Apathizer wrote: ↑Sat Oct 23, 2021 2:30 am
nedsaid wrote: ↑Fri Oct 22, 2021 9:34 pmCheck out Vanguard High Dividend Yield Index (VHYAX) and under the Portfolio tab check the Factor Profile thermometer graphs. It scores very high on Value, very high on Yield, and low on Quality. If you look at the Equity Stylebox, the fund is very solidly in the Large Value box.
It essentially seems to be large cap value, though I'm guessing with more dividend emphasis? So it's essentially very similar to something like VTV, but with more dividend emphasis?
If you compare the style box and measures, VHYAX and VTV look pretty similar. VTV has performed a little better and doesn't target dividends stocks specifically, so it seems like a better option. Again,
literal dividends don't matter.
Larry Swedroe said that High Dividend is a bad Value strategy. It is a variation of the old Dogs of the Dow strategy where you bought the 10 Dow Stocks with the highest dividends. In the case of the Dogs, yields were high because stock price was depressed, so it was a way of buying cheaper stocks. Vanguard has a conservative definition of High Dividend, so it doesn't get carried away with buying such things as Oil Pipeline Master Limited Partnerships or REITs with high yields. You can always find something out there with a 5% or 6% yield but there can be lots of risk associated with those higher yields. So Vanguard High Dividend Index gets you a higher yield than the market but the companies in there are solid companies.
There is a minority opinion in Academia that dividends do matter. Jeremy Seigel, of Stocks for the Long Run fame, does believe in dividends. Notice that Morningstar lists Yield as a factor and so does MSCI in a white paper on factors. So probably 90% to 95% of Academia believe that dividends don't matter but there are notable exceptions. Jeremy Seigel wrote a whole book on this topic. He was a believer that reinvesting dividends during a bear market helped boost returns over the long term. First the dividends helped cushion bear markets and the reinvestment bought shares while they were relatively cheap.
I do believe that dividends matter. Earnings can be manipulated but dividends are harder to fake. They are a vote of confidence by the Board of Directors in the continued viability of the company. There is a dividend discount model out there for pricing stocks. I don't believe that dividends are "free money", both the amount of cash on the balance sheet and dividends paid are factored into the stock price, indeed all other things being equal you will see a stock price fall on the ex-dividend date by the amount of the dividend. A stock could rise on ex-dividend date but the rise in price is affected by the amount of the dividend.
There gets to be a point where a business cannot effectively reinvest all of its profits back into the business, better to return excess cash to shareholders than waste in on foolish acquisitions. If there were two more mature companies exactly the same except for dividend policy, I would choose the company that paid a dividend over the company that did not. Lifecycle of the company matters too, you don't want a company in a fast growth phase to pay dividends as they need all the capital they can get their hands on to finance expansion.
Despite what Warren Buffett says, I think that Berkshire-Hathaway is getting to the point where it is harder and harder to buy companies that will create a true synergy with the acquisition. It is a rather idiosyncratic company tailored to Buffett and Munger, when they pass from the scene I think management will make changes. They are in need of paying a dividend, they really don't need any more acquisitions. Eventually conglomerates running unrelated businesses get broken up, the same will happen there.
A fool and his money are good for business.