Whoa, Chuck, fired up! Excellent video. I'll never doubt dividends again. I posted on Rob Berger's Financial Freedom channel that he should watch this video because it is a rebuke of his Free Dividend Fallacy video--and posted on Let's Talk Money for those folks who were agonizing over Mr. Berger's video--should come here and watch this great video. I found Rob Berger to be a little arrogant and flippant with his opinion of dividend stocks. He also kind of took a shot at the other RUclipsr video makers who promote and analyze dividend stocks. I hope Mr. Berger watches this video. I'll make sure to mention it in his comment section when his next video is released. Thanks for your excellent presentation.
I guess people who don't like dividends also don't like coupons, rebates, refunds, interest payments, cash back credit cards, bonuses, or five dollars in a birthday card from grandma....
Late to comment but I found this searching for a video to explain to my kid why I invest in the stocks I do. One of the most important aspects of investing is psychological. If your investing style doesn't match what you are comfortable with you won't be successful. For myself and a lot of investors, knowing that there is a high probability that good companies will continue to pay and increase a dividend (not guaranteed, nothing above the risk free rate is) allows us the opportunity to hold on to stocks and use those dividends to reinvest when stocks are down to increase our portfolio yield. Thanks for this video!
I was going to make a video like this but now I feel like there's no point, this covered the topic very well. I will point these types of commenters here in future, please never delete this video!
It is true that, when a company pays a dividend, the value drops. If the company had paid $1 million in dividends, the value is 1 million less, it no longer has that million. That isn’t such a great thing for a growth stock because that extra million could exponentially make the company a lot of money. Chuck showed clearly that when you have excessive cash on hand, divvy is a good thing. One thing to add is, for the investor, getting a dividend allows for compounding. You can use divvy to buy undervalued or high growth stocks, etc. this can significantly improve your accounts total return.
Spot on! Also what people don’t understand is because you get paid dividends you can buy more stock from the same company or diversify and own other businesses. You decide where you would distribute that gained capital. Yes, you might grow that company, but I believe that dividend payout and yearly increases shows better management decisions than just growing the business and pouring more cash in it. See you in the next one, Stoyan
Thank you for making this video. I actually watched the video that you are referencing over the weekend and it was complete crap. Even a small business owner takes some money from their business to live and doesn't wait until they sell the whole business to take any money from it. I am not sure why as a shareholder of a large company that I wouldn't want to be paid along the way as well.
I love getting dividends especially when they DRIP to buy more shares no matter what the market is doing is so motivating 😎. The best part is dividend raises like today I just got a dividend raise from DUK for doing absolutely nothing... passive income at its best.
I know exactly which video you're talking about. I remember watching it, cause he's a pretty smart guy, and questioning why he wasn't seeing past the price action. Granted, he's very much a trader at heart.
It's strange, I've seen a lot of content creators simultaneously support dollar cost averaging and the dividend irrelevance theory. What they don't ever seem to grasp is that dividend reinvestment is the ultimate way to optimize dollar cost averaging. Since the dividend income rarely falls at the same rate the ticker price does, this allows you to capitalize on more aggressive buying when stocks are cheaper, which in turn results in a higher yield on cost of the same equity, which in turn means that by the time the ticker price has recovered, you are actually ahead of where you were before the crash, even though your account value hasn't changed.
Additionally I would like to propose my own theory, it's called the "Dividend Irrelevance Irrelevance theory" and it states that: "Even if the "Dividend Irrelevance" theory is valid and correct, it's irrelevant to an investors decision making process. The Hartford Funds study shows that dividend paying companies outperform the broader market over long periods of time. It may be 100% accurate that these companies would have returned higher RORs if they reinvested those dividends into growth, but you still would have been better off investing in them instead of the broader market."
@@scramptha5949 I agree with everything you say here except the part about returning higher RORs.I have seen more shareholder capital destroyed by egotistical management's that the point capital recklessly. When they Cannot earn Adequate returns on investment It's better to give the capital to its shareholders as a dividend. Thanks for sharing Well said, Chuck
@@FASTgraphs Oh I agree with you. I wasn't trying to say that dividend hater's assumptions are correct, rather that, even if they are correct, it doesn't matter from an investors point of view. Love the videos, gonna try to find room in the budget for a FASTGraphs membership soon.
Thanks a million young man. Not sure if anyone's ever told you this, but your fairly amazing... Like some kind of financial super hero or something. Appreciate the knowledge and willingness to share.
On the long run you have 1/3 dvidends and 2/3 capital wins. I have nothing against growth stocks (I own several of them) but the dididends are more regular than the capital fluctuations. So I like to have dividend growth stocks long term in my portfolio. And I have many of them and it is working out the longer you own them and the lesser you sell them. Even with companies like General Electric, which is a bummer now. But the winners are outplacing the losers and the losers are only episodes, if you do not think to buy them all the time when they are in difficulties and so "cheap". Let them simple be. Sometimes you have luck like for example Owen & Minor. And if they disappear, the loss is not that big, because the big loss occur when the problems are starting and you do not react in time. And this is often the case, so you have to live with it. Dividends are very important for every investor if he is investing for decades.
