Dividend Investing

eskbanker

AsifM068 said:

With dividends reinvested is a 'dividend' stock / ETF a better investment compared to a  'growth' stock / ETF for a long term hold? 

Better in what sense?  If you mean performance, then you just need to analyse total return, as highlighted by @dunstonh earlier, but investment choice will typically involve other factors, some of which may be more important/significant....

tebbins

AsifM068 said:

With dividends reinvested is a 'dividend' stock / ETF a better investment compared to a  'growth' stock / ETF for a long term hold? 

Define better.
Over the very, very long term there has been some evidence of higher yielding companies, and those that payout more of their profits as dividends, outperforming low yielders and lower dividend payers. However that hasn't been true since the 2007-2009 GFC and there's an argument that these days a vanilla index fund that encapsulates a more balanced strategy is perhaps more efficient than trying to time when dividends, growth or value will come into play. Stock markets are more efficient than they used to be.
Google is a great example of a successful growth company, British American Tobacco is a great example of a successful high dividend stock (apart from the last 5 years or so, just check the total return on trustnet charting). There are plenty of examples of both strategies underperforming.

wmb194

You'd be surprised at how quickly dividends can sometimes be recouped. National Grid is a good example this week. It went ex yesterday for 17.21p, worth about 1.7%, and fell as you'd expect but today it rose and is back to about the same level it was on Wednesday. ASLI is another one I noticed today for this week. Obviously there are no guarantees it won't fall on Monday.

Alexland

Thrugelmir said:
The key is reinvesting the income back into further investments. 

While I generally like dividends the one thing I would say against them is that it's taking money out of the company at book value to reinvest at market value which is usually a multiplication of book value so it's better when companies have opportunities to reinvest their earnings internally at a high rate of return on capital to create new tangible earnings cashflow.

AsifM068

tebbins said:

AsifM068 said:

With dividends reinvested is a 'dividend' stock / ETF a better investment compared to a  'growth' stock / ETF for a long term hold? 

Define better.
Over the very, very long term there has been some evidence of higher yielding companies, and those that payout more of their profits as dividends, outperforming low yielders and lower dividend payers. However that hasn't been true since the 2007-2009 GFC and there's an argument that these days a vanilla index fund that encapsulates a more balanced strategy is perhaps more efficient than trying to time when dividends, growth or value will come into play. Stock markets are more efficient than they used to be.
Google is a great example of a successful growth company, British American Tobacco is a great example of a successful high dividend stock (apart from the last 5 years or so, just check the total return on trustnet charting). There are plenty of examples of both strategies underperforming.

I think I'm trying to say better value in terms of total return....I think.

Individual stock picking is too risky for me therefore I am invested in a passive global index and equity funds but have been looking at high yield ETFs such as iShares UK Dividend as well as Investment Trusts for income when I retire however it is my understanding that I could keep my current investments and just sell units as and when I need income which appears a good option.

ColdIron

AsifM068 said:

Individual stock picking is too risky for me therefore I am invested in a passive global index and equity funds but have been looking at high yield ETFs such as iShares UK Dividend as well as Investment Trusts

The growth or total return from these probably won't be as good as your global trackers

for income when I retire however it is my understanding that I could keep my current investments and just sell units as and when I need income which appears a good option.

The important thing is that you can cross that bridge when you come to it, no need to structure your current portfolio to achieve an objective that you don't yet have. You may feel different about how to provide an income then than you do now and have more knowledge about investing to help you achieve it

PS that iShares fund is a poor one, I'd avoid it anyway

Thrugelmir

Alexland said:

Thrugelmir said:
The key is reinvesting the income back into further investments. 

While I generally like dividends the one thing I would say against them is that it's taking money out of the company at book value to reinvest at market value which is usually a multiplication of book value so it's better when companies have opportunities to reinvest their earnings internally at a high rate of return on capital to create new tangible earnings cashflow.

Growing a company is far more complex than simply reinvesting earnings. Acquisitions statistically provide poor value. The best companies generally stick to what they are good at and evolve organically.  My personal preference for a company that pays growing dividends comes from the accountability of company management. There's been many instances over the years where the management's objectives haven't been aligned with shareholders. 

Alexland

Thrugelmir said:

Growing a company is far more complex than simply reinvesting earnings. Acquisitions statistically provide poor value. The best companies generally stick to what they are good at and evolve organically.

Agree - acquisitions can be very inefficient because again it is buying at open market value sometimes at a premium to get whole ownership followed by integration risks and uncertain benefits. Organic growth using retained earnings with a high return on capital is the holy grail and can be well worth sacrificing dividends if such an opportunity exists and can be competently exploited.

NedS

There are only so many things a company can do with it's cash when it makes a profit. It can reinvest that cash for future growth, and that in itself can take many forms - investing in automation, efficiency, people, training, advertising, buying out the opposition etc. Or it can reduce debt, or buy back it's own shares, returning value to shareholders as the proportion of the company you hold increases, or it can pay out cash to share holders by way of dividends (or a combination thereof). Depending on the company, hopefully the management will make choices suitable for that company that give the best overall return.

AsifM068

NedS said:

There are only so many things a company can do with it's cash when it makes a profit. It can reinvest that cash for future growth, and that in itself can take many forms - investing in automation, efficiency, people, training, advertising, buying out the opposition etc. Or it can reduce debt, or buy back it's own shares, returning value to shareholders as the proportion of the company you hold increases, or it can pay out cash to share holders by way of dividends (or a combination thereof). Depending on the company, hopefully the management will make choices suitable for that company that give the best overall return.

For my understanding please; a company sells shares to raise equity, so why would a company buy them back and following a buyback and I have less shares, how have I benefitted?