Dividend Controversy

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

CuriousTacos wrote: Wed Feb 16, 2022 10:41 pm Perhaps it is definitional games, but you can get higher loadings on quality, value, and profitability with funds that aren't specifically about dividends. Why would you prefer a dividend fund over those?
An investor who wants income can justify tilting to dividends from fundamental principles without any knowledge of backtests whatsoever.

Can a factorhead? Why would you care about those factors without knowing past performance?
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Dividend Controversy

Post by Apathizer »

000 wrote: Thu Feb 17, 2022 1:04 am If (it may not be true) there is a tax avoidance premium in low dividend stocks, they have lower expected return for a non-taxable investor because of the premium cost.

Imagine a world of investors with heterogeneous tax situations where it is discovered low and high dividend stocks always have had the same total pre-tax return. Maybe a Ben Felix video goes viral. Suddenly, high tax investors realize that, because there is a benefit to tax deferral in this world just as ours, that they want more low dividend stocks and fewer high dividend stocks as, assuming same pre-tax returns, the low dividend stocks then have higher after-tax returns for these investors. So they begin selling high div and buying low div. In order for these transactions to complete, there must be others in the market who are weighted the opposite way. These low tax investors are initially indifferent to dividends. They have no reason to just trade with high tax investors at current prices. The high tax investors value tax deferral, and only the low tax investors can trade with them to let them get there. A premium is demanded to reach a new equilibrium.

We are way deep into the weeds here, however, and I think cyclical irrationality is a better explanation for differences in stock performance.
Your last sentence seems more likely to me. It's my understanding large value stocks pay more dividends than the TSM, but this difference is incidental to overall return. If LV out-performs it seems more likely due to lower share price relative to fundamentals like low P:E, high-profitability, etc, rather than dividends.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
CuriousTacos
Posts: 690
Joined: Thu Apr 12, 2018 3:31 pm

Re: Dividend Controversy

Post by CuriousTacos »

Ocean77 wrote: Wed Feb 16, 2022 11:09 pm
CuriousTacos wrote: Wed Feb 16, 2022 10:34 pm But companies that pay dividends aren't necessarily that different. If you want different, I'd suggest funds with higher loadings of the quality, profitability, and value factors. The only reasons I see to prefer dividends over such factor funds is either behavioral or a misunderstanding of what dividends are/are not.
Take any dividend ETF and compare the holdings (type of companies, industry/sector they tend to come from, business model etc) against a growth fund or just the top holdings of the S&P500. And you'll find out they are quite different.
I should have been more clear- if dividends themselves were the best signal or characteristic, then the ideal fund should generally choose companies with the highest dividend yield, but such funds are typically not the preferred dividend funds in these threads. This is because we all know and agree that dividend yield by itself isn't that great of an indicator of how a company is run. Instead, other screens are layered on top of dividend yield to produce the companies selected by funds such as SCHD or VIG.

So my point is that dividend yield isn't even necessary or helpful as part of such a screen, but rather factors such as value, quality, and profitability are better indicators of the types of companies that dividend investors think they want to invest in, and these factors have a better academic justification than the dividend funds proposed in these threads.
CuriousTacos
Posts: 690
Joined: Thu Apr 12, 2018 3:31 pm

Re: Dividend Controversy

Post by CuriousTacos »

000 wrote: Thu Feb 17, 2022 1:06 am
CuriousTacos wrote: Wed Feb 16, 2022 10:41 pm Perhaps it is definitional games, but you can get higher loadings on quality, value, and profitability with funds that aren't specifically about dividends. Why would you prefer a dividend fund over those?
An investor who wants income can justify tilting to dividends from fundamental principles without any knowledge of backtests whatsoever.
If this investor is merely looking for a way to justify their personal preference for income, then sure, they could do worse things (as long as they don't ditch bonds as has been suggested in this thread). But they should expect resistance when they defend/promote such strategies without more evidence or without stating that their motivation is purely behavioral rather than any expected performance benefit.

If this investor is interested in fundamental principles only because of the current high valuations of growth companies (as suggested in the OP), they should be wary of trying to time the market.

If this investor wants to invest in reasonably diversified funds that have an academic basis for a potentially small out-performance over the very long term and can stick with it for the very long term, then factor funds are worth a look.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: Dividend Controversy

Post by Da5id »

000 wrote: Thu Feb 17, 2022 1:04 am
Da5id wrote: Wed Feb 16, 2022 10:33 pm If the returns are identical
You assumed the result.
...
Imagine a world of investors
Historically investing in dividends doesn't generate alpha that I'm aware of. Have you evidence for it? I feel like claims that "strategy X generates alpha" need significant proof. As you made that claim, I feel like the burden is on you to establish it with details beyond "imagine a world". But I gather you think differently on that point.
alfaspider
Posts: 4816
Joined: Wed Sep 09, 2015 4:44 pm

Re: Dividend Controversy

Post by alfaspider »

Ocean77 wrote: Wed Feb 16, 2022 10:19 pm
burritoLover wrote: Sun Feb 13, 2022 7:51 am Receiving a dividend is exactly the same as selling the same amount of a non-dividend paying stock. Doesn’t matter what the situation is. Which makes dividend yield from stocks meaningless.
alfaspider wrote: Sun Feb 13, 2022 8:00 am Dividends made a lot more sense historically when stocks were a lot less liquid and brokerage commissions were high. Today, they are a little more than a forced tax event from the perspective of investors. Some just haven’t figured that out yet.
I see these type of sentiments in a number of posts here in this thread. What you all are missing is that companies that pay dividends tend to be different than companies that do not, in a number of ways. Just read the OP carefully, for starters. One implication is that owning stocks with good dividend yields can be a good diversifying move, especially when ones portfolio is dominated by growth stocks that pay little or no dividend. And diversification is generally a good thing. Some call it a free lunch.
Weighting your portfolio in any direction is by definition anti-diversification. Own the haystack.
RubyTuesday
Posts: 2241
Joined: Fri Oct 19, 2012 11:24 am

Re: Dividend Controversy

Post by RubyTuesday »

JazzTime wrote: Tue Feb 15, 2022 6:44 pm
Da5id wrote: Tue Feb 15, 2022 12:08 pm
JazzTime wrote: Tue Feb 15, 2022 11:38 am We all know past results are not an indicator of future performance. However, based on his/her own individual needs and comfort level, one can decide if a dividend portfolio makes sense for them.

No need to comment that the date and/or portfolio composition are "cherry picked." Inevitably, all historical performance is cherry picked and, as stated above, the past is no indicator of the future. It is what it is. It may or may not be useful information for an individual.
I question the presentation of data qualified by "here is some data, but don't comment on whether it is valid or reasonable or useful". In particular, setting up 100% stock as comparable to 70% stock strikes me as an odd and difficult to justify choice.
I never said 100% stock is equivalent to 70% stock. I presented data that illustrated a 100% div portfolio (represented by SCHD) significantly outperformed (by $600K) the BH 3-fund portfolio (VTI-VXUS-BND):

Portfolio - - - - - - - - - - Initial Balance - - - Final Balance - - - Div Pd 2021
SCHD (100%) - - - - - - - - - $1,000,000 - - - - - $2,151,155 - - - - $61,068
VTI-BND (70:30) - - - - - - -$1,000,000 - - - - - $1,709,568 - - - - S26,360
VTI-VXUS-BND (50:20:30) -$1,000,000 - - - - - $1,495,518 - - - - $28,500
VTI (100%) - - - - - - - - - - $1,000,000 - - - - - $2,157,631 - - - - $27,932 (not shown in PV link)

Moreover, at the end of the period, it was paying more than twice the dividend.

Some might consider that information interesting and, perhaps, even useful. Then there are those who feel it doesn't confirm their particular narrative and are free to ignore or dismiss it. I'm not here to convince anyone of anything. Data is data and the reader can do with it what he/she wishes.
You just made the case for 100% VTI being better than 100% SCHD. You reinvested dividends, VTI had a better return (granted very small win)
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

RubyTuesday wrote: Thu Feb 17, 2022 9:16 am
JazzTime wrote: Tue Feb 15, 2022 6:44 pm
Da5id wrote: Tue Feb 15, 2022 12:08 pm
JazzTime wrote: Tue Feb 15, 2022 11:38 am We all know past results are not an indicator of future performance. However, based on his/her own individual needs and comfort level, one can decide if a dividend portfolio makes sense for them.

