I came across your channel through this video-case studies are incredibly valuable, and I'm eager to see more in the future! Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
People believe their currency has the worth it does because they have no other option. Even in a hyperinflationary environment, individuals must continue to use their hyperinflationary currency since they likely have minimal access to other currencies or gold/silver coins.
Uncertainty... it took me 5 years to stop trying to predict what bout to happen in market based on charts studying, cause you never know. not having a mentor cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
NICOLE ANASTASIA PLUMLEE is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look-her up.
I recently read something where someone explained this in the most succinct way I have heard. "Whether you invest for growth or stability, if you're buying companies which are not paying dividends, the only way you will make money is if you're able to sell your shares later at a higher price to someone else." Basically, the reason Graham only looked at companies paying dividends is because he was in the Great Depression. You're watching "value" companies decline day after day and you eventually end up down 80-90% on your investment and tap out by selling. Dividends allow you to continue investing in that company if you choose to or find better values using your already realized returns from the first. You're not reliant on a company increasing in price forever and finding someone willing to buy your shares. Dividends are for stability and remaining in the game. Use your dividends to buy growth if you want. Dividends are for the crashes. Growth is secondary and anyone who has lived through downturns and watched their retirement accounts decline daily while being incapable of finding a job would understand that.
That "sequencing risk" graphic is going to give me nightmares 😁 Thank you for pointing to a potential solution that I'd never normally consider. Oh, and for making it understandable and entertaining. You are amazing 🌟
Love you Alison, don’t let it scare you now you can prepare for it. I often talk about having a cash buffer at retirement that I can lean on if the market dips. This is my current plan for preparing for sequencing risk but there are lots of ways
I built an excel model (im that guy) to look at sequencing risk and basically do probability analysis. A 3 years of expenditure (not income - as that is taxed) cash buffer really does help a lot. I suspect i will do that when I’m older and maybe another 2 years in bonds (actually in buying specific short term Gilts, as opposed to a bond fund) as long as the returns are more like long term averages, as opposed to the 0.5% we had for a long time
@@Exposure2lifeThat could make your life more complicated if you have to pay tax on it. You'll need to work out the amount of dividends that got re-invested.
@@JayJamsSpams If it's in a tax wrapper, it's not an issue. Outside of a tax wrapper, selecting a Income/Distribution variant makes it easier to keep track of the dividends.
I’ve heard this re dividends not mattering and how the stock only drops. They leave out people moving money out of the stock after the ex dividend date. They also fail to take in to account limits like ISA limits. So once you’ve put in 20k you can’t invest more. So Dividends can provide additional investment capital to buy additional stocks that you couldn’t if you were relying on stock growth to sell a stock to buy more stock. Without dividends why own the stock? You are relying on the value of the stock going up which with tech is a big risk. I’ve see so many tech companies go under even when they were the number one in the market.
The main benefit of dividends to me is " you get them " , which is a lot easier than deciding when to sell the stock to realise the gain. Also , even when the stock is down , dividends can still be rising.
Legend says that if a finance youtuber says "Dividend" into a mirror 3 times, Ben Felix comes out of the mirror and lectures you on "Dividend Irrelevance"
Today’s American large cap give ceo bonuses in stock, so the leadership is only motivated by inflating stock value. In the long term that isn’t necessarily compatible with the health of the company. So for long term stock holders, dividends are more relevant than buybacks and acquisitions
2:15 The business cannot reinvest that money, but at the same time, they cannot squander that money by bad decisions (looking at Intel). Potentially less return, but less risk. Of course, diversification kinda protects you from that, because what are the chances *every* company would make bad decisions?
Maybe a good thing to mention also is that your local tax rules might partially dictate your approach. In Belgium there is a 30% dividend tax, but 0% capital gains tax. This heavily skews in favour of non-dividend stocks. As the market adjusts on an international level, having local imbalance in taxes can create favour into one direction or the other.
Dividend Investing can encourage certain people to invest a lot more than they actually would in other investments. It was the first kind of investing that made sense to me, and I was actually excited about researching the best dividend stocks. It meant I maxed out my ISA and pension every year. Some people love the simplicity of index investing, others want to find the next AAPL or NVDA. I love finding boring companies that not many people know about. Find what you love investing in. It also gave me the skills to understand when some growth companies were undervalued. META isn’t a dividend company but I was able to roll some of my profits from aristocrats into it when it was undervalued a few years ago.
@DamienTalksMoney is love to see a video on exist strategy. Exist from accumulation to decumulation stage that is. Moving from 100% equity to something to mitigate sequence of returns risk. Maybe dividends is part of that, but doubt it for me, more likely a few years of fixed income buffer to ride out storms, but when and how to build this buffer and what does it look like. Love the channel and the pod by the way.