I just look at dividends as a more honest way for managers to return owners' excess cash flow to them. Although theoretically, buybacks could be more tax effective, the reality is they're usually more destructive than anything because management tends to buy at any price: dividends don't have that downside. If I get a dividend, I can decide to reinvest at current prices or perhaps wait until they're more reasonable. It gives me as the owner the control over returns rather than management. When management sees they can pump up stock prices artificially through buybacks, they tend to be net sellers with owners' footing the valuation difference and managers profiting off of it. This is why I really hate news of buybacks more than anything, because usually they're not prudently employed. Dividends, however, even though perhaps not as tax-effective (and this should be changed, honestly), are almost never implemented at the expense of owners self interest, though, like buybacks are.
Another point; rather than a 100k initial investment, if someone bought 10k a year in bonds, over that time, the yield would have reduced and reduced. Versus 10k per year of JNJ, dividends still increasing.
great video again. those argueing that dividends decrease the value of the company should go back to school 101 investing. Not only dividends are part of the total rate of return, but, as you rightly pointed out, it offers better resilience in downturn markets improves the ratio of return on invested capital, and an excellent hedge against inflation. There is only one case i am suspicious about dividends, is when the business revenue and income is decreasing over several years while the divdend increases during the same period. For instance IBM: revenue (-3.6% CAGR), operating income (-8.27% CAGR) but dividends (+8.4% CAGR) over the last 10 years.
Great points. Investing in dividend aristocrats looks definitely much better than bonds. However I think the main disconnect between people who like dividends and people who don't lies elsewhere. People who don't like dividends seem to believe you can always use excess cash to grow your business at a faster rate. For e.g JNJ have so much and yet they invest such a small percentage as capex and R&D. Can't they potentially spend much more on themselves and that way grow their earnings at a much faster rate? Which should have the effect of increasing their stock price growth rate over a long period of time. That way the investor will not be taxed until he sells his position and the total return even though the dividend is less or zero maybe greater than the one with dividend..... because here we are considering the effect of using the dividend money to invest back in business for greater percentage earnings growth. I'm pretty new to investing btw. Take this as a question rather than opinion. I'm trying to understand both sides.
Thanks for this video, everything on RUclips is now against dividends. One guy I know of, says he just sells some stock that pops up and so does not need dividends. I am not nimble enough. Thoughts?
There is a compounding in the companies based on reinvestment of retained earnings into profitable organic growth. Based on the ROCE or ROE of the companies, a company with sufficient internal reinvestment opportunities should provide a higher total return in the longterm. It is hard to constantly reinvest dividends with an expected double digit return after paying taxes on the dividends. But for companies, double digit ROCE or ROE are quite usual. Thus, internal reinvestment for growth ( and paying less taxes due to internal reinvestment) should result in higher returns systematically.
Mr. X: thanks for your contribution. You are essentially correct as long as the company has an investment opportunity that allows them to earn as you put it sufficient internal reinvestment opportunities. However, once those are used up, then the best use of that cash is to pay its shareholders a dividend. In the video I presented capex versus cash. For the small sampling I illustrated, each company had significantly more cash than they had investment opportunities. So in my opinion, internal reinvestment opportunities that provide equal or higher returns on investment are great uses of corporate cash. But when they are not available, paying the remainder out and dividends is the proper thing to do. Regards, Chuck
The easiest way to look at this is: even if the price of the dividend is included in the current stock price - it's only one year (or even quarter) worth of dividend. Next year's dividend is not included in today's stock price, so you get that 'for free'.
Chuck, what do you think about the Biden tax plan? Profits will drop from 11% to 5%, which should cut into dividend payouts. Do you think dividend payers will correct for new taxes?
Matt: there is no direct message because valuation varies depending on factors such as growth etc. However with that said, the primary value of FAST Graphs are that they are a valuation tool. With that said, there are numerous ways to screen for attractive valuation through proper utilization of the portfolio feature or the screening tool. Thanks for the question, Chuck
Question Chuck, great video....you are the "Dividend King'! Do you recommend always taking the dividend as cash or is there an argument to be made for dividend reinvestment in the equity (i.e. more shares)?
I keep reinvesting the dividends, but not necessarily in the same stock. 33 equities currently in our portfolio here and none of them are set on DRIP. I find that if I evaluate the prices vs. projected future income/value on the day I am reinvesting the cash, then I can choose the best opportunity rather than having it on autopilot.
Depends on where you are. If you're living off your investments, you will take out the dividends and let the stock itself sit (as much as possible0. But if you have a job you can live off, reinvest the dividend in whatever your current best buy is - to help keep your portfolio grow.
awesome Video as always Chuck, how many years you would think does one stock needs to remain to the "correct" valuation? what is your experience on this?
Other considerations of Dividends: - “Dividends are real” - they are deposited to your account and you receive real, actual cash. Appreciation is only realized when the investor sells and realizes the cash from the sale of the asset. - Dividends are paid to the owner/shareholder over time - and “cash received today has time value”. $1,000 Dividend Income today is more valuable than the same amount of appreciation a year from today (Time Value of Money). It is the amount of purchasing power today minus the headwind of inflation…. $1,000 today or $970 of purchasing power (@3% inflation). Your choice. Thank you for your passion to help investors make wise choices with their capital. Those who refuse to learn or acknowledge this wisdom…. Well, “pray for the species…” Thanks Chuck!