No need to comment that the date and/or portfolio composition are "cherry picked." Inevitably, all historical performance is cherry picked and, as stated above, the past is no indicator of the future. It is what it is. It may or may not be useful information for an individual.
I question the presentation of data qualified by "here is some data, but don't comment on whether it is valid or reasonable or useful". In particular, setting up 100% stock as comparable to 70% stock strikes me as an odd and difficult to justify choice.
I never said 100% stock is equivalent to 70% stock. I presented data that illustrated a 100% div portfolio (represented by SCHD) significantly outperformed (by $600K) the BH 3-fund portfolio (VTI-VXUS-BND):

Portfolio - - - - - - - - - - Initial Balance - - - Final Balance - - - Div Pd 2021
SCHD (100%) - - - - - - - - - $1,000,000 - - - - - $2,151,155 - - - - $61,068
VTI-BND (70:30) - - - - - - -$1,000,000 - - - - - $1,709,568 - - - - S26,360
VTI-VXUS-BND (50:20:30) -$1,000,000 - - - - - $1,495,518 - - - - $28,500
VTI (100%) - - - - - - - - - - $1,000,000 - - - - - $2,157,631 - - - - $27,932 (not shown in PV link)

Moreover, at the end of the period, it was paying more than twice the dividend.

Some might consider that information interesting and, perhaps, even useful. Then there are those who feel it doesn't confirm their particular narrative and are free to ignore or dismiss it. I'm not here to convince anyone of anything. Data is data and the reader can do with it what he/she wishes.
You just made the case for 100% VTI being better than 100% SCHD. You reinvested dividends, VTI had a better return (granted very small win)
And exactly the problem is where is the assurance that picking a dividend portfolio is helpful. It isn't in that data.

I think what the poster above is trying to show, and is true, is that with SCHD you can get a lot more in dividends than with VTI without hurting your return. Of course, no one is claiming dividends hurt return, only that such a choice does not help. The issue about which is more diversified can still be discussed, of course. Maybe the idea is supposed to be that getting dividends from a stock fund is better than going out and buying bond funds to get dividends. There is no news there if the actual incentive is higher expected return in stocks than in bonds, and at current interest rates bonds don't even produce higher dividends. The exception is high yield bonds, but that is a whole other discussion.

So, again, the question comes down to what is the purpose of getting more of the return in dividends? And, again, if someone just likes it that way, then more power to them.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: Dividend Controversy

Post by JackoC »

alfaspider wrote: Thu Feb 17, 2022 9:04 am
Ocean77 wrote: Wed Feb 16, 2022 10:19 pm
burritoLover wrote: Sun Feb 13, 2022 7:51 am Receiving a dividend is exactly the same as selling the same amount of a non-dividend paying stock. Doesn’t matter what the situation is. Which makes dividend yield from stocks meaningless.
alfaspider wrote: Sun Feb 13, 2022 8:00 am Dividends made a lot more sense historically when stocks were a lot less liquid and brokerage commissions were high. Today, they are a little more than a forced tax event from the perspective of investors. Some just haven’t figured that out yet.
I see these type of sentiments in a number of posts here in this thread. What you all are missing is that companies that pay dividends tend to be different than companies that do not, in a number of ways. Just read the OP carefully, for starters. One implication is that owning stocks with good dividend yields can be a good diversifying move, especially when ones portfolio is dominated by growth stocks that pay little or no dividend. And diversification is generally a good thing. Some call it a free lunch.
Weighting your portfolio in any direction is by definition anti-diversification. Own the haystack.
Agree. In the big haystack on this thread of wrong or questionable understanding of dividends, one potentially valid needle is the unproven but plausible hypothesis that there's a 'factor' related to dividend yield that could correlate to higher risk/return. But relying on a past finding of this kind would be a form of factor investing, which as you say is anti-diversification, as well as implicit claim that the distribution of returns is stationary over time (IOW that even 'statistically significant' results from the past mean a lot going forward, unfortunately we don't know that).

The other aspect mentioned which a bit different from a pre tax 'factor' and *potentially* valid in theory would be a tax preference effect. That is, though to some surely much smaller degree, low dividend stocks all else equal could have lower pre tax expected return than high dividend stocks, like muni bonds have lower pre tax expected return than equivalent credit taxable bonds. But that effect doesn't actually have to be exist, even a small one. Only empirical research would show if the *market clearing price participant* had this preference. That can again be analogized to munis. There's an obvious tax preference effect in that case. But without data we don't know what it would be quantitatively. It depends on the tax bracket of the market clearing participant, not the highest bracket, not the average bracket. It could be that non-taxed/tax-deferred investor activity in stocks is so dominant around the market clearing price that even a small dividend tax preference effect doesn't exist in practice. You'd need a professional level study to evaluate that. A DIY junk analysis using Portfolio Visualizer on a few different MF/ETF's not correcting for all kinds of other things, in a small sample, should not convince anyone. And the big data problem in a real study would be, as was mentioned, that both marginal tax rates and relative tax treatment of dividends and cap gains has varied dramatically over time. But I'm open to being linked to a study which has shown a measurable tax preference effect around higher/lower dividends for the otherwise similar companies. It would seem odd if no academic ever thought of studying this. If there's no such published study it might indicate (though would not prove, I grant) that it can't be shown to exist: studies which find 'nothing to see here' don't tend to get published. :happy
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

JackoC wrote: Thu Feb 17, 2022 9:43 am

Agree. In the big haystack on this thread of wrong or questionable understanding of dividends, one potentially valid needle is the unproven but plausible hypothesis that there's a 'factor' related to dividend yield that could correlate to higher risk/return. But relying on a past finding of this kind would be a form of factor investing, which as you say is anti-diversification, as well as implicit statement the the distribution of returns is stationary (even 'statistically significant' results from the past mean a lot going forward, unfortunately we don't know that).

The other aspect mentioned which a bit different from a pre tax 'factor' and *potentially* valid in theory would be a tax preference effect. That is, though to some surely much smaller degree, low dividend stocks all else equal could have lower pre tax expected return than high dividend stocks like muni bonds have lower pre tax expected return than equivalent credit taxable bonds. But that effect doesn't actually have to be anything, there doesn't even have to be a small one in reality. Only empirical research would show if the *market clearing price* participant had this preference. That can again be analogized to munis. There's an obvious tax preference effect in that case. But without data we don't know what it would be quantitatively. It depends on the tax bracket of the market clearing participant, not the highest bracket, not the average bracket etc. It could be the non-taxed/tax-deferred investor activity in stocks is so dominant around the market clearing price that a dividend tax preference doesn't actually exist in practice. You'd need a professional level study to give you answer there, a DIY junk analysis using Portfolio Visualizer on a few different MF/ETF's not correcting for all kinds of other things, in a small sample, should not convince anyone. And the big data problem in a real study would be, as was mentioned, that both marginal tax rates and relative tax treatment of dividends and cap gains has varied dramatically over time. But I'm open to being linked to a study which has shown a measurable tax preference effect around higher/lower dividends for the otherwise same kind of companies. It wouldn't seem that no academic ever thought of studying this. If there's no such study it might indicate (though would not prove, I grant) that it can't be shown to exist, studies which find 'nothing to see here' don't tend to get published. :happy
Two comments.

First is that factor investing advocates like to speak of "diversifying over factors." I'll leave it to other to explain what that might or could mean.

Second, I remember reading a paper some years ago that attempted to find the actual ex dividend change in market pricing in equities and that paper claimed that the best fit was to a NAV loss of the after tax value of dividends paid. That might support the idea of a tax preference effect.
User avatar
Nate79
Posts: 9373
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Dividend Controversy

Post by Nate79 »

For all the 6 pages of discussion so far I would like to see someone who is pro-dividend could recommend a mutual fund/ETF that is dividend focused that has consistently over long periods of time provided a higher return than Total stock market?
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: Dividend Controversy

Post by Ocean77 »

CuriousTacos wrote: Thu Feb 17, 2022 1:38 am I should have been more clear- if dividends themselves were the best signal or characteristic, then the ideal fund should generally choose companies with the highest dividend yield, but such funds are typically not the preferred dividend funds in these threads. This is because we all know and agree that dividend yield by itself isn't that great of an indicator of how a company is run. Instead, other screens are layered on top of dividend yield to produce the companies selected by funds such as SCHD or VIG.
No argument here, and this does not contradict my posts. There are other good strategies. I did not claim that a dividend focus was the best one, let alone the only one.