My biggest individual stock is one with a good dividends rate and I bought it purely for the dividends rates (Legal and General). Yes it might be the wrong thing to do but it just feels good. I am a low income person so will never be investing the money you all invest so that feeling of a payment coming is nice (this next one will be my 1st - I started investing in June) I am now however thinking of bumping my ETF's up and in fact I made a automate pie in T212 for the ETFs and have S&P500, All world and All world high dividends with a 40/40/20 split currently. Again might not be the best thing to do but I'm still learning and it's better than spending it on junk (in my eyes lol)
Excellent video. Security Analysis is a great book. But to appreciate the evolution in investing you should look how Chalie Munger and Peter Lynch moved Warren Buffett from a cigarette bud investor into business moat investing. In moat investing, dividends can be one of the indicators of a sound business…
Dividend compounding is the simplest road to wealth, not necessarily the best, but by far the easiest as it requires little in the way of skill and expertise.
If dividends didn’t exist, the stock market would be essentially like owning bitcoin, property with no income or Art. Just speculation on a principles level. Fundamentally it has to be the goal for any profit making company to provide a dividend at some point.
Not really. You would invest in one business in a sector because you liked its business plan over a competitor in the same sector that had no business plan and poor management.
Wrong. The fact that upon a winding up the net assets of the business would be distributed among stockholders gives the securities real value regardless of whether some of those assets are distributed periodically from time to time.
There is also a psychological benefit to dividends. When the market crashes chances are your portfolio decreases less than the index AND if your dividends decrease they will likely decrease LESS than the value of the index.
I dont see a problem with dividend investing myself. When the company pays a dividend the value of the company goes down but then the expectation is that the company will sell more products/services and make more money and the value of the company goes up again. Its cyclical.
*Some hard cold facts:* about this topic of "when a company pays dividend they do not have that money to invest...", a company that is paying dividends shows a solid proof to their investors that "we are stable and profitable and moated enough so that we can share a bit of our success with the people who put their money into our company", meaning that such company values their investors.. whereas a company who wants to use the profits to just re-invest does not mean that the bigger and bigger profits will turn back to the stock holders, what happen with those hyper growth companies is that they are using (literally) retail investors as a cash cow (when you buy a stock of a company you basically give them money in return to a stock) to have more money to "play with", and eventually the only people who get to benefit and reap the rewards are the company's executives who know when to buy and when to sell , and the institutional investors.. the retail investor is left holding the bag. you can downvote as much as you like - hard - cold - facts.
Combining growth stocks and dividend stocks in your portfolio would offer a balanced approach that combines potential capital appreciation with a steady income stream.
Thanks Damien, wonderful info and explanation, i started a small Dividend Portfolio a year and a half ago and I did read the Dividend Aristocrats Stock List as the Inspiration behind it. It is also a Phycologial boost to see those Divi Payments come in month by month regardless of Market Conditions as you so well explained in the Video. Brilliant Content!
Hi Damian, very interesting video, is there a fund/etf in vanguard or trading 212 with the dividend aristocrat shares? Still some time to switch but I would like to start playing with it just to get a feeling. Thanks a lot!
Excess Free Cashflow can be used in one or more of five possible ways: Reinvest in the business Make acquisitions Pay down debt Buy back shares Pay dividends. Mature companies pay dividends so that investors can reinvest Their Money where they can make a better return, or buy additional shares, or enjoy the income... Share Buy-Backs can be the route through which shares can achieve Multi-Bagger Status.
I'm so glad I had this video in my recommended. It answered so many of my questions and concerns as someone who recently got into investing more seriously, and the editing is at Netflix documentary level. So good! (and my ADHD self was easily able to get through a whole video for once 😅)
I literally have this dialogue with myself everyday. I’m all in on growth stocks but I believe as I approach retirement I’m going to shift to a dividend approach. A wiseman did say, a broad diversified index fund transforms into a dividend one if you invest enough
Interesting topic. I kind of agree Dividends can be a little backwards. But it depends what you want/need from your investment. I've focused purely on Growth companies not providing dividends so I can have my money grow faster. Once I've achieved a nice pot within my ISA I will sell and buy UK Dividends to achieve a nice passive income that I don't need to focus on as greatly as growth.
I find a lot of companies use lies saying that by investing just 20 bucks you’ll get hundreds of dollars in just hours when real investment truths is you invest 100 you get back 7 dollars a month but if you invested over years you may just get 50 dollars back.