Hello sir! Do you accumulate new shares on growth stocks and growth ETFs that don’t have a dividend or do you just slowly accumulate new shares with dividend stocks only? Thank you!
Hey Chuck, why did you choose to show a dividend/bond yield adjusted for inflation of that year instead of on an annualized rate in your comparison? I feel like the final value adjusted for inflation since 2008 would have painted quite the complete picture.
Can we assume that the dividend will keep increasing? That does not seem logical to me. And I did not understand how paying dividend makes a business more profitable.
It is the pernicious and incessant nibbling away of a dividend investors' longterm gains that sets him on the road to perdition. The only surefire remedy is none other than that quintessential, globally diversified stock portfolio for optimal returns over an investing lifetime.
even in dividend growth scenario, its coming out of existing value of stock. Essentially stock value is getting decreased. Stock will go up due to demand but cant take away that from dividend growth is real ,. its not.
Sat Sai:With all due respect, just like the producer of the video that inspired this one, you are confusing price with value. The price, not the value of the business, but the price of the stock is adjusted so that people cannot own this stock for one day and then get the full quarters dividend. Furthermore, the stock is not going up due to demand, the price is possibly, but not the value of the business. The value of the business is increasing because the company is producing a growing stream of earnings and cash flow’s. A business gets its value from the amount of cash flow it produces to the benefit of its stakeholders. Price volatility has nothing to do with valuation. Again, with all due respect I believe that is a very important lesson that needs to be learned. As Warren Buffett said: “ Price is what you pay value is what you get.” Regards, Chuck
Just my two cents...many (but certainly not all) "growth" only investors are probably not old enough to understand what its like to be in a market that has traded sideways or even down for 5 or 10 years...right now it seems easy to point to growth stocks and say that is the way to go..but we have had a bull market for years. I have nothing against growth stocks...but I want that tempered with some dividend stocks that have shown the ability to pay an income during a market downturn when I wouldn't want to be selling shares
to be precise, you must reduce the bond interest by inflation cumulatively. In your example, you only lowered the bond interest by the current inflation year. EX; Year/interest/Inflation/Income After Inflation 2008 $4,040 3.84% $3,885 2009 $4,040 -0.36% $3,899 2010 $4,040 1.64% $3,835 2011 $4,040 3.16% $3,714 2012 $4,040 2.07% $3,637 2013 $4,040 1.46% $3,584 2014 $4,040 1.62% $3,526 2015 $4,040 0.12% $3,521 2016 $4,040 1.26% $3,477 2017 $4,040 2.13% $3,403 2018 $4,040 2.44% $3,320 2019 $4,040 1.81% $3,260 Total $43,060.15
@@FASTgraphs got it yesterday! Sold cat, jnj, ko so and others which were overvalued, bought amgn, Bristol Myers, IBM and tsn. Why don't you sell calls against these to generate more income and reduce cost basis?
@@caulinstruyk4080 it's simple, because there's nothing I hate more than losing a great stock for a few pennies of additional income. As a long-term value investor I work hard to build a position on stocks when they are undervalued. I cannot stand the thought of losing them. Regards, Chuck
@@FASTgraphs this also provides a TON of coverage during a down move. As long as you roll out of it is itm and sell no more than -30 delta you should be good. -30 delta gives about a 60% chance of touch, so 20 delta maybe better for some
But how do you know what value of company would be if they didnt pay dividend? Also you dont mention that once you get payed dividend you actually own less. Stock is cheaper and from what you received you have to pay tax.
Piotr P: Less what? As a shareholder/owner the cash is mine pro rata to my ownership whether it sits in the company or paid to be as my rightful share of the profits. Also, the company continues to generate earnings, cash flow, and cash this is a business not a fixed asset. Also, I am paid the cash so I have the money to pay the tax. Finally, as I stated in the video, if the money is not earning me my return on invested capital that it is actually weakening the value of the business. At that point it's always better to pay the cash as dividends to its owners -let me say that again - to its owners. Hope that helps, Chuck
@@FASTgraphs what I meant: you own 100$ of shares now. They pay you 10% dividend. Now you own 90$ of shares + 8,1$ (19% tax in my country). So I lost 1,9 $. I'm not against dividend investing, but thoughts like this cross my mind. And I saw serious managers managing big portfolios that also don't like dividends.
@@PeriMCS The effect is temporary to the stock price, granted you've made a good investment. The price of the stock still change after that, and eventually trade well above that $100 if the company continues to grow. This shouldn't deter you from investing in dividends, and nor should taxes. Taxes are things that are completely unavoidable in the long run, but if you're worried about it now you can always use a tax advangtage account like an IRA. I believe you are getting caught up in a technicality, but in the real world dividends do help compound your wealth. As for portfolio managers... it's dependent on their investment needs are requirements for the portfolio, fund, etf, etc. that they are trying to build. You'll rarely see a dividend payign stock in a portfolio that is focused on Small Cap Growth.