CuriousTacos wrote: Thu Feb 17, 2022 1:38 am So my point is that dividend yield isn't even necessary or helpful as part of such a screen, but rather factors such as value, quality, and profitability are better indicators of the types of companies that dividend investors think they want to invest in, and these factors have a better academic justification than the dividend funds proposed in these threads.
Which does not mean that these will work better over the next decade than a dividend focus.
30% US Stocks | 30% Int Stocks | 40% Bonds
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: Dividend Controversy

Post by Ocean77 »

alfaspider wrote: Thu Feb 17, 2022 9:04 am Weighting your portfolio in any direction is by definition anti-diversification.
This is not the case. You can look up the definition of diversification.
30% US Stocks | 30% Int Stocks | 40% Bonds
CuriousTacos
Posts: 690
Joined: Thu Apr 12, 2018 3:31 pm

Re: Dividend Controversy

Post by CuriousTacos »

With so many posters in this thread, it's hard to keep track of what each person's main point is. Piecing together some of your posts makes it clear that your main motivation is diversification from the currently high concentration of "growth" companies in total market indices:
Ocean77 wrote: Wed Feb 16, 2022 10:19 pm One implication is that owning stocks with good dividend yields can be a good diversifying move, especially when ones portfolio is dominated by growth stocks that pay little or no dividend. And diversification is generally a good thing. Some call it a free lunch.
Ocean77 wrote: Thu Feb 17, 2022 12:04 am Famous last words of the investor just before his high flying growth stocks tanked and dividend payers outperformed for a decade. :D
Ocean77 wrote: Thu Feb 17, 2022 11:34 am
CuriousTacos wrote: Thu Feb 17, 2022 1:38 am So my point is that dividend yield isn't even necessary or helpful as part of such a screen, but rather factors such as value, quality, and profitability are better indicators of the types of companies that dividend investors think they want to invest in, and these factors have a better academic justification than the dividend funds proposed in these threads.
Which does not mean that these will work better over the next decade than a dividend focus.
Sure, nobody knows for sure what will work best over the next decade. But that doesn't mean we should ignore the past and rely on our intuition about what characteristics are likely to perform well if growth tanks.

The last time growth stocks burst following a bubble, dividend funds were not a good diversifier, but value/size/quality/profitability were:
Dark Blue: Vanguard Dividend Appreciation
Red: Total Market
Light blue: Dimensional Large Value (with some size and possibly quality/profitability screens)
Green: S&P Small Value (with profitability screen)
Image

Do you have a different reason for why you think dividend funds are more likely than value/size/quality/profitability to outperform if growth tanks?
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: Dividend Controversy

Post by Northern Flicker »

jazztime wrote: First, one common criticism is that dividend investing is tax inefficient. That statement may be true if one is comparing a dividend stock (where the dividend is taxed annually) to a non-dividend stock (where tax is only paid on the LTCG upon selling.) But BHers are big fans of the 3-fund portfolio. That portfolio includes bonds (e.g., BND) and bonds pay interest that is taxed as ordinary income. In contrast, dividends receive favorable tax treatment.
If you hold "dividend-oriented" stocks, you still need bonds. "Dividend-oriented" stocks got slaughtered in 3/2020. They do not reduce the need for bonds for risk management.
jazztime wrote: Second, there is a bit of a mischaracterization that dividends reduce share price. That's only true in the millesecond following the point at which the stock goes ex-dividend.
So what? Events afterwards that affect the price would affect the price with or without the dividend declared.
Last edited by Northern Flicker on Thu Feb 17, 2022 9:59 pm, edited 1 time in total.
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: Dividend Controversy

Post by Ocean77 »

CuriousTacos wrote: Thu Feb 17, 2022 1:07 pm With so many posters in this thread, it's hard to keep track of what each person's main point is. Piecing together some of your posts makes it clear that your main motivation is diversification from the currently high concentration of "growth" companies in total market indices:
Ocean77 wrote: Wed Feb 16, 2022 10:19 pm One implication is that owning stocks with good dividend yields can be a good diversifying move, especially when ones portfolio is dominated by growth stocks that pay little or no dividend. And diversification is generally a good thing. Some call it a free lunch.
Ocean77 wrote: Thu Feb 17, 2022 12:04 am Famous last words of the investor just before his high flying growth stocks tanked and dividend payers outperformed for a decade. :D
Ocean77 wrote: Thu Feb 17, 2022 11:34 am
CuriousTacos wrote: Thu Feb 17, 2022 1:38 am So my point is that dividend yield isn't even necessary or helpful as part of such a screen, but rather factors such as value, quality, and profitability are better indicators of the types of companies that dividend investors think they want to invest in, and these factors have a better academic justification than the dividend funds proposed in these threads.
Which does not mean that these will work better over the next decade than a dividend focus.
Sure, nobody knows for sure what will work best over the next decade. But that doesn't mean we should ignore the past and rely on our intuition about what characteristics are likely to perform well if growth tanks.

The last time growth stocks burst following a bubble, dividend funds were not a good diversifier, but value/size/quality/profitability were:
Dark Blue: Vanguard Dividend Appreciation
Red: Total Market
Light blue: Dimensional Large Value (with some size and possibly quality/profitability screens)
Green: S&P Small Value (with profitability screen)
Image

Do you have a different reason for why you think dividend funds are more likely than value/size/quality/profitability to outperform if growth tanks?
Thanks for digging this up! The theory behind these factors is of course well known and established. That fact alone makes me think twice. I'm a bit of a contrarian nature, and things that are almost universally despised attract me, while things taken for granted or being obvious make me suspicious. The stock market has a way of surprising us, and often the least expected things start to outperform. The market often does not behave the way some rules or theories predict.
30% US Stocks | 30% Int Stocks | 40% Bonds
exodusNH
Posts: 10347
Joined: Wed Jan 06, 2021 7:21 pm

Re: Dividend Controversy

Post by exodusNH »

Northern Flicker wrote: Thu Feb 17, 2022 2:15 pm
jazztime wrote: First, one common criticism is that dividend investing is tax inefficient. That statement may be true if one is comparing a dividend stock (where the dividend is taxed annually) to a non-dividend stock (where tax is only paid on the LTCG upon selling.) But BHers are big fans of the 3-fund portfolio. That portfolio includes bonds (e.g., BND) and bonds pay interest that is taxed as ordinary income. In contrast, dividends receive favorable tax treatment.
If you hold "dividend-oriented" stocks, you still need bonds. "Dividend-oriented" stocks got soaughtered in 3/2020. They do not reduce the need for bonds for risk management.
jazztime wrote: Second, there is a bit of a mischaracterization that dividends reduce share price. That's only true in the millesecond following the point at which the stock goes ex-dividend.
So what? Events afterwards that affect the price would affect the price with or without the dividend declared.
In fact, US stock exchanges will adjust the values on open limit orders for to account for the price drop. Market forces take over after that.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

Da5id wrote: Thu Feb 17, 2022 6:11 am Historically investing in dividends doesn't generate alpha that I'm aware of. Have you evidence for it? I feel like claims that "strategy X generates alpha" need significant proof. As you made that claim, I feel like the burden is on you to establish it with details beyond "imagine a world". But I gather you think differently on that point.
You want a backtest I assume? I don't really care what past data is as I don't base my investment theses on it....

But with a simple search I did find this. I have not independently verified the claims this article makes, but I offer for those interested.

Now it is possible there are flaws with this article, and that's ok. I didn't form my opinion because of it and I won't change my mind if it's wrong. I am not a dividend investor, so I do not plan to debate this further; I merely wanted to offer a plausible rational reason to tilt to dividends (in some cases) that doesn't rely on funny arithmetic or backtesting.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: Dividend Controversy

Post by Da5id »

000 wrote: Thu Feb 17, 2022 4:43 pm
Da5id wrote: Thu Feb 17, 2022 6:11 am Historically investing in dividends doesn't generate alpha that I'm aware of. Have you evidence for it? I feel like claims that "strategy X generates alpha" need significant proof. As you made that claim, I feel like the burden is on you to establish it with details beyond "imagine a world". But I gather you think differently on that point.
You want a backtest I assume? I don't really care what past data is as I don't base my investment theses on it....

