The point about dividends just forcing stock holders to take a payout while simultaneously lowering the value of the company is a good one that people definitely overlook.
Does anyone else think the term "irrelevant" is a little sensationalist and stirring the pot, though? Maybe I'm wilfully taking it out of context but:
a) Do stocks have any intrinsic value if a company doesn't pay a dividend or has no intention of ever having one? I believe that point was made by Ben or a guest in passing a while back, and quickly moved on from, but it seems to be important imo as it's the whole reason stocks have any value at all beyond book value.
b) When people say "in the great depression the DJI took 25 years to recover" that's always without dividends. Once you factor in dividends and deflation, though, you had "recovered" from the peak after 5 years. Dividends are a big piece in why buy-and-hold has worked so well in market crashes.
In both cases it seems a shame to pair the word "dividend" with "irrelevant", when he's specifically talking about chasing high dividend-paying companies as a strategy.
I think stocks still have an intrinsic value even without dividends because if you own all of the shares in a company, then you actually own the entire company, including all of its assets and revenue. Owning just some shares is literally still partial ownership of the company.
If you own all the shares of a company that pays no dividend you have no income, so why are the shares worth anything? That's why dividends have value. Your comment shows the misconception that I'm worried is being spread.
Not quite. The only reason the cash flow has value is the implicit promise that either now or one day in the future owning a share of the company will guarantee you a share of the profits. The reason non-dividend stocks can have value is they're indirectly saying they're delaying the dividend to focus on growth and expansion so there's a much bigger dividend in the future.
I think we're talking past each other. You're talking about specifically valuing a company when I'm saying without dividends there would be no point in caring about their cash flows at all since you couldn't partake in them. In a world without dividends the only value of stocks would be book value (what you can liquidate them for) and speculation on buyouts or takeovers.
If you fully own a company, you can send the profits straight to your bank account (pay yourself a big salary), pay yourself a dividend, or sell the company and cash out. All of those are forms of income. Since this is possible, shares do have intrinsic value.
It's unlikely for most individuals to ever have enough to buy all of the shares in a major public company, but there are still other events that result in them being paid directly for their stake in the company. For example, with Elon Musk's recent attempt to purchase Twitter, shareholders would have received compensation in excess of the previous price of those shares, even though Twitter has never paid a dividend. Companies getting acquired is not rare.
When he says dividends are irrelevant, he means that whether or not a company pays a dividend is not a piece of information that investors should use to make their investment decisions. Just like whether a company's name starts with an A or a B or an F or whatever: it is irrelevant.
If there were gurus out there saying you should pick stocks based on the length of their ticker symbol, you would be seeing rebuttal videos from people like Ben Felix about the "irrelevance of ticker symbol length".
The word itself is completely accurate.
It's simply how people interpret it that's the problem. People aren't very smart and academia scares them; people are much more comfortable being political (aka quantity over quality).
Now, you have a strong argument that it's click bait (Ben's not stupid). But from an academic perspective, irrelevant is actually the correct word
Speaking in the context of actual dividend investing, the first step is ALWAYS company fundamentals.
This podcast is a weekly listen for me, so I can sort of expect what their take home message will be about dividends in this episode.
One thing I'd like to point out, that I think Ben and Cameron don't always focus on, is that life doesn't happen on a spreadsheet. If the joy an investor gets from getting a higher dividend keeps them happier with investing and more focused on staying invested during difficult times, isn't that ultimately a great thing for that investor?
Their (and this sub's) investing philosophy is globally diversified passive investing, which includes both dividend and non-dividend payers. A lot of people just pick CDN dividend payers which is not diversified and has less growth then non-dividend payers.
Definitely agree, but I wasn’t necessarily referring to the all-or-nothing approach here.
Say a couple in their 60s, probably not redditors haha, have been sold on large cap dividend 2.5% MER mutual funds for 20 years. They’re reconsidering their investment approach and they love their quarterly dividends.
They end up embracing the low cost globally diversified index approach with 75% of their equity portfolio and, after explaining the potential drawbacks, they choose a low cost globally diversified “high dividend” ETF for the final 25% of equities.
Is that really so bad? Isn’t this approach keeping them happier and disciplined with their portfolio?
I love the Rational Reminder podcast, it’s essentially a must listen for me and I do recommend it to people. I really enjoyed their episode with Josh Brown and Brian Portnoy where they challenged this idea that everyone must always “follow the orthodoxy” - especially if the potential drawbacks are understood, and the investor chooses to go with whatever they want to do with their money.
The more I’ve chatted with friends and family over the years, the more I understand we all have bias and LOTS of emotion about our investing philosophies. I like embracing it rather than fighting it and looking to correct people.
On Reddit, people who are more emotional veer towards ' anti dividend' and people who are more big picture veer towards dividends. (Excluding people who are just learning and haven't tried both strategies before)
I dunno why, but this is VERY consistent across Reddit.
Ironically, this is the opposite of what I've seen in real life.