@@PeriMCS At the end of the day a company's main goal is to create shareholder value and not destroy it. In many cases, especially in mature companies, it is a better investment for a company to pay a dividend than to try and invest in something new that will destroy shareholder value. Large, mature, slow growing companies pay dividends to keep shareholders happy and generate value for the shareholder. If a company is good, they will grow AND create shareholder value, not just one or the other. Yes in theory it's best to defer taxes as long as possible, but we live in the real world. Taxes are unavoidable eventually, but you should always try and defer as much in taxes as you legally can.
Dividends dont increase your wealth and they are definitly not generating wealth. Dividends are just a transfer of money. And that money already belongs to you. So It makes no difference if the money stays in the company or gets "paid out" as dividends, since the company and all its cash already belongs to you. And to be excact dividends make you poorer! Since you have to pay a huge tax when you receive them (atleast here in Germany). Imagine dividends like you are withdrawing 100€ from your bank account. You dont increase or generate wealth by that, the money just changes the place where its located, from your bank account to your pocket. But now the tax kicks in so you withdraw 100€ but only get 74€ and the rest is burned to the goverment. Every time you collect a dividend of 100€ you actualy get 26€ poorer.
You can't compare two companies with equal growth with one paying a dividend. You should compare two companies with equal total return. The one paying a dividend can grow at a rate reduced by the dividend rate.
All you need to do is look at Warren Buffet's stock portfolio (Berkshire) and you will easily see the high proportion of stocks that are dividend payers.
The ‘price returning to the mean’ you keep repeating make’s no sense mathematically. It is the ‘mean’ that moves toward the new price and not the other way around. If new prices are higher or lower long enough, the mean will go higher or lower, eventually joining the new price.
Not sure where you got your math training, but to be clear the definition of "eventually" is "after an infinitely long period" unless you artificially constrain the period to fixed duration (as does FASTgraphs) and then hold price strictly constant for that entire period. In any event, the nit you're picking is pointless and perverse to any of the many subscribers who've followed Mr. Carnevale's excellent work and viewed more than one of his highly instructive videos. And by the way, "makes" is not spelled with an apostrophe.
@@puppypuppy1448 ‘Eventually’ depends on how the mean is calculated. A last 200 days mean will move slowly, if at all, toward the new price and ‘eventually’ will be very long. A last 10 days mean will move much faster and ‘eventually’ will be much shorter. Someone says that what he call’s mean is not really a mean but something else. If it is not, there is nothing else to say. I am not trying to put Mr. Valuation down in any way. I very much appreciate, like and use what he says. It just that this expression of ‘returning to the mean’ made no sens to me. English is not my every day language, I maybe misunderstood. And I had a very good math training.
![BRASIL vs. URUGUAY [1-1] | RESUMEN | ELIMINATORIAS SUDAMERICANAS | FECHA 12](http://i.ytimg.com/vi/-hWBAuxF1eY/mqdefault.jpg)
If JNJ defaults on dividends we will have a much bigger problem . You are spot on with growing your wealth.
Whoa, Chuck, fired up!
Excellent video.
I'll never doubt dividends again. I posted on Rob Berger's Financial Freedom channel that he should watch this video because it is a rebuke of his Free Dividend Fallacy video--and posted on Let's Talk Money for those folks who were agonizing over Mr. Berger's video--should come here and watch this great video. I found Rob Berger to be a little arrogant and flippant with his opinion of dividend stocks. He also kind of took a shot at the other RUclipsr video makers who promote and analyze dividend stocks. I hope Mr. Berger watches this video. I'll make sure to mention it in his comment section when his next video is released.
Thanks for your excellent presentation.
No need to apologize about the length of the video. Its an important subject. Thank you and keep it coming!
🎯🎯🎯🎯🎯🎯🎯🎯🎯🎯, WELL SAID. I own a total of 70 dividend stocks so I just love to see my dividends roll in by the week.
The wisdom, prudence, and valuable knowledge contained in this video is life-changing to those who watch and fully understand. Thanks Chuck!
I guess people who don't like dividends also don't like coupons, rebates, refunds, interest payments, cash back credit cards, bonuses, or five dollars in a birthday card from grandma....
Well said .
Right said Chuck!! First Valuations matter and they matter a lot! Then Dividends matter and they matter a lot!
Late to comment but I found this searching for a video to explain to my kid why I invest in the stocks I do. One of the most important aspects of investing is psychological. If your investing style doesn't match what you are comfortable with you won't be successful. For myself and a lot of investors, knowing that there is a high probability that good companies will continue to pay and increase a dividend (not guaranteed, nothing above the risk free rate is) allows us the opportunity to hold on to stocks and use those dividends to reinvest when stocks are down to increase our portfolio yield. Thanks for this video!
Protect this man at all cost
I was going to make a video like this but now I feel like there's no point, this covered the topic very well. I will point these types of commenters here in future, please never delete this video!
The Dividend Experiment: thanks I I won't.
It is true that, when a company pays a dividend, the value drops. If the company had paid $1 million in dividends, the value is 1 million less, it no longer has that million. That isn’t such a great thing for a growth stock because that extra million could exponentially make the company a lot of money. Chuck showed clearly that when you have excessive cash on hand, divvy is a good thing. One thing to add is, for the investor, getting a dividend allows for compounding. You can use divvy to buy undervalued or high growth stocks, etc. this can significantly improve your accounts total return.