But with a simple search I did find this. I have not independently verified the claims this article makes, but I offer for those interested.

Now it is possible there are flaws with this article, and that's ok. I didn't form my opinion because of it and I won't change my mind if it's wrong. I am not a dividend investor, so I do not plan to debate this further; I merely wanted to offer a plausible rational reason to tilt to dividends (in some cases) that doesn't rely on funny arithmetic or backtesting.
If you are advocating for a position you don't hold and providing a source you don't believe in, it doesn't really seem worthwhile for me to evaluate it myself? But fair enough, this thread is pretty much run its course like most dividend threads do.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

Ah yes. Feeling even more strongly that my initial impression in this thread was correct:
000 wrote: Sat Feb 12, 2022 5:37 pm It really is amazing how negative dividend sentiment has become
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Dividend Controversy

Post by marcopolo »

000 wrote: Thu Feb 17, 2022 9:14 pm Ah yes. Feeling even more strongly that my initial impression in this thread was correct:
000 wrote: Sat Feb 12, 2022 5:37 pm It really is amazing how negative dividend sentiment has become
Can you provide some examples of such negative sentiment towards dividends?

What I repeatedly see is people claiming that dividends are something special bordering on free money. Some literlally think it is free money, others think there is perhaps some second order effects. Then people point out (perhaps a little zealously) that there is no free lunch associated with dividends. I often see people specifically state there is nothing wrong with dividends, only with the idea that they are free money.

If you say you think two $10 bills are better than a $20 bill, and I point out that they are actually pretty much the same, does that mean I have a negative sentiment towards $10 bills?
Last edited by marcopolo on Thu Feb 17, 2022 9:47 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
gtrplayer
Posts: 860
Joined: Sat Dec 08, 2018 3:13 pm

Re: Dividend Controversy

Post by gtrplayer »

exodusNH wrote: Mon Feb 14, 2022 1:31 pm
JazzTime wrote: Sun Feb 13, 2022 7:37 pm
exodusNH wrote: Sun Feb 13, 2022 2:12 pm
JazzTime wrote: Sun Feb 13, 2022 12:50 pm During market downturns, it is comforting to know that your dividends keep getting paid.
This is certainly not something that you can take as guaranteed. Q.v. AT&T.
JazzTime wrote: Sun Feb 13, 2022 12:50 pm It is even more comforting when you get a pay raise each year when those dividend payers increase their dividend. I've often found I get a bigger pay raise from my dividend payers than the raise I received while working.
It is not a raise. They are giving you your own money back and causing a taxable event at the same time.

If your $50 stock pays a $1 dividend, you now have a $49 stock and $1 in cash. You do not have a $50 stock and $1 in cash.

Given how small a typical dividend is, this stock price reduction is generally obscured by the normal daily price fluctuations.
If I invest $1M in SCHD and it pays me $28K in dividends this year, then it pays me $30K in dividends next year, and $33K in dividends the following year, and in the meantime the share price has risen 15%, then please speak very LOUDLY so I can understand how I only got my money back and did not receive a pay raise. I am happy to accept real dollars over investment theory.

Read my first post here. Some strategies aren't for everyone. A 30 year old may wish to skew toward some high flyers in order to maximize return. A retiree may be satisfied with a few extra dollars in his pocket. Sometimes a dollar in hand is worth two in the bush. Once you have a dividend, no one takes it away from you. Whereas, those high flying stock prices can disappear in an instant.
That $28K in dividends dropped your $1M to $972,000. The price of the share might have also risen, but your new valuation is still $28K less than it would have been without the dividend payment.

You could have accomplished the same thing by selling $28K of your $1M. Ignoring taxes, your financial situation is exactly the same.
This ignores the fact that many investors purchased the stock only because of its dividend. If the company stopped paying a dividend, they’d lose those investors and the stock price would fall. The dividend is not only part of the company’s NAV. It’s also part of the selling point of the stock for many investors.

If his $1 million in dividend paying stocks one day announced they were cutting their dividend, would the stock still be $1 million?
CuriousTacos
Posts: 690
Joined: Thu Apr 12, 2018 3:31 pm

Re: Dividend Controversy

Post by CuriousTacos »

gtrplayer wrote: Thu Feb 17, 2022 9:41 pm
exodusNH wrote: Mon Feb 14, 2022 1:31 pm That $28K in dividends dropped your $1M to $972,000. The price of the share might have also risen, but your new valuation is still $28K less than it would have been without the dividend payment.

You could have accomplished the same thing by selling $28K of your $1M. Ignoring taxes, your financial situation is exactly the same.
This ignores the fact that many investors purchased the stock only because of its dividend. If the company stopped paying a dividend, they’d lose those investors and the stock price would fall. The dividend is not only part of the company’s NAV. It’s also part of the selling point of the stock for many investors.

If his $1 million in dividend paying stocks one day announced they were cutting their dividend, would the stock still be $1 million?
ExodusNH and others here aren't saying there's anything wrong with certain companies returning profits to shareholders. If a company has no productive use for those profits, they indeed should return them. Share buybacks are a more tax-efficient way to achieve this, but dividends are ok too. For such a company to suspend their dividend or buybacks, it would likely signal to the market that future profits are in jeopardy, and that would be the reason the stock price would drop.

The discussion is whether dividend funds offer investors anything beneficial (other than behavioral/psychological benefits) compared to total market funds or factor funds, and I'm not seeing evidence of that.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Dividend Controversy

Post by gougou »

Da5id wrote: Wed Feb 16, 2022 10:40 pm
gougou wrote: Wed Feb 16, 2022 10:33 pm Companies trade well below liquidation value all the time, so this is not 100% hypothetical.

In real world the stock also does NOT fall by the dividend amount from declaration to ex-dividend. It’s a rather complicated process and I have no idea why the anti-dividend crowd can reach any conclusion here.

In short, a company trading well below liquidation value will get a boost from declaring and paying a dividend. That’s because the money on company’s book is maybe valued 50 cents on the dollar so every dollar that’s paid out as dividend will create about $0.5 of value.
Companies that trade below liquidation value and issuing cash dividends of *their entire stock float* was your hypothetical. Can you provide some examples of that?
That was some simple logic to make a point that dividends are not the same as selling a portion of your stocks and stocks in many cases don’t drop by the same amount as the dividend amount.

Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: Dividend Controversy

Post by JackoC »

gougou wrote: Fri Feb 18, 2022 12:32 am Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The axiom under the usual 'frictionless' assumptions is that the stock price will drop by the dividend at the moment it starts to trade ex-dividend. It is not that the stock would drop by the dividend from the close on the day before the ex-dividend to the close on the day it goes ex-dividend (that contains a whole day's noise), and definitely not that the stock would drop by the dividend from the day prior to the *declaration* date till the moment after ex-. The axiom applies to a *known* dividend. A company declaring a higher or lower dividend than the market expected is a new piece of information about management's view of future profitability. It's no surprise if a company with very low valuation that *declares* a huge dividend generates a price pop: the market will likely interpret it as company's situation from management POV (people who want to keep their jobs, not make their company to disappear by paying out an unaffordable dividend) as better than the market thought. The problem with using that information practically is if you didn't know on Dec 8 what was going to be announced Dec 9. If I knew what was going to happen tomorrow, there'd be all kinds of ways for me to make megatons of money. :happy

Back to the actual axiom, the stock price must drop by the *known, already declared* dividend at the moment it goes ex- or it would be arbitrageable, again under the somewhat idealized but typical assumptions in financial theory of continuous trading, ignoring transactions costs and taxes. If divs of companies are $.10 and stock prices consistently drop less than $0.10 at the moment of ex-, the free money would be attained by buying stocks just before the moment of ex- and selling them just after. If the price consistently drops more than div, short a micro-second before ex-, buy back a microsecond after (net profit despite having to make up the dividend to the person you borrowed the stock from). That is the correct concept of 'dividends don't matter'. It does not apply to unknown future dividends. Nobody on the thread who knows what they are talking about at all has claimed it does. There's a valid debate to be had if dividend *policy* affects risk adjusted return on a forward looking basis, but I'd reiterate a strong preference for original academic work showing a practical way to separate sheep from goats and only invest in part of the market according to dividends, not typically junky DIY Portfolio Visualizer analysis.

