2Yr·

A thought that has been on my mind now since I joined #getquin has been on my mind:

"Why is everyone here so keen on #dividends?"

From a purely financial point of view, the yield of a share is, as is well known, composed of dividend yield + price gains. Since the distributed dividends are automatically deducted from the price of the respective stock, it becomes a zero-sum game when viewed holistically.

Assuming two completely identical companies, we naturally forego the compound interest effect and thus a potentially better long-term performance due to the distributions.

What do you think?

What are your reasons for and against dividend stocks???

PS: Yes, I also have dividend stocks in my portfolio, because it just feels nice to get cash in my hand at certain intervals. But I can't explain it rationally. 😜

52 Comments

Staatsmann@Staatsmann

2Yr

I use dividend stocks primarily to motivate me in times when growth stocks are not doing so well. It is a purely psychological effect for me that when I know that my growth stocks are only going down in book value, but in parallel a dividend arrives in the account every now and then. For this reason, only part of my portfolio consists of dividend stocks.

•

Leon@Leon139

2Yr

@Staatsmann I would also add that dividends represent additional income to the existing salary even without (partial) sales and thus also promise a little bit of freedom emotionally without having to sell parts of the portfolio in order to realize the return compared to the purchase. Even for players who are as non-emotional as possible, this is still an emotional story somewhere.

•

Nico Uhlig@RealMichaelScott

2Yr

In theory, you are right. But unfortunately, theory is not always practice because people are rational only in the rarest cases. Some reasons that speak for dividend stocks: - Motivation: instead of being happy about book profits, real money comes into the account on a regular basis - Passive income: many people like the idea of regular income without any further active action on their part - Quality feature: a company must be able to afford a dividend that increases over decades. This can be a positive indicator of the health of the company Of course only a rough list, but I hope the idea gets across.

•

Pope Donkey XXI@DonkeyInvestor

2Yr

I am not keen on dividends. But I feel more comfortable living on dividends in my old age than selling parts of my portfolio.

•

Lorena@Lorena

2Yr

I'm not a fan of dividends. But maybe when I'm older, I'll focus more on that. But not yet, growth is more important to me

•

Sven@svenleowe

2Yr

@Lorena ❤️

•

MORE MONEY BOY 🤑@EnjoyCapitalism

2Yr

Dividends offer the only rational added value if you have enough capital to live on the returns. In principle, it is also possible to continue to bet on price gains and then successively sell shares, but this has the massive disadvantage that you would also have to do this in times of crisis when prices are low, have to sell more accordingly and then profit less from the relatively higher sale of shares in the subsequent recovery. Dividend stocks also lose value, but only cut their payouts in extreme cases, which is why cash flow remains stable even during a bear market.

•

MORE MONEY BOY 🤑@EnjoyCapitalism

2Yr

Here is an example to clarify the whole thing: Assume you have a deposit volume of 1 million € consisting of 100,000 ETF shares at 10 €. You need 2000€ per month to live and sell 200 shares per month, which corresponds to 0.2% of your deposit volume. You calculate an average return of 0.6% per month, which would mean that your portfolio continues to grow in the long term despite the sale of shares. Now the market crashes by 50% and your shares are only worth 5€. You have to sell 400 shares per month which is 0.4% volume. It takes years until the market recovers, your portfolio value which has dropped to 500k after the crash is sold over the next few years to 400k without any price gains. Then the next bull market to the ATH which corresponds to +100% of the low. Your portfolio value doubles, but is now at 800k because you had to withdraw so much. With dividend stocks, the portfolio value also falls by 50%, but the payouts hardly fall (various dividend aristocrats show that some companies can create continuous payouts even in times of crisis). You can sit out the crash and wait for the long recovery and then you are back at 1 million portfolio volume.

•

Björn@Kapital_Koala

2Yr

Dividends are love 🫶 It is important to me that I do not have to work until the statutory pension (small joke on the side), come closer to my goal. I experience in recent months often, the acquaintances, colleagues, etc. shortly before or just at retirement age are and Zack give up the spoon. I do not intend to work so long, but rather with deductions early to enjoy my life still something. Dividends and rental income help me implement my plan, plus I get something back with my dividends. I spend so much money in the month on everyday products, whether Unilever or Coca Cola, everything is expensive enough, you can be happy if you get something back 😄✌️

•

Zackdela79@Zackdela79

2Yr

You seem to have come to Getquin too late: in 2021, dividend hunters were still demonized by many here and everyone wanted tech. Since Tech has been sliding since the beginning of 2022, many have discovered the pleasures of dividends for themselves - that's just how the stock market plays 😁

•

MaK@DollarDon

2Yr

I partly rely on dividends because I have more flexibility in everyday life. For example, dividends are tax-free in some countries 😌 In addition, there are countries where you can already live with 400€ like 1500€ in Germany, even 50€ dividends are already very attractive 😉 I am still of the opinion that in a good portfolio growth as well as dividend values belong 🧐

•

giraffinvesting@giraffidae

2Yr

@DollarDon i see what you did there "Handelsblatt: Escape from inflation: In these eight countries pensioners get a lot for their money - https://hbapp.handelsblatt.com/cmsid/28903558.html" 👀

••

MaK@DollarDon

2Yr

@TradingmitIdee Unfortunately, I don't have a trade journal, but there are countries where you as a foreigner are not even asked about your income. Without income, of course, no taxes 😅

•

Dividenden-Penner@Dividenden-Penner

2Yr

I can't pay for bread rolls with book profits.
And when I retire, my portfolio will not be reduced.