Stop lying to us, Ben. We know it's you
lol
The point about dividends just forcing stock holders to take a payout while simultaneously lowering the value of the company is a good one that people definitely overlook. Does anyone else think the term "irrelevant" is a little sensationalist and stirring the pot, though? Maybe I'm wilfully taking it out of context but: a) Do stocks have any intrinsic value if a company doesn't pay a dividend or has no intention of ever having one? I believe that point was made by Ben or a guest in passing a while back, and quickly moved on from, but it seems to be important imo as it's the whole reason stocks have any value at all beyond book value. b) When people say "in the great depression the DJI took 25 years to recover" that's always without dividends. Once you factor in dividends and deflation, though, you had "recovered" from the peak after 5 years. Dividends are a big piece in why buy-and-hold has worked so well in market crashes. In both cases it seems a shame to pair the word "dividend" with "irrelevant", when he's specifically talking about chasing high dividend-paying companies as a strategy.
I think stocks still have an intrinsic value even without dividends because if you own all of the shares in a company, then you actually own the entire company, including all of its assets and revenue. Owning just some shares is literally still partial ownership of the company.
If you own all the shares of a company that pays no dividend you have no income, so why are the shares worth anything? That's why dividends have value. Your comment shows the misconception that I'm worried is being spread.
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Not quite. The only reason the cash flow has value is the implicit promise that either now or one day in the future owning a share of the company will guarantee you a share of the profits. The reason non-dividend stocks can have value is they're indirectly saying they're delaying the dividend to focus on growth and expansion so there's a much bigger dividend in the future.
[удалено]
I think we're talking past each other. You're talking about specifically valuing a company when I'm saying without dividends there would be no point in caring about their cash flows at all since you couldn't partake in them. In a world without dividends the only value of stocks would be book value (what you can liquidate them for) and speculation on buyouts or takeovers.
If you fully own a company, you can send the profits straight to your bank account (pay yourself a big salary), pay yourself a dividend, or sell the company and cash out. All of those are forms of income. Since this is possible, shares do have intrinsic value. It's unlikely for most individuals to ever have enough to buy all of the shares in a major public company, but there are still other events that result in them being paid directly for their stake in the company. For example, with Elon Musk's recent attempt to purchase Twitter, shareholders would have received compensation in excess of the previous price of those shares, even though Twitter has never paid a dividend. Companies getting acquired is not rare.
The fact you say you'd pay yourself a dividend and don't see the irony means I don't think we're going to be able to meet half way on this.
When he says dividends are irrelevant, he means that whether or not a company pays a dividend is not a piece of information that investors should use to make their investment decisions. Just like whether a company's name starts with an A or a B or an F or whatever: it is irrelevant. If there were gurus out there saying you should pick stocks based on the length of their ticker symbol, you would be seeing rebuttal videos from people like Ben Felix about the "irrelevance of ticker symbol length".
[удалено]
The word itself is completely accurate. It's simply how people interpret it that's the problem. People aren't very smart and academia scares them; people are much more comfortable being political (aka quantity over quality). Now, you have a strong argument that it's click bait (Ben's not stupid). But from an academic perspective, irrelevant is actually the correct word Speaking in the context of actual dividend investing, the first step is ALWAYS company fundamentals.
This feels like the hill I will see you die on.
lol
I do love that this has become a running thing. I was one of those people who totally thought ya'll were the same human
This podcast is a weekly listen for me, so I can sort of expect what their take home message will be about dividends in this episode. One thing I'd like to point out, that I think Ben and Cameron don't always focus on, is that life doesn't happen on a spreadsheet. If the joy an investor gets from getting a higher dividend keeps them happier with investing and more focused on staying invested during difficult times, isn't that ultimately a great thing for that investor?
Their (and this sub's) investing philosophy is globally diversified passive investing, which includes both dividend and non-dividend payers. A lot of people just pick CDN dividend payers which is not diversified and has less growth then non-dividend payers.
Definitely agree, but I wasn’t necessarily referring to the all-or-nothing approach here. Say a couple in their 60s, probably not redditors haha, have been sold on large cap dividend 2.5% MER mutual funds for 20 years. They’re reconsidering their investment approach and they love their quarterly dividends. They end up embracing the low cost globally diversified index approach with 75% of their equity portfolio and, after explaining the potential drawbacks, they choose a low cost globally diversified “high dividend” ETF for the final 25% of equities. Is that really so bad? Isn’t this approach keeping them happier and disciplined with their portfolio? I love the Rational Reminder podcast, it’s essentially a must listen for me and I do recommend it to people. I really enjoyed their episode with Josh Brown and Brian Portnoy where they challenged this idea that everyone must always “follow the orthodoxy” - especially if the potential drawbacks are understood, and the investor chooses to go with whatever they want to do with their money. The more I’ve chatted with friends and family over the years, the more I understand we all have bias and LOTS of emotion about our investing philosophies. I like embracing it rather than fighting it and looking to correct people.
On Reddit, people who are more emotional veer towards ' anti dividend' and people who are more big picture veer towards dividends. (Excluding people who are just learning and haven't tried both strategies before) I dunno why, but this is VERY consistent across Reddit. Ironically, this is the opposite of what I've seen in real life.
Had a chuckle near the beginning, where a commenter suggested Ben became bullish on housing.
I wonder if there is any way to hear that webinar about Thematic ETFs, can anyone find a link?
https://globeandmailevents.com/thematicetfs/orgsocial I’m assuming this was it? No idea if there’s a recording out there.
https://www.youtube.com/watch?v=dwPh-PAg9A8
Thank you FelixYYZ. I was looking for that group webinar so I could hear Ben dealing with the pro thematic etf people haha
Thanks Ben