It's nice to see a RUclipsr who looks like he has the experience to provide some proper guidance. 10yrs worth of videos too!?! Refreshing perspective.
Spot on! Also what people don’t understand is because you get paid dividends you can buy more stock from the same company or diversify and own other businesses. You decide where you would distribute that gained capital. Yes, you might grow that company, but I believe that dividend payout and yearly increases shows better management decisions than just growing the business and pouring more cash in it.
See you in the next one,
Stoyan
Thank you for making this video. I actually watched the video that you are referencing over the weekend and it was complete crap. Even a small business owner takes some money from their business to live and doesn't wait until they sell the whole business to take any money from it. I am not sure why as a shareholder of a large company that I wouldn't want to be paid along the way as well.
I love getting dividends especially when they DRIP to buy more shares no matter what the market is doing is so motivating 😎. The best part is dividend raises like today I just got a dividend raise from DUK for doing absolutely nothing... passive income at its best.
School in session, thanks Professor for the knowledge.
Its very refreshing to see someone on you tube speaking their mind and directly shooting from the lip. Chuck on the war path , happy days
Very thorough and eye opening content…..👏👏👏👏
I know exactly which video you're talking about. I remember watching it, cause he's a pretty smart guy, and questioning why he wasn't seeing past the price action. Granted, he's very much a trader at heart.
It's strange, I've seen a lot of content creators simultaneously support dollar cost averaging and the dividend irrelevance theory. What they don't ever seem to grasp is that dividend reinvestment is the ultimate way to optimize dollar cost averaging. Since the dividend income rarely falls at the same rate the ticker price does, this allows you to capitalize on more aggressive buying when stocks are cheaper, which in turn results in a higher yield on cost of the same equity, which in turn means that by the time the ticker price has recovered, you are actually ahead of where you were before the crash, even though your account value hasn't changed.
Additionally I would like to propose my own theory, it's called the "Dividend Irrelevance Irrelevance theory" and it states that: "Even if the "Dividend Irrelevance" theory is valid and correct, it's irrelevant to an investors decision making process. The Hartford Funds study shows that dividend paying companies outperform the broader market over long periods of time. It may be 100% accurate that these companies would have returned higher RORs if they reinvested those dividends into growth, but you still would have been better off investing in them instead of the broader market."
@@scramptha5949 I agree with everything you say here except the part about returning higher RORs.I have seen more shareholder capital destroyed by egotistical management's that the point capital recklessly. When they Cannot earn Adequate returns on investment It's better to give the capital to its shareholders as a dividend. Thanks for sharing Well said, Chuck
@@FASTgraphs Oh I agree with you. I wasn't trying to say that dividend hater's assumptions are correct, rather that, even if they are correct, it doesn't matter from an investors point of view.
Love the videos, gonna try to find room in the budget for a FASTGraphs membership soon.
Greatest video on dividends that I’ve ever seen.
Great Great lessons Chuck, thank you for your wisdom. May the Lord bless you. ❤
Thanks a million young man. Not sure if anyone's ever told you this, but your fairly amazing... Like some kind of financial super hero or something.
Appreciate the knowledge and willingness to share.
On the long run you have 1/3 dvidends and 2/3 capital wins. I have nothing against growth stocks (I own several of them) but the dididends are more regular than the capital fluctuations. So I like to have dividend growth stocks long term in my portfolio. And I have many of them and it is working out the longer you own them and the lesser you sell them. Even with companies like General Electric, which is a bummer now. But the winners are outplacing the losers and the losers are only episodes, if you do not think to buy them all the time when they are in difficulties and so "cheap". Let them simple be. Sometimes you have luck like for example Owen & Minor. And if they disappear, the loss is not that big, because the big loss occur when the problems are starting and you do not react in time. And this is often the case, so you have to live with it. Dividends are very important for every investor if he is investing for decades.
You sir, have totally blown away that guys video. You’re the OG, thanks for this video!
We love Dividends!!! Thanks Chuck! Another great break down
I just look at dividends as a more honest way for managers to return owners' excess cash flow to them. Although theoretically, buybacks could be more tax effective, the reality is they're usually more destructive than anything because management tends to buy at any price: dividends don't have that downside. If I get a dividend, I can decide to reinvest at current prices or perhaps wait until they're more reasonable. It gives me as the owner the control over returns rather than management. When management sees they can pump up stock prices artificially through buybacks, they tend to be net sellers with owners' footing the valuation difference and managers profiting off of it. This is why I really hate news of buybacks more than anything, because usually they're not prudently employed. Dividends, however, even though perhaps not as tax-effective (and this should be changed, honestly), are almost never implemented at the expense of owners self interest, though, like buybacks are.
Solid perspective on paying dividends
Another point; rather than a 100k initial investment, if someone bought 10k a year in bonds, over that time, the yield would have reduced and reduced. Versus 10k per year of JNJ, dividends still increasing.
great video again. those argueing that dividends decrease the value of the company should go back to school 101 investing. Not only dividends are part of the total rate of return, but, as you rightly pointed out, it offers better resilience in downturn markets improves the ratio of return on invested capital, and an excellent hedge against inflation.