•

Zoro@RoronoaZoro

2Yr

I think it depends on what you want to do with the portfolio in the long or short term. I have a few dividend payers in the portfolio, but not because of the dividend, but because of the title itself. In the long term (20+ years), dividends should also be able to pay my life in part, but since this is a long way off, I don't place much value on it at the moment. A few others here will either want to watch their monthly cash flow grow constantly or are already earning a decent side income with it at the present time, although the majority here is probably doing the former. Dividends are also a psychologically good means to keep oneself in a good mood, e.g. in the last months.

•

CashDividendGamer@CashDividendGamer

2Yr

Yes, but the dividend is ultimately financed by the companies. This kind of argument always sounds as if the dividend comes out of nowhere or is a redistribution of the shareholders' money. At least that's what I think. I clearly prefer blue chip companies that are profitable. They often, but not always, pay dividends. As a shareholder/small shareholder, I honestly think this is only fair. I can then see what I do with the money, currently 100% of it is reinvested on the stock market. Otherwise you can only make money by selling. Dividends are taxed, but they also give you flexibility and options. However, you shouldn't chase dividends for better or worse, and you have to be particularly wary of high-yield traps.

•

Sven@svenleowe

2Yr

I never understood that either...

•

Banana M.@Banana_Millionaire

2Yr

Quite simply, what you have is what you have.
Unrealized returns are nice, but strictly speaking they are only a snapshot.
It's also incredibly motivating when the dividends increase year on year.
I've tried many approaches in the meantime and the dividend strategy is simply the most fun for me.
A few trades every now and then and then it works.

•

Golden Boy@randomdude

2Yr

Ben Felix has nice videos on the subject:
https://youtu.be/UpXI_Vd51dA

•

FwieRendite@FwieRendite

2Yr

@randomdude gets to the heart of the matter! Very nice video. Thank you

•

Stefan L.@Salamistar

2Yr

The point about the compound interest effect is only partly true. As long as you stay below the tax-free amount (i.e. you don't pay tax on it) and the dividends are reinvested, it remains the same.
My focus is definitely not on dividends, but I think it's nice to get some. As I'm still a long way from the tax-free amount, it's not a problem for me.

•

Kobe (.@TheDividendCollector

2Yr

As I am not an ETF fan, I focus on dividend stocks and because I have sufficient liquidity and can actually get by without dividends, I buy new stocks with full dividends or add to them. For this reason, I am broadly diversified with over 150 stocks (I didn't build it up on my own and therefore prefer to keep my GQ portfolio secret for many reasons), which also includes some growth stocks.

In my view, growth has one disadvantage, namely that if the share price falls and you slide into the red, the book profit you have made is completely lost again without you having used any of it. With dividends, you use it as interest, which makes the most sense for reinvestment.

•

FwieRendite@FwieRendite

2Yr

@TheDividendCollector Why do you think dividends make the most sense as a reinvestment?

••

SharkAce@SharkAce

2Yr

I buy companies because I like them. I don't really care whether they pay dividends or not. Only with my All World do I rely on dividends so that I can reinvest the dividends I receive in my shares.

Ideally, these could then beat the performance of the All World. In other words, the zero return game might turn into a profit without having to sell anything :)

•

Ella Marie Waschbär@DividendenWaschbaer

2Yr

For me, it's the psychological effect and also a bit of freedom.

I can already increase my quality of life with dividends if I want to. I currently reinvest 100% of the dividends, but I could also say that I only pay myself a vacation from the dividends. This means I don't have to effectively use my assets. My assets don't even get smaller. "Only" the return is lost. That's stupid, but you can't miss what you never had.

I could also lease a car, for example, and only pay for it from dividends. Or the interest on my loan.

For example, I save X amount in a dividend ETF with a 5% annual yield and 3% dividend yield (+ dividend growth Y). In the meantime, I can use the dividends to save in another ETF that has an annual growth rate of 4% but a dividend yield of 7%. The first ETF will of course continue to be saved. This variant allows me to feed a new ETF without spending any money myself. You can also use a share instead of an ETF. If I save for share XYZ with savings plan X (as above), I cannot suddenly also save for share ZYX unless I reduce the savings plan for the first share or raise additional money.

