107]

that would be one big baloney statement then . your portfolio value is all yours each and every day .

it would be ludicrous to think that anything different transpired except a taxing event if instead of selling each night and re buying another investment in the morning is any different then choosing to keep the money in play in the same investment .

selling one investment and riding another up or down from that point is no different then keeping that investment and riding it up and down from that point on .

your net worth is what you have whether you choose to count it , care  to look until you sell or sell it  at any point in time .

when we invest our returns are variable just like our pay check is variable if we work on commission .  whether we sell and generate a taxing event or keep the money in play is irrelevant . there is no such thing as a gain or loss only on paper .  you are just not choosing to count you net worth is all that you are doing .

in fact whether i sell or not my retirement income each year is based on that value ,  our estate taxes if any are based on that value and your new worth is based on that value ,  your rmd's and even the mortgage i want to take in retirement is all based on that value  whether you realize the gains and loses or not .

if you label that statement as being wise i got a bridge to sell you .

[WildAboutHarry]

that would be one big baloney statement then . your portfolio value is all yours each and every day .

it would be ludicrous to think that anything different transpired except a taxing event if instead of selling each night and re buying another investment in the morning is any different then choosing to keep the money in play in the same investment .

selling one investment and riding another up or down from that point is no different then keeping that investment and riding it up and down from that point on .

your net worth is what you have whether you choose to count it , care  to look until you sell or sell it  at any point in time .

when we invest our returns are variable just like our pay check is variable if we work on commission .  whether we sell and generate a taxing event or keep the money in play is irrelevant . there is no such thing as a gain or loss only on paper .  you are just not choosing to count you net worth is all that you are doing .

in fact whether i sell or not my retirement income each year is based on that value ,  our estate taxes if any are based on that value and your new worth is based on that value ,  your rmd's and even the mortgage i want to take in retirement is all based on that value  whether you realize the gains and loses or not .

if you label that statement as being wise i got a bridge to sell you .

From Investopedia:

DEFINITION of 'Compounding'

The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Unrealized capital gains don't do that in the same way that dividends or harvested capital gains do.

A different (wise) poster on this board stated:

Without harvesting volatility or taking a dividend, its possible to get nothing from holding a share for the entire life of a company.

[mathjak107]

at the end of the day all that matters are what your investments are worth . period!    whether you sell or not is irrelevant ,.  i defy anyone to say that money invested in any non dividend payer through the years  like Berkshire  did not COMPOUND YEAR AFTER YEAR ON INVESTOR MONEY .,

you left out the rest of your definition .  did you forget that part ?  it says nothing about the fact you didn't get a dividend  or have to sell  it or it means you have no compounding . that would just be nonsense . in fact the example they give proves my point .  earnings do not have to be distributed or dividends paid to compound your money .


DEFINITION OF 'COMPOUNDING'
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Suppose you invest $10,000 into Cory's Tequila Company (ticker: CTC). The first year, the shares rises 20%. Your investment is now worth $12,000. Based on good performance, you hold the stock. In Year 2, the shares appreciate another 20%. Therefore, your $12,000 grows to $14,400. Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $2,000 you gained in the first year grew by 20% too. If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000 (and that's without adding any money to the investment)!

The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein.



Read more: Compounding Definition | Investopedia http://www.investopedia.com/terms/c/com ... z3sCzy4NCX
Follow us: Investopedia on Facebook

[mathjak107]

i think that wise person needs to get a bit  wiser when it comes to investing . as well as if they are going to quote investopedia at least quote it properly  and completely ..

retaining the share price value  as opposed to distributing part of the share price as a dividend , amounts to no difference in balance .

but if you do not reinvest the dividend then you have less money compounding for you in that stock or fund ..

[WildAboutHarry]

I think you miss the point.

Unless gains (either dividends or capital gains) are realized, those gains, regardless of how they came about (i.e. the excellent performance of "Cory's Tequila Company"), are subject to vagaries of the market.  Your unrealized gains can evaporate in a heartbeat due to any number of market forces.

The whole point of re-balancing the PP is to (hopefully) realize gains, replacing strongly performing assets with weaker-performing assets.

You can spend or reinvest (wisely or foolishly) realized gains.  You cannot do either with unrealized gains.  In essence you are letting the money ride.  You can place a bet on the Pass Line (in craps) and let the money ride.  Your $5 can "compound" to over $1,000,000 with only 19 consecutive wins.  And it is all yours.  You can pick up your pile and leave.  But if the dice go against you on the 20th roll, you now have exactly $0.00.

You are right, of course, at the end of every day your assets are yours, and they are worth what they are worth, period.  But every day the market is open your assets are subject to market forces and are only worth what the market says they are worth - right up to the point you realize gains (or losses), or a dividend is paid.