There is only one case i am suspicious about dividends, is when the business revenue and income is decreasing over several years while the divdend increases during the same period. For instance IBM: revenue (-3.6% CAGR), operating income (-8.27% CAGR) but dividends (+8.4% CAGR) over the last 10 years.
Great points. Investing in dividend aristocrats looks definitely much better than bonds.
However I think the main disconnect between people who like dividends and people who don't lies elsewhere. People who don't like dividends seem to believe you can always use excess cash to grow your business at a faster rate. For e.g JNJ have so much and yet they invest such a small percentage as capex and R&D. Can't they potentially spend much more on themselves and that way grow their earnings at a much faster rate? Which should have the effect of increasing their stock price growth rate over a long period of time. That way the investor will not be taxed until he sells his position and the total return even though the dividend is less or zero maybe greater than the one with dividend..... because here we are considering the effect of using the dividend money to invest back in business for greater percentage earnings growth.
I'm pretty new to investing btw. Take this as a question rather than opinion. I'm trying to understand both sides.
I love watching this old guy, kind of like having a grandpa that always remind you to under spend and to invest as much as you can.
Chuck, I've been waiting for months for answer to this question. Great info. Thx much as always.
Chuck, If dividends are so great and increase wealth why doesn't Birkshire Hathaway have a dividend?
Thanks for this video, everything on RUclips is now against dividends. One guy I know of, says he just sells some stock that pops up and so does not need dividends. I am not nimble enough. Thoughts?
God bless this huge contribute to the financial comunity. Thank you. Greetings from Portugal!
Here for a dose of common sense. I’m a “dividend hugger”. LOL.
Hug
@@delliott777 And I scored a four digit dividend today! My arms had to really stretch to hug that dividend.
@@chessdad182 Awesome. Hard work, and dedication. Nice job.
Buybacks mixed with dividends is an amazing way to reward shareholders. Overpaying for bootstrapped growth rarely makes sense
Great video! I’ve subscribed to Fastgraghs now and it is great tool to evaluate stocks. Please do a video on Altria.
There is a compounding in the companies based on reinvestment of retained earnings into profitable organic growth. Based on the ROCE or ROE of the companies, a company with sufficient internal reinvestment opportunities should provide a higher total return in the longterm. It is hard to constantly reinvest dividends with an expected double digit return after paying taxes on the dividends. But for companies, double digit ROCE or ROE are quite usual. Thus, internal reinvestment for growth ( and paying less taxes due to internal reinvestment) should result in higher returns systematically.
Mr. X: thanks for your contribution. You are essentially correct as long as the company has an investment opportunity that allows them to earn as you put it sufficient internal reinvestment opportunities. However, once those are used up, then the best use of that cash is to pay its shareholders a dividend.
In the video I presented capex versus cash. For the small sampling I illustrated, each company had significantly more cash than they had investment opportunities. So in my opinion, internal reinvestment opportunities that provide equal or higher returns on investment are great uses of corporate cash. But when they are not available, paying the remainder out and dividends is the proper thing to do. Regards, Chuck
@@FASTgraphs Yes, but should be mentioned, to keep a discussion of dividends not superficial.
Love your perspective! Thank you for sharing it with us on a regular basis. This is very helpful to me, and many, many others, as well. 🙂
The scariest part of this is people looking at stock prices and drawing a conclusion of value from there
The easiest way to look at this is: even if the price of the dividend is included in the current stock price - it's only one year (or even quarter) worth of dividend. Next year's dividend is not included in today's stock price, so you get that 'for free'.
Chuck, why don't you sell covered calls to reduce cost basis and create income on these stocks at 30 delta 30 to 60 days to expiration?
Chuck, what do you think about the Biden tax plan? Profits will drop from 11% to 5%, which should cut into dividend payouts. Do you think dividend payers will correct for new taxes?
Thumbs up and a like for your passionate and rational defence of dividend stocks
Is there an alert in FastGraphs to tell you what stocks are in the “buy“ range?
Matt: there is no direct message because valuation varies depending on factors such as growth etc. However with that said, the primary value of FAST Graphs are that they are a valuation tool. With that said, there are numerous ways to screen for attractive valuation through proper utilization of the portfolio feature or the screening tool. Thanks for the question, Chuck
Amazing video Chuck! Such important information to put out there!
Question Chuck, great video....you are the "Dividend King'! Do you recommend always taking the dividend as cash or is there an argument to be made for dividend reinvestment in the equity (i.e. more shares)?
Always reinvest to compound the returns.
I keep reinvesting the dividends, but not necessarily in the same stock. 33 equities currently in our portfolio here and none of them are set on DRIP.
I find that if I evaluate the prices vs. projected future income/value on the day I am reinvesting the cash, then I can choose the best opportunity rather than having it on autopilot.
Depends on where you are. If you're living off your investments, you will take out the dividends and let the stock itself sit (as much as possible0. But if you have a job you can live off, reinvest the dividend in whatever your current best buy is - to help keep your portfolio grow.
awesome Video as always Chuck, how many years you would think does one stock needs to remain to the "correct" valuation? what is your experience on this?