Dividends simply give me a lot of freedom without reducing my assets. It just makes less profit.

Another short example: Person A pays €100,000 into the growth portfolio on January 1 and receives no dividend. Person B pays €100,000 into the dividend portfolio on January 1. He receives 100% of the dividend in May and reinvests if he has no other plans for it.

2 years later, both would like to pay for a vacation for €5,000.

Person A has to sell shares and then only has €115,000 left in the custody account (and fewer shares)

Person B uses the dividend for this. And now has a portfolio value of €113,000.

Psychologically, person B is in a better position because the same vacation has been taken, but the securities account is still higher. Person A has effectively "lost" money as a result of this vacation.

In terms of returns, person B reduces their profit through taxes. However, the quality of life and well-being is higher for person B because they have never experienced the higher dividend. And people can't miss what they don't know.

The figures are of course just a quick calculation and possibly unrealistic. But the principle is clear.
This can be applied not only to a vacation, but to everything.

And that's why I only have dividend shares.

••

Sebi97@Sebi97

2Yr

Well, if I hold divident shares for 30/40/50 years and they regularly increase their dividends, it's not a zero-dollar game

••

FwieRendite@FwieRendite

2Yr

@Sebi97 why not?

••

Sebi97@Sebi97

2Yr

@FwieRendite because the dividend is increased more than the pure share price gain

•

FwieRendite@FwieRendite

2Yr

@Sebi97 why??? Who tells you that the future dividend will be higher than the current dividend and even higher than the percentage increase in the share price?

Please never forget that dividends are nothing more than distributable profits after tax and that the company therefore lacks liquidity for future projects.

••

erT@erT

2Yr

1. quality companies often pay dividends, whether I want them or not
2. a "good" dividend history is often an indicator of stable companies/business models and a certain resilience

The bottom line is that the problem with your thesis is that these identical companies, of which I only have to choose whether they pay a dividend or not, do not exist. The dividend is part of the equation and is often a sign of quality.

••

Mister_ultra@Mister_ultra

2Yr

1. dividends (especially long-term ones) speak for quality and a long-term management orientation
2. in years like 2022, it is nice to at least be able to increase your dividend income
3. most companies pay a dividend whether you like it or not
4. those who pay dividends refrain from ideas that are too crazy (Metavers, Tesla,...)

And 4. probably the most important point, which also overlaps somewhat with the 3rd point.
Top stocks like Apple, Microsoft, MasterCard, LVMH,... I absolutely want to have in my portfolio, whether they have a dividend or not.

6. you also realize profits in parts. If I buy a share that rises by 100% and then falls again, the bottom line is that I have nothing. If I still receive dividends in the meantime, at least this part is no longer taken away from me.

7. makes it easier to use the exemption order than to sell extra shares at a profit.

••

Marcel E.@DivMoney

2Yr

Personally, I focus a lot on dividend payments, but also on company valuations and whether they are future-proof. And since I invest a certain amount in savings every month, I take the dividends to reinvest them and perhaps use them to top up my pension at some point.

••

Stephan Schnee@MrCumEx

2Yr

I need the dividends as a supplementary pension. I don't want to have to buy and sell shares all the time.

••

FwieRendite@FwieRendite

2Yr

Are you already retired?

If not, it may make more sense to take full advantage of the compound interest effect and invest in accumulating ETFs.

••

Stephan Schnee@MrCumEx

2Yr

@FwieRendite if I get enough dividends, I can retire next year ;-)

••

myself@dividendsearch

2Yr

I joined in 2021 and the majority of people here were clearly against dividends back then. This view seems to have completely changed. I think the right personal strategy is crucial. With regard to the available capital and, above all, the investment horizon. The personal perception of risk is also important. Dividends do provide a certain degree of security, even if this does not seem justified in purely mathematical terms. And, of course, dividends are not safe either. My strategy includes both dividend stocks and growth stocks. However, I only started implementing it at the beginning of this year and am convinced of my personal strategy. I think that's the most important thing. You'll see later whether it's right or wrong 😃

••

Mathias@AktienAustria

2Yr

So first of all, I have both and am not a dogmatic dividend investor.

nevertheless. share price gains can be lost due to various factors. black swans. regulatory effects. unrecognizable corporate misconduct.
no one can take away the dividends paid out. that's why i like to consume part of the return via distributions 😁

••

Deleted User

2Yr

Comment was deleted

FwieRendite@FwieRendite

2Yr

@D-Duck top, thank you 👍

••

Deleted User

2Yr

Comment was deleted

FwieRendite@FwieRendite

2Yr

@Zany You have a clear advantage in Germany!!! In Austria, unfortunately, the first cent is fully taxable, regardless of whether you have €10 or €100,000,000 in assets.

Hopefully

••

Kevin E.@KevinE

2Yr

@FwieRendite But with €100 million, it makes no difference whether you don't have to pay tax on €1000 😉