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
Last edited by JackoC on Fri Feb 18, 2022 9:34 am, edited 1 time in total.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

JackoC wrote: Fri Feb 18, 2022 9:30 am

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
I read a paper some years ago that tried to analyze this problem and concluded that the price drop was the after tax value of the dividend. Estimating that was a process. I have long lost a link to that reference, but it was a pretty exhaustive compilation of data.
NiceUnparticularMan
Posts: 6103
Joined: Sat Mar 11, 2017 6:51 am

Re: Dividend Controversy

Post by NiceUnparticularMan »

Yeah, the well-sourced dividend studies I have seen suggest the drop in per share price when a company pays a dividend is usually at least pretty close to what you would expect--on average. But it is subject to all sorts of noise factors, and in individual cases the noise factors could dominate, one way or the other. Still, it appears there likely isn't an exploitable strategy for arbitraging any discrepancies.

Which is pretty much all you need to know as a normal personal investor, meaning you don't really have to worry about this issue (other than understanding dividends are taxable income).
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

NiceUnparticularMan wrote: Fri Feb 18, 2022 9:56 am Yeah, the well-sourced dividend studies I have seen suggest the drop in per share price when a company pays a dividend is usually at least pretty close to what you would expect--on average. But it is subject to all sorts of noise factors, and in individual cases the noise factors could dominate, one way or the other. Still, it appears there likely isn't an exploitable strategy for arbitraging any discrepancies.

Which is pretty much all you need to know as a normal personal investor, meaning you don't really have to worry about this issue (other than understanding dividends are taxable income).
Just as a number on that, the daily volatility of stocks is about 1%. A dividend yield of 2% implies a quarterly dividend of .5%, and so on.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Dividend Controversy

Post by gougou »

JackoC wrote: Fri Feb 18, 2022 9:30 am
gougou wrote: Fri Feb 18, 2022 12:32 am Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The axiom under the usual 'frictionless' assumptions is that the stock price will drop by the dividend at the moment it starts to trade ex-dividend. It is not that the stock would drop by the dividend from the close on the day before the ex-dividend to the close on the day it goes ex-dividend (that contains a whole day's noise), and definitely not that the stock would drop by the dividend from the day prior to the *declaration* date till the moment after ex-. The axiom applies to a *known* dividend. A company declaring a higher or lower dividend than the market expected is a new piece of information about management's view of future profitability. It's no surprise if a company with very low valuation that *declares* a huge dividend generates a price pop: the market will likely interpret it as company's situation from management POV (people who want to keep their jobs, not make their company to disappear by paying out an unaffordable dividend) as better than the market thought. The problem with using that information practically is if you didn't know on Dec 8 what was going to be announced Dec 9. If I knew what was going to happen tomorrow, there'd be all kinds of ways for me to make megatons of money. :happy

Back to the actual axiom, the stock price must drop by the *known, already declared* dividend at the moment it goes ex- or it would be arbitrageable, again under the somewhat idealized but typical assumptions in financial theory of continuous trading, ignoring transactions costs and taxes. If divs of companies are $.10 and stock prices consistently drop less than $0.10 at the moment of ex-, the free money would be attained by buying stocks just before the moment of ex- and selling them just after. If the price consistently drops more than div, short a micro-second before ex-, buy back a microsecond after (net profit despite having to make up the dividend to the person you borrowed the stock from). That is the correct concept of 'dividends don't matter'. It does not apply to unknown future dividends. Nobody on the thread who knows what they are talking about at all has claimed it does. There's a valid debate to be had if dividend *policy* affects risk adjusted return on a forward looking basis, but I'd reiterate a strong preference for original academic work showing a practical way to separate sheep from goats and only invest in part of the market according to dividends, not typically junky DIY Portfolio Visualizer analysis.

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
We are talking about whether paying a dividend will impact the total return of investing in a stock. In the case of ASX:GRR, because of a special dividend, its stock returned 25% in a matter of days. This is strong proof that paying a dividend does matter to the total return.

It’s very logical that the stock will drop by the known dividend amount on the ex-dividend date. Because if not, then arbitragers will arbitrage it away. This can prove nothing about the effect of dividends on total return since dividends are unknown before declaration so declaration of dividends could have impact on the stock price.

In the case of severely undervalued stocks such as ASX:GRR, you’ll lose a lot more if you sell 10% of your holding vs getting paid a 10% dividend. The share price is almost always positively impacted from a dividend declaration/raise/special dividend.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
User avatar
Nate79
Posts: 9373
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Dividend Controversy

Post by Nate79 »

If what is said above is true, my question again is what dividend focused mutual fund is exploiting this strategy to outperform the SP500 or TSM in the real world?
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: Dividend Controversy

Post by JackoC »

gougou wrote: Fri Feb 18, 2022 10:44 am
JackoC wrote: Fri Feb 18, 2022 9:30 am
gougou wrote: Fri Feb 18, 2022 12:32 am Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The axiom under the usual 'frictionless' assumptions is that the stock price will drop by the dividend at the moment it starts to trade ex-dividend. It is not that the stock would drop by the dividend from the close on the day before the ex-dividend to the close on the day it goes ex-dividend (that contains a whole day's noise), and definitely not that the stock would drop by the dividend from the day prior to the *declaration* date till the moment after ex-. The axiom applies to a *known* dividend. A company declaring a higher or lower dividend than the market expected is a new piece of information about management's view of future profitability. It's no surprise if a company with very low valuation that *declares* a huge dividend generates a price pop: the market will likely interpret it as company's situation from management POV (people who want to keep their jobs, not make their company to disappear by paying out an unaffordable dividend) as better than the market thought. The problem with using that information practically is if you didn't know on Dec 8 what was going to be announced Dec 9. If I knew what was going to happen tomorrow, there'd be all kinds of ways for me to make megatons of money. :happy

Back to the actual axiom, the stock price must drop by the *known, already declared* dividend at the moment it goes ex- or it would be arbitrageable, again under the somewhat idealized but typical assumptions in financial theory of continuous trading, ignoring transactions costs and taxes. If divs of companies are $.10 and stock prices consistently drop less than $0.10 at the moment of ex-, the free money would be attained by buying stocks just before the moment of ex- and selling them just after. If the price consistently drops more than div, short a micro-second before ex-, buy back a microsecond after (net profit despite having to make up the dividend to the person you borrowed the stock from). That is the correct concept of 'dividends don't matter'. It does not apply to unknown future dividends. Nobody on the thread who knows what they are talking about at all has claimed it does. There's a valid debate to be had if dividend *policy* affects risk adjusted return on a forward looking basis, but I'd reiterate a strong preference for original academic work showing a practical way to separate sheep from goats and only invest in part of the market according to dividends, not typically junky DIY Portfolio Visualizer analysis.

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
1. We are talking about whether paying a dividend will impact the total return of investing in a stock. In the case of ASX:GRR, because of a special dividend, its stock returned 25% in a matter of days. This is strong proof that paying a dividend does matter to the total return.

2. It’s very logical that the stock will drop by the known dividend amount on the ex-dividend date. Because if not, then arbitragers will arbitrage it away. This can prove nothing about the effect of dividends on total return since dividends are unknown before declaration so declaration of dividends could have impact on the stock price.

3. In the case of severely undervalued stocks such as ASX:GRR, you’ll lose a lot more if you sell 10% of your holding vs getting paid a 10% dividend. The share price is almost always positively impacted from a dividend declaration/raise/special dividend.
1. It's very often unclear 'what we're talking about'. Knowledge level of posters here varies very widely.

2. This is obvious, but it seems to me some less knowledgeable posters actually doubt it. If they all understand it, fine.

3. This is also obvious and not just for undervalued companies. Unexpected changes in dividend policy very obviously can affect the price of a stock. I haven't seen anyone, of any apparent knowledge level, deny that on this thread.