Divided investing has been highly motivational for me to keep adding money into my T212 account. Also I earn an average salary have a house that costs a fortune and 2 kids so reinvesting the dividend for me is money I would not have access to right now, that feels massive.
There's a form you fill out whose name I've forgotten that gets that tax repaid inside SIPPs. I submitted it to my platform provider when I moved a lot of funds from FTSE to s&p
Double taxation agreement with USA for British citizens. US dividend tax is 30% But we Brits can reclaim 15% and only get charged the remaining 15%. S&P500 overall pays a very low dividend of around 1.5 % So the British get charges 15% of 1.5% So that's not much more than 0.15% tax in say a VUSA ETF or VUAG ETF
I've watched quite a few videos on the topic of dividends, this was the first one to give a valid case for where dividend investing actually makes sense. Shifted my thinking a bit and I always love that! And as an aside, as time goes on I do feel like Ben Felix's slightly smug "I-only-do-things-according-to-the-data" outlook is getting weaker and weaker as I find more and more counterpoints to his very self assured ideas 😅
I invested in 50k in iShares plc FTSE UK Dividend UCITS ETF (IUKD) on 9th October 2022 it’s now worth 60k plus it’s paid just over 6k in dividends (that includes this September dividend payout)
I love dividends. I have some equity ETFs and a toe in various markets and sectors…. But mainly I buy USA and U.K. dividend stocks. I have about 30 individual stocks and I receive dividends of over 20k a year into my isa and SIPP. It’s well established and will be used as an income to help me retire early. I want to aim for the equivalent of £100 a day income from my stocks…. Having established £50 a day in 2021
@@cragzrogers5157 in shares, just over £400k. Yield is about 4.9% been doing it for over 25 years. My father insisted I save before I buy anything else… get your salary, take off 20% and live off the 80%. Of course life events prevent that over the years but keep focused, maths and compounding reinvestments will always win. I subscribe to simply Wall Street to help me with my research. It’s a great platform
Great video Damo! I think maybe the area you didn't touch on was buy backs. The tech giants have generally favoured buy backs over dividends because it lets the investor choose when to realise the tax (or so the argument goes) as an individual investor you have no control over the issuance of dividends. The buy backs juice the EPS by reducing the denominator. Will this be maintained? I don't know but Meta started issuing a dividend recently and some of the other tech giants aren't spending their cash piles fast enough so i wouldn't be surprised if a few more of them start issuing dividends because they'll be in the same boat where they have market domination so they can no longer reinvest in the business for growth. BTW - the editing on this vid was fab!
Yes Damien! Great educational piece. As an IFA I routinely talk about getting a natural yield from investments in retirement and how you can go for the lambo route when accumulating!
If sequence of return risk is one of your worries, then have a look into gold. Gold doesn't do very much, but the one thing it can do is significantly reduce the maximum drawdown of a portfolio.
Would love a video comparing these different all world funds and their pros and cons - FTSE all world UCITS ETF VWRP, FTSE Developing, FTSE developed and FTSE global all cap. As a bit of a beginner who has just been investing in S&P 500 for the past year and a half i'm finding the world funds a bit hard to gauge.
It's boring but that doesn't mean it is bad. It won't get the best returns obviously as you're not picking individual winning stocks and are relying on the index to perform well. It'll increase over the years, just maybe not as much as it could with some higher risk stocks sprinkled in. But, this is adding risk which you need to weigh up whether you want that risk for that exposure or not. Neither approach is inherently right or wrong. It'll depend on your risk tolerance.
So... if dividends don't matter, what drives the intrinsic value of a company's stock? I used to work for a company which made industrial electronic thingies, it was so successful that it had over 30% of the world market for those 'thingies'. There was a requirement to keep up-to-date with the applied technology and that required more investment, but basically the company was not going to grow its market share any further. You can think of it like jet-engine manufacturers, after Rolls Royce, General Electric and one other whose name escapes me, they each have 30% of the world market for jet engines with the other 10% spread around the specialist manufacturers and also-rans. What drives the stock price...
Damian, well done for making a balanced vlog on dividends. I like them for many reasons and they make up about 50% of my investment portfolio. I learnt some stuff that i hadn’t even considered, however. Quite a few etfs pay dividends, ie vusa distribution funds. SHCD is a great one too. Thank you for sharing your thoughts.
