Ben Felix recently released a video titled The Irrelevance of Dividends and it's got the whole dividend community up in arms. I want to discuss why dividends are not irrelevant and while I'm not purely a dividend investor, I believe there are some things beyond pure theory and math that makes dividend investing a perfectly RELEVANT option.

There's 3 main arguments about dividend stocks or dividend growth stocks that I hear time and time again:
1) Dividends are not "Free money" - the price drops by the dividend amount
2) Selling shares is the same thing as receiving dividends
3) Dividend stocks are boring and don't have much upside

I personally believe Dividend investing is a great strategy. First need to understand what a dividend is, and how it works. When a company earns a profit - they can do a few things with this money
1) They can reinvest it back in the business
2) They can buyback their shares
3) They can hold it in cash or cash equivalents waiting for somewhere to deploy it
4) They can pay out a dividend

A dividend is a simply a paycheck that a company pays it's shareholders for holding their stock, and depending on the company, this could be paid monthly, quarterly, semi-annually, or annually. Generally most companies pay out their dividends quarterly, that is, every 3 months - or 4 times a year.

1) Dividends are not FREE MONEY
This is an absolutely valid statement, and one that is factually true. When a dividend is paid out by a company, the stock price will drop by the amount paid out on a per share basis. For example, if we buy Visa Stock today at $176.11/share, and it paid a $0.25 dividend tomorrow, the stock price would actually reduce by $0.25 tomorrow - making it $175.86 - reflecting the dividend payout. One question every beginner asks is - why can't I just buy a stock the day before the dividend, earn the dividend, and then sell off the stock? Now you know.

2) The 2nd argument is less factual IMO - selling shares is the same as receiving dividends. The theory here is that if a company doesn't pay a dividend, you can simply sell off shares of it - and this would earn you the exact same amount as a dividend payout. Non-dividend investors will argue that they can just sell shares of a non-dividend stock, and earn this income as well and this is where I have an issue with that thinking because there's 2 problems:
Problem 1: This requires an active approach
Problem 2: You have to sell whether the market is up or down

3) Now this is one I hear quite often as well - Stocks that pay a dividend are boring, and don't have much upside when it comes to capital appreciation. Really the best way to show my point here is by a chart (shown in the video) which shows a comparison of the dividend aristocrats, vs the S&P 500. The chart really sums up this argument - showing that dividend stocks, at least the aristocrats, have performed better than the general market. So to say dividend stocks don't have any growth, is purely ignorant.

I personally believe that a well balance portfolio is not a bad idea - a combination of growth and dividend stocks. But regardless of the strategy, the bottom line is to invest in strong BLUE chip companies, or companies that have proven they are worth your hard earned money. A growth investor can lose their whole investment by investing in "growth penny stocks" just like how a dividend investor can lose their whole investment by investing in "high yield dividend stocks". There's absolutely many different ways to invest in the market and see success. To say that "dividends are irrelevant" is not so easy - and it really depends on the individual and their investing preferences.

There was absolutely no hate here towards Ben - I actually think his videos are phenomenal and extremely informative, and I encourage you to watch it to understand dividends better.


#Dividends #Investing #PassiveIncome #PositiveInvesting


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