But back to 'what we're talking about', if it's the practical topic of choosing stocks according to even dividend policies *the market already knows*, it's not been made clear with solid references (not DIY junk analysis) how to do that successfully. The Austrian ore company popped on a big special dividend announcement...Apple and any number of other stocks we could name, including high dividend ones I'm not picking that name because of dividends, were much better investments than the Wilshire 5000 over a fair period. Tell me how to know either thing *in advance* and...well, if you really knew how to do that why would you tell me for free? If I did be sure I wouldn't tell you :happy I'm not saying a 'dividend factor' that predicts higher return for risk *on a looking forward basis*, differentiating stocks based on known dividend policy up to now could not exist. But sources actually showing this as a bona fide research result seem to be an afterthought on this thread.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

Getting back to what this discussion is about, I find lots of comments here about individual stocks and stock picking and corporate governance. All of that is very interesting, but the actual question that is relevant to most posters here is whether or not there is a benefit to investing in funds such as VDADX (dividend appreciation), VDIGX (dividend growth), VHYAX (high dividend yield), or maybe VEIPX (equity income) in preference to VTSAX (total market index) or VFIAX (S&P 500 index). The reason for saying that is that such a choice is the available practical choice for most people here and also a choice sometimes recommended in something someone reads. The people who want to pick stocks know who they are and can do what they like.

The answer to this is summed up by Nate79:

". . . my question again is what dividend focused mutual fund is exploiting this strategy to outperform the SP500 or TSM in the real world?"

And if one wants more than that, one can go read Swedroe's comments on the topic.
NiceUnparticularMan
Posts: 6103
Joined: Sat Mar 11, 2017 6:51 am

Re: Dividend Controversy

Post by NiceUnparticularMan »

dbr wrote: Fri Feb 18, 2022 11:54 am Getting back to what this discussion is about, I find lots of comments here about individual stocks and stock picking and corporate governance. All of that is very interesting, but the actual question that is relevant to most posters here is whether or not there is a benefit to investing in funds such as VDADX (dividend appreciation), VDIGX (dividend growth), VHYAX (high dividend yield), or maybe VEIPX (equity income) in preference to VTSAX (total market index) or VFIAX (S&P 500 index). The reason for saying that is that such a choice is the available practical choice for most people here and also a choice sometimes recommended in something someone reads. The people who want to pick stocks know who they are and can do what they like.

The answer to this is summed up by Nate79:

". . . my question again is what dividend focused mutual fund is exploiting this strategy to outperform the SP500 or TSM in the real world?"

And if one wants more than that, one can go read Swedroe's comments on the topic.
Yeah, the proposition that if you knew about an upcoming and unexpected change in dividend policy before the market, you could likely figure out a way to profit from that advance knowledge (but legally?), does not then imply it is a good idea to invest in stocks or funds of stocks already known to be planning to pay relatively high dividends.

Now if it were true that already-known relatively-high dividend policies could be used to reliably predict better risk-adjusted future stock performance, that would be different. But the existence of such an effect would be a real puzzle, and certainly people should long ago have created funds making use of this effect, which should be extremely popular due to their (reliably predicted) history of superior risk-adjusted stock performance.
exodusNH
Posts: 10347
Joined: Wed Jan 06, 2021 7:21 pm

Re: Dividend Controversy

Post by exodusNH »

gougou wrote: Fri Feb 18, 2022 10:44 am
JackoC wrote: Fri Feb 18, 2022 9:30 am
gougou wrote: Fri Feb 18, 2022 12:32 am Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The axiom under the usual 'frictionless' assumptions is that the stock price will drop by the dividend at the moment it starts to trade ex-dividend. It is not that the stock would drop by the dividend from the close on the day before the ex-dividend to the close on the day it goes ex-dividend (that contains a whole day's noise), and definitely not that the stock would drop by the dividend from the day prior to the *declaration* date till the moment after ex-. The axiom applies to a *known* dividend. A company declaring a higher or lower dividend than the market expected is a new piece of information about management's view of future profitability. It's no surprise if a company with very low valuation that *declares* a huge dividend generates a price pop: the market will likely interpret it as company's situation from management POV (people who want to keep their jobs, not make their company to disappear by paying out an unaffordable dividend) as better than the market thought. The problem with using that information practically is if you didn't know on Dec 8 what was going to be announced Dec 9. If I knew what was going to happen tomorrow, there'd be all kinds of ways for me to make megatons of money. :happy

Back to the actual axiom, the stock price must drop by the *known, already declared* dividend at the moment it goes ex- or it would be arbitrageable, again under the somewhat idealized but typical assumptions in financial theory of continuous trading, ignoring transactions costs and taxes. If divs of companies are $.10 and stock prices consistently drop less than $0.10 at the moment of ex-, the free money would be attained by buying stocks just before the moment of ex- and selling them just after. If the price consistently drops more than div, short a micro-second before ex-, buy back a microsecond after (net profit despite having to make up the dividend to the person you borrowed the stock from). That is the correct concept of 'dividends don't matter'. It does not apply to unknown future dividends. Nobody on the thread who knows what they are talking about at all has claimed it does. There's a valid debate to be had if dividend *policy* affects risk adjusted return on a forward looking basis, but I'd reiterate a strong preference for original academic work showing a practical way to separate sheep from goats and only invest in part of the market according to dividends, not typically junky DIY Portfolio Visualizer analysis.

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
We are talking about whether paying a dividend will impact the total return of investing in a stock. In the case of ASX:GRR, because of a special dividend, its stock returned 25% in a matter of days. This is strong proof that paying a dividend does matter to the total return.

It’s very logical that the stock will drop by the known dividend amount on the ex-dividend date. Because if not, then arbitragers will arbitrage it away. This can prove nothing about the effect of dividends on total return since dividends are unknown before declaration so declaration of dividends could have impact on the stock price.

In the case of severely undervalued stocks such as ASX:GRR, you’ll lose a lot more if you sell 10% of your holding vs getting paid a 10% dividend. The share price is almost always positively impacted from a dividend declaration/raise/special dividend.
It looks like you were able to take advantage of a badly mispriced stock. This particular one lost half of its value from July 2021 to September 2021.

It's currently trading at $0.80, from its high if $0.90, which is roughly the size of the dividend. That may be coincidence, or it may be that the stock should have been valued at 0.90 before the dividend and once the dividend was paid, it was reanalyzed.

The market pricing is efficient, not perfect. If you have the time and inclination to research individual stocks and confidence that your analysis is better than the market as a whole, you will be able to exploit it. Active funds wouldn't exist if it weren't possible. (Though the longevity of individual active funds demonstrates how difficult this is, given that the vast majority are defunct in 10 years.)
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Dividend Controversy

Post by gougou »

exodusNH wrote: Fri Feb 18, 2022 12:18 pm
gougou wrote: Fri Feb 18, 2022 10:44 am
JackoC wrote: Fri Feb 18, 2022 9:30 am
gougou wrote: Fri Feb 18, 2022 12:32 am Here is a pretty recent example:

ASX:GRR is a small Australian iron ore miner with current market cap of A$943M. It was trading very close to its net working capital from 2017 to 2020 while also making a lot of money selling iron ores. Its current P/E is about 4x but it was mostly 1x to 2x in 2020. It was very undervalued and probably worth a lot more than its market cap if liquidated.

ASX:GRR closed at A$0.61 on Dec 8, 2021. ASX:GRR announced a special dividend of A$0.1 (16% of its market cap) on Dec 9, 2021. Share jumped on Dec 9 and closed at A$0.745. On the ex-dividend date Dec 14 share closed at A$0.665. So this 16% special dividend was basically free money plus 9% appreciation in share price from declaration to ex-dividend.