Your example of Berkshire is right on point.  The person that bought on June 30th 1998 had to wait until December of 2003 to break even. The person who bought on June 30th 1998 and had to sell on February 27th 2009 made virtually nothing.  And the person that bought in December 2014 is currently under water.  And of course I cherry-picked the dates.

[mathjak107]

so what if they vary  . your money will always vary whether  you sell one investment  and buy another investment or leave the money in play in the same investment .  you are trying to tell us there is a difference between the two scenario's ?  nonsense , there is not . .  choosing when or if to sell has nothing to do with the return and compounding on your invested money .  profits certainly can be retained as  part of the share price and you decide when and if to take them out not the company .

whether i close my position each night and rebuy another one in the morning or  hold my same  position through the night there is no difference . my balance is my balance regardless of which path i picked and just as variable on the same amount of invested dollars ..

as long as you stay invested  your balance fluctuates moment to moment but THAT BALANCE IS AS SURELY ALL MINE AND  JUST AS SPENDABLE..

it is nonsense to think otherwise .

even if you give up investing and sell everything and put it in the bank , inflation now vary's making your balance not have the same purchasing power  year to year .

your balance never stops being variable , either in worth or purchasing power . 

TRY TELLING BERKSHIRE INVESTORS THERE MONEY DIDN'T REALLY COMPOUND BECAUSE THEY DIDN'T SELL .  all investments are tracked by cagr whether sold or not .

a dividend is a  piece of the current  share price being split off , it has zero to do with whether you are actually  up or not or the compounded return on your investment  .  company's that both lose money as well s have negative yearly returns still pay dividends .
  the dividends just  reduce your investment in the stock by the amount of the pay out .

[mathjak107]

FINRA MANUAL :

5330. Adjustment of Orders

(a) A member holding an open order from a customer or another broker-dealer shall, prior to executing or permitting the order to be executed, reduce, increase, or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent ($0.01), as follows:
(1) Cash Dividends: Unless marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation.
-------------------------------------------------------------------------------

market action acts on the stock all quarter but all compounding is based on the amount invested and compounded on at the opening bell  .

those gains would be on a bigger balance if the price was not reduced and the investment value reduced by the pay out . that is why reinvesting the dividends gives you the same value that you had prior to the payment .



the fact is the dividend payment if reinvested is a neutral event or it leaves you with less to compound on if you spend it instead .
if that wasn't the case we would all just buy the day the dividend was recorded and sell right after with a profit . so noooooo it does not work like that .

[WildAboutHarry]

Dividends do reduce the stock price, right up to the point where the market opens and prices fluctuate (up or down or unchanged).  But the company begins earning a new dividend at the same time.  So is the price adjusted upward daily (in the same manner it was reduced by the dividend payment) to account for that accrual?  Of course not.

that is why reinvesting the dividends gives you the same value that you had prior to the payment .

It doesn't, of course.  Those shares from reinvestment are subject to market forces.  But you now have additional shares that earn dividends that buy more shares that earn dividends, etc.  Hey, compounding!

Ok, I'm about done here.  I would like to continue the discussion, but your semi-ad hominem language is really off putting (e.g. "baloney', 'nonsense', 'ludicrous', 'I defy anyone',  'noooooo', etc.).

[mathjak107]

here is the problem .

if a growth fund goes up 10%  you have 110k on a 100k investment year 1

if you have a 100k investment in a stock paying a 10% dividend and it goes up 10% you have 110k but  you end up with a 100k  investment left year 1 and 10k in pocket .

if you do not reinvest those dividends you have less to compound in the investment the following year , all you have is 100k .  if you do reinvest it you are no better off than example 1 where you had 10% appreciation and no dividend even though you have more shares because they are now at a reduced price .  the dollars being compounded are identical in both cases


there is no difference at all between not getting that dividend or getting a dividend and reinvesting it .  zero difference . if the same total return .

your compounding balances are identical .

don't get confused with the fact you have more shares , those shares are adjusted so you still have the exact same balance  and that is all that matters .

by the same token having a portfolio and getting 2% in dividends and spending it directly is identical to  not getting the dividend , having the portfolio go up 2% and drawing out the same amount  from the overall portfolio .

[Jack Jones]

Ok, I'm about done here.  I would like to continue the discussion, but your semi-ad hominem language is really off putting (e.g. "baloney', 'nonsense', 'ludicrous', 'I defy anyone',  'noooooo', etc.).

Thanks for your explanation. It was clear and novel to me. It was especially pleasant because half of the discussion looked like this:

Posted by: mathjak107
� on: November 22, 2015, 11:08:55 AM �
You are ignoring this user. Show me the post.