Is the concept of dividends pointless for the sake of investing?

bigfreddiel

Pincher wrote: »

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/HSBA/13070898.html

HSBC Holdings plc (the Company) announces that it has purchased the following number of its ordinary shares of US$0.50 each on the London Stock Exchange from Goldman Sachs International (Goldman Sachs) as part of its buyback programme announced on 4 August 2016.


You don't have to have dividend to make money.

The strange thing is, of course, that the share price keeps shooting up, AND it pays handsome dividend too.

It's a wet dream of a share.

Nice innit, I've got loads of shares in HSBA, all due to reinvesting over the years, but an invest firm Shore Capital are still marking these as a sell!

Cheers fj

Pincher

bigfreddiel wrote: »

Nice innit, I've got loads of shares in HSBA, all due to reinvesting over the years, but an invest firm Shore Capital are still marking these as a sell!

Cheers fj

It's like one of those wonder foods.
All you need to eat is HSBC shares, and you fill up your £11,100 and £5,000 tax allowances for 2016/17.

Surf and Turf, cholesterol overdose.

Yummy :EasterBun

Linton

Dividends are an essential part of investing:

1) At the highest level they help keep the markets in touch with reality as they link the equity market to the bond market. Without this link equity could be just a fashion based investment with the volatility of gold, fine art, stamps, gemstones etc. There is little benefit from owning a small part of a company if you and everyone else knows that they can never benefit from the company's wealth.
2) A company pays dividends because that's what the owners want. They get upset when the dividend is cut.
3) For individual investors:
- they exist and form a significant part of investment return. With a broadly diversified portfolio dividends cant be ignored.
- they provide people who need it with low cost and low hassle, steady-ish income from the returns of equity investment. Obtaining steady income by selling equity requires more ongoing management, decision making and cost. History shows that dividends are much less volatile than equity prices.

chucknorris

lonewolf123 wrote: »

Hi

I was looking up on google the idea of investing just before an ex dividend date to benefit from the dividend pay out coming up which I naively thought could be an easy quick investment boost.

However I found out that the market actually adjusts itself to the declared dividend and the share price will actually fall to factor in the payment of dividends and investing before the ex dividend date doesn't actually work.

Therefore this raises the question, why do investors get so excited by dividend payments? They don't really mean anything as all it essentially is is that someone took a slice of your share price and put it in another pot called dividends and if you add them up they equal back to before the dividend was paid.

Am I missing something here?

Dividends are taxed very favourably:

1. They can be in ISA's and pensions, I know cash can too, but residential property can't (I know it can in very limited circumstances).
2. The first (unwrapped) £5k is tax free anyway.
3. In the 20% income tax band, tax is only 7.5%
4. In the 40% income tax band, tax is only 32.5%
5. In the 45% income tax band, tax is only 38.1%
6. CGT is only 10/20%, but 18/28% for property
7 It is easy to mitigate CGT with shares

So when you look at the net income from alternative assets, dividends look comparatively good.

steampowered

You are making an artificial distinction between dividends and capital growth. If you are investing to increase your wealth, the concept that really matters is the "total annual return" on your investment.

Capital growth and reinvested dividends both increase the value of your portfolio. If your portfolio increases from £1,000 to £2,000 it is then worth £2,000; it doesn't really matter whether the increase came from dividends or from capital growth.

(aside from the fact that dividends are taxed on an ongoing basis as income and capital growth is taxed on sale of the shares as capital; though neither taxes are imposed if you buy buying through an ISA).

TheTracker

Here are some of swedroe's articles reviewing research on the irrelevance of dividends. The aforementioned book chapter covers similar ground more eloquently.

http://www.etf.com/sections/index-investor-corner/swedroe-irrelevance-dividends?nopaging=1

http://www.etf.com/sections/index-investor-corner/swedroe-mutual-funds-lace-portfolios-dividend-juice?nopaging=1

http://www.etf.com/sections/index-investor-corner/swedroe-dividends-illogical-preference?nopaging=1

If you'd prefer to listen rather than read, proceed to the podcast episode at http://mebfaber.com/2016/11/09/episode-28-larry-swedroe-literally-no-logical-reason-anyone-preference-dividends/ episode 28 from around 14:30-18:30 and 24:30-30:00

Linton

steampowered wrote: »

You are making an artificial distinction between dividends and capital growth. If you are investing to increase your wealth, the concept that really matters is the "total annual return" on your investment.

Capital growth and reinvested dividends both increase the value of your portfolio. If your portfolio increases from £1,000 to £2,000 it is then worth £2,000; it doesn't really matter whether the increase came from dividends or from capital growth.

(aside from the fact that dividends are taxed on an ongoing basis as income and capital growth is taxed on sale of the shares as capital; though neither taxes are imposed if you buy buying through an ISA).

But what if your primary priority isnt increased stored wealth but to get income?

Even if you are still in the acquisition phase dividends versus capital growth forms a meaningful diversification. High dividend payers tend to be less volatile, dividend payment is a useful proxy for Value as opposed to Growth

chucknorris

Linton wrote: »

But what if your primary priority isnt increased stored wealth but to get income?

Even if you are still in the acquisition phase dividends versus capital growth forms a meaningful diversification. High dividend payers tend to be less volatile, dividend payment is a useful proxy for Value as opposed to Growth

I'm not really looking to increase my wealth, my motivation to invest in equities is mainly driven by building a decent (hassle free, so that excludes rental) income for my future retirement.

Linton

TheTracker wrote: »

Here are some of swedroe's articles reviewing research on the irrelevance of dividends. The aforementioned book chapter covers similar ground more eloquently.

http://www.etf.com/sections/index-investor-corner/swedroe-irrelevance-dividends?nopaging=1

http://www.etf.com/sections/index-investor-corner/swedroe-mutual-funds-lace-portfolios-dividend-juice?nopaging=1

http://www.etf.com/sections/index-investor-corner/swedroe-dividends-illogical-preference?nopaging=1

If you'd prefer to listen rather than read, proceed to the podcast episode at http://mebfaber.com/2016/11/09/episode-28-larry-swedroe-literally-no-logical-reason-anyone-preference-dividends/ episode 28 from around 14:30-18:30 and 24:30-30:00

Having read the first 2 references several thoughts come to mind...

1) I find the articles are rather vacuous
2) They refer to US tax conditions - the UK is differemt
3) The thesis as I understand it is that some investors have an irrational preference for dividends as "cash in hand" that research shows does not lead to greater overall return. This is taken advanatage of by some funds.

However that does not preclude the situation that a preference for dividends may in some circumstances be completely rational. In addition I would suspect that an irrational avoidance of dividend paying companies would be equally counter productive when looking at overall returns.

TheTracker

Linton wrote: »

Even if you are still in the acquisition phase dividends versus capital growth forms a meaningful diversification. High dividend payers tend to be less volatile, dividend payment is a useful proxy for Value as opposed to Growth

There is no peer reviewed evidence for any diversification benefit in dividend payers.

Dividend payers are a poorer proxy for value than other measures for which exist targeted funds.

Leaving aside tax and trading costs, there is no logical benefit in receiving dividends versus selling capital.

Finally, there is evidence that dividend payers are over valued based on behavioural preferences (such as yours) that eat well into the tax and trading aspects.

It is a 'religious' issue, so having said my part I will stay quiet as there is little chance of convincing you, and I think no less of you for holding such views