I recall hearing that it could be a much as five or ten years, depending upon the individual company and market conditions.
Absolutely great video!
Other considerations of Dividends:
- “Dividends are real” - they are deposited to your account and you receive real, actual cash. Appreciation is only realized when the investor sells and realizes the cash from the sale of the asset.
- Dividends are paid to the owner/shareholder over time - and “cash received today has time value”. $1,000 Dividend Income today is more valuable than the same amount of appreciation a year from today (Time Value of Money). It is the amount of purchasing power today minus the headwind of inflation…. $1,000 today or $970 of purchasing power (@3% inflation). Your choice.
Thank you for your passion to help investors make wise choices with their capital.
Those who refuse to learn or acknowledge this wisdom…. Well, “pray for the species…”
Thanks Chuck!
Steve: well said we appreciate your contribution.
Chuck can you do a video on best value in Tobacco BTI, MO, PM
Milk from cows, eggs from hens, and stocks by god for their dividends
THANKS!!!
Hello sir! Do you accumulate new shares on growth stocks and growth ETFs that don’t have a dividend or do you just slowly accumulate new shares with dividend stocks only? Thank you!
Company A buys back 10million worth of shares. Company B pays a dividend. Isn't is the same for the investor in the Company?
Hey Chuck, why did you choose to show a dividend/bond yield adjusted for inflation of that year instead of on an annualized rate in your comparison? I feel like the final value adjusted for inflation since 2008 would have painted quite the complete picture.
Great video and great logic. I like it when you Chuck gets mad.
Have you done one on kdp pepsi ko
Great video just finished it at 1.25x speed lol thanks for the knowledge
Can we assume that the dividend will keep increasing? That does not seem logical to me. And I did not understand how paying dividend makes a business more profitable.
Thanks again 🙏🏼🙏🏼🙏🏼
I agree with you Chuck but maybe the tone in this video is a bit unexpected :)
Cheers.
You are one smart guy!
GREAT! I have nothing further to add 👍 ;-)
👍🏻
Except the income from a federal Bond interest isn't taxable by the State where a dividend is
but the bond income doesn't increase, the dividend does, would you rather have 85% of a watermelon or hundred percent of a grape ?
It is the pernicious and incessant nibbling away of a dividend investors' longterm gains that sets him on the road to perdition. The only surefire remedy is none other than that quintessential, globally diversified stock portfolio for optimal returns over an investing lifetime.
PLS look at BABA. It looks really undervalued.
even in dividend growth scenario, its coming out of existing value of stock. Essentially stock value is getting decreased. Stock will go up due to demand but cant take away that from dividend growth is real ,. its not.
Sat Sai:With all due respect, just like the producer of the video that inspired this one, you are confusing price with value. The price, not the value of the business, but the price of the stock is adjusted so that people cannot own this stock for one day and then get the full quarters dividend.
Furthermore, the stock is not going up due to demand, the price is possibly, but not the value of the business. The value of the business is increasing because the company is producing a growing stream of earnings and cash flow’s. A business gets its value from the amount of cash flow it produces to the benefit of its stakeholders. Price volatility has nothing to do with valuation. Again, with all due respect I believe that is a very important lesson that needs to be learned. As Warren Buffett said: “ Price is what you pay value is what you get.” Regards, Chuck
Just my two cents...many (but certainly not all) "growth" only investors are probably not old enough to understand what its like to be in a market that has traded sideways or even down for 5 or 10 years...right now it seems easy to point to growth stocks and say that is the way to go..but we have had a bull market for years. I have nothing against growth stocks...but I want that tempered with some dividend stocks that have shown the ability to pay an income during a market downturn when I wouldn't want to be selling shares
Tell them chuckster
to be precise, you must reduce the bond interest by inflation cumulatively. In your example, you only lowered the bond interest by the current inflation year. EX;
Year/interest/Inflation/Income After Inflation
2008 $4,040 3.84% $3,885
2009 $4,040 -0.36% $3,899
2010 $4,040 1.64% $3,835
2011 $4,040 3.16% $3,714
2012 $4,040 2.07% $3,637
2013 $4,040 1.46% $3,584
2014 $4,040 1.62% $3,526
2015 $4,040 0.12% $3,521
2016 $4,040 1.26% $3,477
2017 $4,040 2.13% $3,403
2018 $4,040 2.44% $3,320
2019 $4,040 1.81% $3,260
Total $43,060.15
in reality the bond returned $43,060.15 in inflation adjusted income vs the nominal $48,480
Where can I buy this software?
www.fastgraphs.com
@@FASTgraphs got it yesterday! Sold cat, jnj, ko so and others which were overvalued, bought amgn, Bristol Myers, IBM and tsn.
Why don't you sell calls against these to generate more income and reduce cost basis?
@@caulinstruyk4080 it's simple, because there's nothing I hate more than losing a great stock for a few pennies of additional income. As a long-term value investor I work hard to build a position on stocks when they are undervalued. I cannot stand the thought of losing them. Regards, Chuck
@@FASTgraphs this also provides a TON of coverage during a down move. As long as you roll out of it is itm and sell no more than -30 delta you should be good. -30 delta gives about a 60% chance of touch, so 20 delta maybe better for some
Nice video!
