Many just want value and buy dividends. This is not entirely wrong per se if you buy the right stocks.
I don't think focusing on dividends is the right approach. But I wouldn't fundamentally demonize a stock for that reason. But higher dividends are evidence of lower growth. The company doesn't know what to do with the profits (or has to pay them out pro rata due to legislation).
I have Realty Income in my portfolio on a pro rata basis, as a small dividend pays out dopamine. But the position is also small enough that it is unlikely to have a significant impact on my portfolio performance.
I don't think focusing on dividends is the right approach. But I wouldn't fundamentally demonize a stock for that reason. But higher dividends are evidence of lower growth. The company doesn't know what to do with the profits (or has to pay them out pro rata due to legislation).
I have Realty Income in my portfolio on a pro rata basis, as a small dividend pays out dopamine. But the position is also small enough that it is unlikely to have a significant impact on my portfolio performance.
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•@SchlaubiSchlumpf That's perfectly OK and yes, you can't pick and choose whether dividends are paid or not. Many companies also hope for more interest in their shares if they pay out something.
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@Madhatter5566 From my point of view, dividends are a good idea when I don't know what to do with them. For example, because I have profits but don't want to expand any further
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@SchlaubiSchlumpf From the company's point of view and for the shareholder, to invest the money elsewhere where it can continue to grow. Because the company doesn't seem to need it. However, this contradicts the dividend snowballs that continue to reinvest it in the company.
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@Madhatter5566 in the sense that the company could carry out share buybacks in a more tax-efficient manner yes.
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@SchlaubiSchlumpf My brain gets a little twisted. Actually, a buyback should also be net zero or negative. Since the buyback usually involves paying a little more than the share is worth. That it is a positive signal that the company believes in itself, yes. That the market welcomes it and values it better, yes. But mathematically, the measure itself does not result in a profit. Or am I wrong here? I haven't looked into this any longer. Actually, equity is consumed as in the case of dividends, but it is exchanged instead of issued as in the case of dividends. Exchanging money for shares cannot trigger a capital gain.
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@Madhatter5566 correct in accounting terms. But dividends generate higher costs (for tax purposes). And the company should do something with its profits. If the company sees no sensible way of using the money to increase its profits, for example by buying new equipment, it can either splash the money on its head, distribute it or buy back shares. For some companies, however, it does not make sense to expand the business because the sales market is not there, new business areas are costly to develop... then I can return it to the shareholders.
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@SchlaubiSchlumpf at least that's my understanding
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@SchlaubiSchlumpf Since no shares can be bought cheaper than the market and transaction fees and spread are paid, I don't know whether this is cheaper than dividends. All in all, there are losses and in the end there is less money/investment than before.
But in my opinion, that's just nitpicking. As long as you don't claim, like the guy in the neighboring thread, that dividends that are paid out are magically replenished, it's all ok. As long as we agree it's net zero with a few exceptions, we're on the same page
But in my opinion, that's just nitpicking. As long as you don't claim, like the guy in the neighboring thread, that dividends that are paid out are magically replenished, it's all ok. As long as we agree it's net zero with a few exceptions, we're on the same page
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•@Madhatter5566 yes Senior
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