If GRR didn’t declare this special dividend, in all likelihood its share isn’t going to move much from Dec 8 to Dec 14. It obviously got a significant boost from the special dividend so this dividend definitely mattered.
The axiom under the usual 'frictionless' assumptions is that the stock price will drop by the dividend at the moment it starts to trade ex-dividend. It is not that the stock would drop by the dividend from the close on the day before the ex-dividend to the close on the day it goes ex-dividend (that contains a whole day's noise), and definitely not that the stock would drop by the dividend from the day prior to the *declaration* date till the moment after ex-. The axiom applies to a *known* dividend. A company declaring a higher or lower dividend than the market expected is a new piece of information about management's view of future profitability. It's no surprise if a company with very low valuation that *declares* a huge dividend generates a price pop: the market will likely interpret it as company's situation from management POV (people who want to keep their jobs, not make their company to disappear by paying out an unaffordable dividend) as better than the market thought. The problem with using that information practically is if you didn't know on Dec 8 what was going to be announced Dec 9. If I knew what was going to happen tomorrow, there'd be all kinds of ways for me to make megatons of money. :happy

Back to the actual axiom, the stock price must drop by the *known, already declared* dividend at the moment it goes ex- or it would be arbitrageable, again under the somewhat idealized but typical assumptions in financial theory of continuous trading, ignoring transactions costs and taxes. If divs of companies are $.10 and stock prices consistently drop less than $0.10 at the moment of ex-, the free money would be attained by buying stocks just before the moment of ex- and selling them just after. If the price consistently drops more than div, short a micro-second before ex-, buy back a microsecond after (net profit despite having to make up the dividend to the person you borrowed the stock from). That is the correct concept of 'dividends don't matter'. It does not apply to unknown future dividends. Nobody on the thread who knows what they are talking about at all has claimed it does. There's a valid debate to be had if dividend *policy* affects risk adjusted return on a forward looking basis, but I'd reiterate a strong preference for original academic work showing a practical way to separate sheep from goats and only invest in part of the market according to dividends, not typically junky DIY Portfolio Visualizer analysis.

More prosaically the axiom that an already known current dividend results in equal price drop at the moment of ex- would not necessarily strictly hold once introducing taxes. Assuming price drop equal to dividend and 'buy the dividend' strategy of buy/sell pico-seconds before and after the moment of ex-, you get offsetting dividend income and short term capital loss. To the extent those two things have different tax treatment, for the investor at the market clearing price, the equilibrium price drop doesn't have to be exactly the dividend. Transactions costs are nowadays very small and ignoring them is not typically important anymore, though a problem with past data is that transactions costs were much higher than now if you go back far enough. And, the fact you can't typically actually trade micro-seconds before and after ex- should just introduce statistical noise, not a bias in either direction. Tax would be the main thing which might affect the axiom in real life.
We are talking about whether paying a dividend will impact the total return of investing in a stock. In the case of ASX:GRR, because of a special dividend, its stock returned 25% in a matter of days. This is strong proof that paying a dividend does matter to the total return.

It’s very logical that the stock will drop by the known dividend amount on the ex-dividend date. Because if not, then arbitragers will arbitrage it away. This can prove nothing about the effect of dividends on total return since dividends are unknown before declaration so declaration of dividends could have impact on the stock price.

In the case of severely undervalued stocks such as ASX:GRR, you’ll lose a lot more if you sell 10% of your holding vs getting paid a 10% dividend. The share price is almost always positively impacted from a dividend declaration/raise/special dividend.
It looks like you were able to take advantage of a badly mispriced stock. This particular one lost half of its value from July 2021 to September 2021.

It's currently trading at $0.80, from its high if $0.90, which is roughly the size of the dividend. That may be coincidence, or it may be that the stock should have been valued at 0.90 before the dividend and once the dividend was paid, it was reanalyzed.

The market pricing is efficient, not perfect. If you have the time and inclination to research individual stocks and confidence that your analysis is better than the market as a whole, you will be able to exploit it. Active funds wouldn't exist if it weren't possible. (Though the longevity of individual active funds demonstrates how difficult this is, given that the vast majority are defunct in 10 years.)
This company sells a single product iron ore, and iron ore price crashed magnificently from $220/ton to $120/ton from July 2021 to September 2021. It's no surprise the stock price also crashed from $0.9 to around $0.5 during the same time. The market can estimate how much money GRR makes every quarter just from the iron ore prices because it's a pretty simple operation.

During Dec 8 to Dec 14, iron ore price didn't move much, and the only news was that GRR declared and paid a A$0.1 special dividend which is equal to 16% of its market cap. That obviously boosted the stock price. So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: Dividend Controversy

Post by Da5id »

gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

Da5id wrote: Fri Feb 18, 2022 3:09 pm
gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
I am not sure if that is so or not. Every time I read someone post that they like getting dividends, which is fine, I also read a post that "Dividends are safer because they don't vary and I don't have to sell stocks when they are down" which is not so fine.

Well, I guess I don't have a reliable survey of how much there is of either. It is even hard a lot of times to parse out what the reasoning really is.

I do cringe a little bit when someone writes that they invest in dividend payers so they can get income. There is nothing wrong with getting income by cashing dividends, but it is not necessary either. It is hard to separate that motivation from matters of convenience. One would think a best way to get income would be to just arrange for your broker to disburse a fixed monthly stipend from your investments. It occurs to me that makes tax reporting more complicated but I haven't heard anyone object on that basis. Probably no one who is spending money from their investments actually reinvests dividends and then takes withdrawals, though someone might. That is different from choosing investments based on what dividend they pay.

This whole thing gets so tangled up in the nuance of "It isn't wrong, but it isn't right either."
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

marcopolo wrote: Thu Feb 17, 2022 9:33 pm Can you provide some examples of such negative sentiment towards dividends?

What I repeatedly see is people claiming that dividends are something special bordering on free money. Some literlally think it is free money, others think there is perhaps some second order effects. Then people point out (perhaps a little zealously) that there is no free lunch associated with dividends. I often see people specifically state there is nothing wrong with dividends, only with the idea that they are free money.

If you say you think two $10 bills are better than a $20 bill, and I point out that they are actually pretty much the same, does that mean I have a negative sentiment towards $10 bills?
Common belief that dividends are irrelevant in low tax account +
Common belief that dividends are negative in high tax account =
Negative dividend sentiment

Compare:
Number of posts about irrelevancy of dividends vs.
Number of posts about avoiding dividends in high tax situation vs.
Number of posts about tilting towards dividends in low situation

Your dollar bill analogy is fallacious as one can make the exchange with no friction and the exchange rate is dictated by state fiat. If you say you think yield from Munis and yield from Corporates are pretty much the same thing, and I point out that that depends on your tax bracket, does that mean the market prices of securities might actually reflect the tax environment?
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: Dividend Controversy

Post by JackoC »

Da5id wrote: Fri Feb 18, 2022 3:09 pm
gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
I think that would be a good starting point. A lot of threads here meander and would benefit from a sort of mid-thread poll, 'do you agree with the following?' Here the basic thing to agree would be the presumption the right hand diagram describes reality. I'm not sure it's worthwhile to 'debate' with people who both a) think the left hand diagram is bascially true and moreoever b) don't realize that's an extraordinary claim requiring extraordinary evidence, not just 'well I think' or 'here's an example' (often not really on point) or 'I ran a few numbers in Portfolio Visualizer and...' Again I'm not saying a (more) marginally 'taller' (than that picture) right hand bar in the left hand diagram could not possibly have existed in a past data set or happen in the future. But there hasn't been a well founded and quantitative argument made here for it, like peer reviewed papers. Some hints of that, but a lot empty calories for the most part IMO.

As we've mentioned, a plausible reason low dividend payers could have lower pre-tax expected return is the same reason a fund like VTCLX (Tax Managed Cap Appreciation) exists. Besides managing cap gains recognition '[t]he Fund uses statistical methods to
“sample” the Index, aiming to minimize taxable dividends while approximating the other characteristics of the Index', that being the Russell 1000. It's not outlandish to hypothesize that various investors doing this would push up the price and down the pre-tax expected return of low dividend payers relative to the components of the R1000 such a method would leave out since, while a pretty small % of $'s in the market belong to the large number of low-taxed investors in taxable accounts, a bigger % belong to non-taxed (pension fund, etc.) and tax deferred (IRA/401k) investors who should be indifferent to div vs. cap gain taxation. However, again the actual existence and especially quantification of this effect hasn't been demonstrated with good sources on this thread IMO. And, if you're mostly a taxable investor in a high bracket, you might prefer VTCLX even if there were a measurable effect like that.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

It would be an interesting project for someone to quantitatively explore the dividend tax factor hypothesis over historical periods.

Such as.....

Compare dividend premium to value premium. What percentage of the latter is attributable to the former?

Splice high/low div from high/low value. Compare fixed dividend quantiles across the value and non-value spectrum.

Compare dividend premium with marginal dividend tax rates over time.

Study impact of qualified dividend law and legalization of share buybacks.

Compare countries with dividend tax regimes to those without (such as those with asset tax).