And now anyone say Dividend Stocks are out^^
Love me some dividends… I don’t listen to them anyways ….
But how do you know what value of company would be if they didnt pay dividend?
Also you dont mention that once you get payed dividend you actually own less. Stock is cheaper and from what you received you have to pay tax.
Piotr P: Less what? As a shareholder/owner the cash is mine pro rata to my ownership whether it sits in the company or paid to be as my rightful share of the profits. Also, the company continues to generate earnings, cash flow, and cash this is a business not a fixed asset. Also, I am paid the cash so I have the money to pay the tax. Finally, as I stated in the video, if the money is not earning me my return on invested capital that it is actually weakening the value of the business. At that point it's always better to pay the cash as dividends to its owners -let me say that again - to its owners. Hope that helps, Chuck
@@FASTgraphs what I meant: you own 100$ of shares now. They pay you 10% dividend. Now you own 90$ of shares + 8,1$ (19% tax in my country). So I lost 1,9 $.
I'm not against dividend investing, but thoughts like this cross my mind. And I saw serious managers managing big portfolios that also don't like dividends.
@@PeriMCS The effect is temporary to the stock price, granted you've made a good investment. The price of the stock still change after that, and eventually trade well above that $100 if the company continues to grow. This shouldn't deter you from investing in dividends, and nor should taxes. Taxes are things that are completely unavoidable in the long run, but if you're worried about it now you can always use a tax advangtage account like an IRA. I believe you are getting caught up in a technicality, but in the real world dividends do help compound your wealth.
As for portfolio managers... it's dependent on their investment needs are requirements for the portfolio, fund, etf, etc. that they are trying to build. You'll rarely see a dividend payign stock in a portfolio that is focused on Small Cap Growth.
@@ColtonC. If company is good it will grow also if it doesn't pay dividend. And regarding tax, it's best to defer it as long as one can right?
@@PeriMCS At the end of the day a company's main goal is to create shareholder value and not destroy it. In many cases, especially in mature companies, it is a better investment for a company to pay a dividend than to try and invest in something new that will destroy shareholder value. Large, mature, slow growing companies pay dividends to keep shareholders happy and generate value for the shareholder. If a company is good, they will grow AND create shareholder value, not just one or the other.
Yes in theory it's best to defer taxes as long as possible, but we live in the real world. Taxes are unavoidable eventually, but you should always try and defer as much in taxes as you legally can.
Dividends dont increase your wealth and they are definitly not generating wealth. Dividends are just a transfer of money. And that money already belongs to you. So It makes no difference if the money stays in the company or gets "paid out" as dividends, since the company and all its cash already belongs to you. And to be excact dividends make you poorer! Since you have to pay a huge tax when you receive them (atleast here in Germany). Imagine dividends like you are withdrawing 100€ from your bank account. You dont increase or generate wealth by that, the money just changes the place where its located, from your bank account to your pocket. But now the tax kicks in so you withdraw 100€ but only get 74€ and the rest is burned to the goverment. Every time you collect a dividend of 100€ you actualy get 26€ poorer.
The difference is, I get paid to hold a stock, where you get nothing for the risk.
@@Barbarossa97 Did you even read what i wrote.
@@woodyworld9341 Sure, but I don't bother to elaborate further.
You can't compare two companies with equal growth with one paying a dividend.
You should compare two companies with equal total return. The one paying a dividend can grow at a rate reduced by the dividend rate.
Thanks for that comment. That would be apples and apples.
All you need to do is look at Warren Buffet's stock portfolio (Berkshire) and you will easily see the high proportion of stocks that are dividend payers.
Chuck I looked at the other video about fallacy and you really debunked it in this video!
Request from Germany: RH
Tell that RUclipsR! go tell Warren Buffet dividends have no value.
Berkshire Hathaway Letter to Shareholders 2012, pages 19 to 21
The ‘price returning to the mean’ you keep repeating make’s no sense mathematically. It is the ‘mean’ that moves toward the new price and not the other way around. If new prices are higher or lower long enough, the mean will go higher or lower, eventually joining the new price.
By mean he is talking about price/earnings ratio, not price itself.
Not sure where you got your math training, but to be clear the definition of "eventually" is "after an infinitely long period" unless you artificially constrain the period to fixed duration (as does FASTgraphs) and then hold price strictly constant for that entire period.
In any event, the nit you're picking is pointless and perverse to any of the many subscribers who've followed Mr. Carnevale's excellent work and viewed more than one of his highly instructive videos.
And by the way, "makes" is not spelled with an apostrophe.
@@puppypuppy1448 ‘Eventually’ depends on how the mean is calculated. A last 200 days mean will move slowly, if at all, toward the new price and ‘eventually’ will be very long. A last 10 days mean will move much faster and ‘eventually’ will be much shorter.
Someone says that what he call’s mean is not really a mean but something else. If it is not, there is nothing else to say.
I am not trying to put Mr. Valuation down in any way. I very much appreciate, like and use what he says.
It just that this expression of ‘returning to the mean’ made no sens to me. English is not my every day language, I maybe misunderstood. And I had a very good math training.