I’m in my mid 50s and realistically I’ve only got 20 years of need for materialism, after that, I’m sitting at home with the fire on in between hospital appointments. There may be 2 or 3 market crashes in that time, each crash means another 5 or 6 years of recovery so yes, reliable dividend stocks in solid, money-making, dusty old companies like banks are better for me. Oh and by the way, UK bank stocks are up 30% this year so I’m easily outperforming the ETFs this year
Very confusing topic of growths or dividends. Added concern is one’s age and goals. The best might be SPY. Take 5% in an up year. STOP at 5% until SPY comes back. Issue then is who knows if it comes back. Dividends might drop then so does share price. A lot. My own plan is 40% bonds and 60% SPY. With 5% stops. At age 75, with an MBA in finance, my pensions alone suffice. But I hope to live till 100 and one never knows with an out of control national debt spiral. Your thoughts?
I know Terry Smith is not a big fan of dividends, and Berkshire Hathaway never pays a dividend. But i think both have returned extremely good value to the investors.
Are dividends the causation of the smoother ride or do companies that pay dividends correlate with the smoother ride and there's another factor that better explains the causation? If there's another factor (e.g. value) that causes the behaviour then it would be better to invest in that directly - if that's possible with the choice of funds available to you. Or, if the correlation is close enough then maybe dividend funds are "good enough"™ Also: do the taxation differences between dividends and stock gains make a difference? 🤔
Ben Felix would argue that any returns or positive traits of dividend payers could be attributed to 6 other factors (I believe it is 6) this is why I didn’t want to get into the weeds of the debate we would be here all night 🤣
I'm really new to all this. Does this essentially mean that the S&P 500 is good to invest in or bad? I honestly find all this baffling and this channel is helping me try to get started in investing. Don't come at me people I'm learning 😂
I'm surprised you didn't mention Trackers which Warren Buffet is a big fan of. After getting burnt by Marconi I bought Llloyds shares because they were a safe and steady company paying a high dividend. That worked well until 2008 when the Government encouraged them to buy Basket Case Halifax.
We all think we know the answer despite all of us being on our own journey and nowhere near the end. Those who are at the end of their investment journey think they have it figured out but circumstances of the past don't necessarially apply today.
Focusing on the dividend stocks like this just seems like Survivor Bias to me, having decades of repeated dividends the companies left will obviously be the most successful. Compounded by as soon as a company is doing badly, they stop paying dividends and then clearly they fall out of the Aristocrats bundle, only making the group seem even stronger again. You need to be able to differentiate between past success and companies with a future (crystal ball time).
The ftse 100 index pays good dividends, most people have risk cuz rhey weight there portfolio on the us only Im going for 2/3 index funds and crypto FTSE all world, FTSE 100 index and potentially S&P 500 index Which are funds below HSBC all world HSBC FTSE 100 INDEX HSBC AMERICAN And crypto Yes i use expessive HL but i like seeing the fund price quoated once a day keeps me invested
I like dividends , I would rather have money in my pocket to decide where to invest next. But be aware that if you have in excess of £25,250 in property other than your home or other assets in the UK. Then, if you need care , for you or your partner, then you will pay the entire sum and this can be £60,000 per annum plus, and no tax relief, It is a bit of a disincentive to save !
It depends on the legislation in which a company is operating in? If it is more tax efficient to complete share buybacks as opposed to dividends for instance?
Nice video as always Damo. I have been looking more recently at dividend paying index funds and came to a similar conclusion that I would be better served as I close in on retirement. As I'm 30 I will stick to growth funds for now. Btw, I still find myself thinking about your most recent podcast episode. I have been thinking more about my relationship with money and why I am the way I am. Honestly incredible work you are doing and looking forward to seeing what guests you have lined up! Cheers, Joash.
Another great video Damo. Investing carries risk so always being well diversified over the past 25 years has helped me sleep at night. A mixture of growth, value and fixed income may not have been the best approach from a pure financial perspective but it helps you not do anything crazy when the market has a major dip. Also I find getting a dividend payment and reinvesting it somewhere very rewarding from a psychological point of view 👍🏻
Paying out dividends really depends on whether on where a company is in its life-cycle. If it is a mature company and there is no more growth initiatives pursuit then it is right that it return excess cash to shareholders through dividends or shares buybacks. In contrast, a small company should be aggressive in chasing after growth initiatives and shouldn't pay dividends.
Companies waste so much money, a lot of that driven by hubris. Id rather invest in a company that is going to give me a return on that investment than one that spaffs it on vanity projects, unnecessary tech or paying themselves huge bonuses (looking at you, Musk). I invest in assets that pay dividends, and feed those back into other companies that pay dividends. I hope to compound those gains over time to provide me with enough income that when I next get fired at least I can pay the bills still
@@mrbushpilot Well ive found the elon fan boy that would gladly not mind that he wants a bonus of shares that is more than the entire wage roll of the company, and that whilst he cant sell those shares for 5 years he can sell the = amount of other shares he already holds which gives him the effective ability to liquidate those assets any time he choses and retain his controlling stake in the company.