Compare dividend aristocrats to dividend peasants (are the former bid up irrationally?).
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Dividend Controversy

Post by Apathizer »

000 wrote: Fri Feb 18, 2022 11:10 pm Compare dividend premium to value premium. What percentage of the latter is attributable to the former?
0% since there is no dividend premium. While it might be smaller than originally calculated there's evidence of a value premium. While many dividend payers are large value companies, apart from tax considerations dividends are unrelated to total return.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Dividend Controversy

Post by 000 »

Apathizer wrote: Fri Feb 18, 2022 11:56 pm 0% since there is no dividend premium. While it might be smaller than originally calculated there's evidence of a value premium. While many dividend payers are large value companies, apart from tax considerations dividends are unrelated to total return.
By dividend premium I simply mean the difference in return between a class of dividend payers and the broad market. There is no need to try to use definitions to win at the tautology game.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Dividend Controversy

Post by Apathizer »

000 wrote: Sat Feb 19, 2022 12:44 am
Apathizer wrote: Fri Feb 18, 2022 11:56 pm 0% since there is no dividend premium. While it might be smaller than originally calculated there's evidence of a value premium. While many dividend payers are large value companies, apart from tax considerations dividends are unrelated to total return.
By dividend premium I simply mean the difference in return between a class of dividend payers and the broad market. There is no need to try to use definitions to win at the tautology game.
I'm not trying to win a tautology game; I'm pointing out fallacy. Premium means an expected return difference. Since dividends don't impact total returns (again, apart from tax considerations), there is no dividend premium. It's like asking what the premium is for companies whose name begins with the letter n. Any return difference is almost certainly coincidental.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Dividend Controversy

Post by dbr »

000 wrote: Fri Feb 18, 2022 11:10 pm
Compare dividend premium to value premium. What percentage of the latter is attributable to the former?
Assuming we are speaking of premia in the context of a factor model such as Fama French the answer lies in how regressions are calculated when there is correlation among the possible predictors. You could probably research that. An article I found quickly is here:

https://stats.stackexchange.com/questio ... ssion-mode

My understanding is that Fama and French investigated many candidates for explanatory power for equity returns. One can also do step-wise regression where candidate predictors compete for explanatory power one after the other, and then again to gain further explanation after a first choice is entered, and so on. Usually some sort of dividend statistic does not rise quickly to the top as a candidate. I don't know what the correlation between a dividend factor and a value factor might be. I think Swedroe has been the one to suggest there might be something there.

An alternative is principal component analysis where linear combinations of predictive variables are created that are then uncorrelated and the outcome related to that data set. I am not sure what one finds of that method for explaining equity returns.

https://en.wikipedia.org/wiki/Principal ... e%20models.

People should recognize that all of this kind of modeling is simply a statistical examination of data that does not in itself contain a theory of cause and effect. Thus, the definition of risk in a factor model is "that which explains returns."
User avatar
Toons
Posts: 14467
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: Dividend Controversy

Post by Toons »

Walmart just increased my dividend
I am sure Mcdonalds and Coke
Will follow suit

:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Dividend Controversy

Post by gougou »

Da5id wrote: Fri Feb 18, 2022 3:09 pm
gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
So are you saying this $0.1 dividend didn’t impact the total return of the stock from Dec 8 to Dec 14? Why did GRR returned 25% in a week when most iron ore miners were basically flat?

By your graph, if dividends didn’t matter to total return, it sounds like when this $0.665 stock declared that $0.1 dividend, it should have done nothing and stayed at $0.665 next day, and stepped down to $0.565 on the ex-dividend date. Why did GRR significantly outperform its peers in that week?
The sillier the market’s behavior, the greater the opportunity for the business like investor.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: Dividend Controversy

Post by Da5id »

gougou wrote: Sat Feb 19, 2022 2:23 pm
Da5id wrote: Fri Feb 18, 2022 3:09 pm
gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
So are you saying this $0.1 dividend didn’t impact the total return of the stock from Dec 8 to Dec 14? Why did GRR returned 25% in a week when most iron ore miners were basically flat?

By your graph, if dividends didn’t matter to total return, it sounds like when this $0.665 stock declared that $0.1 dividend, it should have done nothing and stayed at $0.665 next day, and stepped down to $0.565 on the ex-dividend date. Why did GRR significantly outperform its peers in that week?
I believe your example isn't relevant. Dividends clearly come at a cost to share appreciation, in that they drop the price by ~the amount of the dividend. However share appreciation obviously has other inputs than dividends, and inputs are overlaid on the effects of dividend payouts.

By your logic, if I understand it, dividends are a free lunch. Because they come without cost to share appreciation. Seems to be the left hand graph belief system, is it?
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Dividend Controversy

Post by JoMoney »

gougou wrote: Sat Feb 19, 2022 2:23 pm...
So are you saying this $0.1 dividend didn’t impact the total return of the stock from Dec 8 to Dec 14? Why did GRR returned 25% in a week when most iron ore miners were basically flat?

By your graph, if dividends didn’t matter to total return, it sounds like when this $0.665 stock declared that $0.1 dividend, it should have done nothing and stayed at $0.665 next day, and stepped down to $0.565 on the ex-dividend date. Why did GRR significantly outperform its peers in that week?
In your mind, how does it work when a company transfers money from their balance sheet to the share-holders ?
How is a company that has that $.10 per share in the bank not worth that much less after they've transferred it to someone else?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Dividend Controversy

Post by marcopolo »

gougou wrote: Sat Feb 19, 2022 2:23 pm
Da5id wrote: Fri Feb 18, 2022 3:09 pm
gougou wrote: Fri Feb 18, 2022 2:27 pm So my point here is that dividends aren't meaningless like what many people have said in this thread. This dividend alone was responsible for most if not all of the 25% total return from Dec 8 to Dec 14.

The market is efficient on ex-dividend dates. If not then the market gives rise to a short term risk-free arbitrage. Market being efficient on ex-dividend date is meaningless to our discussion of long term total return investing.
Nobody is arguing that dividends are not part of total return as far as I can tell. Total return = stock appreciation + dividends is, I think, accepted by all. What is more being argued is best illustrated by the ERN figure below.

Image

Most of the "anti-dividend" folks believe the stuff on the right side of the figure. But feel that they are being told the stuff on the left by pro-dividend folks. If we all agree that the stuff on the right is correct, then as far as I can tell we are just arguing about preferences. Some people like the feeling of getting dividends, and don't like the feeling of selling shares. Fair enough, that is a preference.
So are you saying this $0.1 dividend didn’t impact the total return of the stock from Dec 8 to Dec 14? Why did GRR returned 25% in a week when most iron ore miners were basically flat?

By your graph, if dividends didn’t matter to total return, it sounds like when this $0.665 stock declared that $0.1 dividend, it should have done nothing and stayed at $0.665 next day, and stepped down to $0.565 on the ex-dividend date. Why did GRR significantly outperform its peers in that week?
Anecdote != data

I remember at one time the food supplier company named 'Sysco" having big jumps in stock price because people thought they were buying "Cisco".
Perhaps, we should prefer companies that have names that sound like other tech companies. Because, you know, here is one example where it caused their price to go up. How else would you possibly explain that when all other food supply companies had no such run-up during that time. So, clearly "Similarly named" would be a great investment strategy going forward :oops:
Once in a while you get shown the light, in the strangest of places if you look at it right.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Dividend Controversy

Post by gougou »

JoMoney wrote: Sat Feb 19, 2022 2:49 pm
gougou wrote: Sat Feb 19, 2022 2:23 pm...
So are you saying this $0.1 dividend didn’t impact the total return of the stock from Dec 8 to Dec 14? Why did GRR returned 25% in a week when most iron ore miners were basically flat?

By your graph, if dividends didn’t matter to total return, it sounds like when this $0.665 stock declared that $0.1 dividend, it should have done nothing and stayed at $0.665 next day, and stepped down to $0.565 on the ex-dividend date. Why did GRR significantly outperform its peers in that week?
In your mind, how does it work when a company transfers money from their balance sheet to the share-holders ?
How is a company that has that $.10 per share in the bank not worth that much less after they've transferred it to someone else?
I’ve explained this before. If a $50 stock has $100 per share in the bank, when they decide to pay $50 dividend (transfer $50 from their book to shareholders), their share will get a significant boost. Someone asked me the same question and challenged me to find an example, and ASX:GRR is the example.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
Locked