Gilts weren't mentioned - I guess it's Lamborghini time - however being a bit older, (maybe not) wiser - Index-linked Gilts 4 1/8% Index-linked Treasury Stock 2030 Bullet proof Inflation plus 4.125% and it's government backed so NO RISK AT ALL and you get back more or less exactly what you put in!
@@DamienTalksMoney VVUSEI - Is far superior over the last 10 years, yes America may not continue this outperformance but return has been about 6%!! Higher per year. 10 Year annualised 8.7% vs 14.4%. It will also outperform the more condensed S&P 500 funds over the next 5 years as small caps which are currently undervalued catch up to the mega caps.
@damientalksmoney Would love for you to do a video about the options you got when you come to retirement, should you put your pot into a annuity, or invest your fund into VHYL and live off that dividend income and reinvest a small portion to make sure you keep increasing your pot?
Shouldn't we diversify anyway? I'm thinking more in "Money-Chunks". I have my Real Estate Chunk, my Gold Chunk, a Dividend Chunk, Pension Chunk, a Bond Chunk. I'm done with my Gold Chunk. There's enough in it, so that I can pull out a set Amount of Money each Month when I'm retired. The Kicker is, that Chunk is complete now, but I'll retire in 25 Years. So till then, it can only get more better. My Dividend Chunk is at 25% of it's Goal, the Pension Chunk at 35%. With 25 Years to go, I'll be done way ahead of Time. So the Dividend Chunk will do the same, if I don't pull out any Money, it will outgrow it's Goal. I only wish I would've started earlier. Looking back, I could be quiet angry with my self for the Money I basically burned when I was younger.
As the stocks are going down from the second you buy them I am interest recently only in dividend aristocrats as at least I can have a compensation for my efforts.
im in my late 50's looking hard in the face of retirement and that dividend income will suppliment my state pension until the pension is stopped then i can use the dividends entirely if the state pension is not stopped then my dividends will grow the pot and i can pass it down when i die.
@@quokkapirquish6825 it never hurts to plan for the unthinkable 2020 showed us a great deal and if not then my children will have a very good time at my wake :)
The thing is , AI is different, it isn’t like the internet. AI fundamentally has a global impact in a large way, tech is different too, it isn’t one country that dominates in tech, we got a global market where AI can flourish, I’m betting hard on AI and AI integration with human society, a lot of jobs are going but a lot of limited companies will dominate in AI and replace these jobs, there is going to be super companies that dominate the world. OpenAI is one of them and Microsoft being a big shareholder shows Microsoft isn’t going anywhere.
The volatility story of the dividend aristocrats I can easily believe, but I don't have enough knowledge to decide what is causation and what is just correlation. I think I'll stick to bonds and cash for de-risking near retirement!
Question for you, Damien. Let's say that out of 2 equally profitable companies in a market cap weighted index, the 1st doesn't pay a dividend but the 2nd one does. So, the 2nd company drops in value every time it pays its dividend, but total return on investment is the same as for the 1st company, which rises in value. Does that mean the 2nd company is a better value investment (equally profitable, lower share price) than the 1st, but that the 2nd's weighting in the index will drop over time relative to the 1st? If so, does this mean market cap weighted indices are flawed, because they underweight good dividend payers?
It depends on whether your portfolio is only going to reach your minimum requirements. If your portfolio can pay out 100k but you only draw 50k, the argument is immaterial.
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I came across your channel through this video-case studies are incredibly valuable, and I'm eager to see more in the future! Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
People believe their currency has the worth it does because they have no other option. Even in a hyperinflationary environment, individuals must continue to use their hyperinflationary currency since they likely have minimal access to other currencies or gold/silver coins.
Uncertainty... it took me 5 years to stop trying to predict what bout to happen in market based on charts studying, cause you never know. not having a mentor cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
This aligns perfectly with my desire to organize my finances prior to retirement. Could you provide me with access to your advisor?
NICOLE ANASTASIA PLUMLEE is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look-her up.
She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.
I recently read something where someone explained this in the most succinct way I have heard. "Whether you invest for growth or stability, if you're buying companies which are not paying dividends, the only way you will make money is if you're able to sell your shares later at a higher price to someone else."
Basically, the reason Graham only looked at companies paying dividends is because he was in the Great Depression. You're watching "value" companies decline day after day and you eventually end up down 80-90% on your investment and tap out by selling. Dividends allow you to continue investing in that company if you choose to or find better values using your already realized returns from the first. You're not reliant on a company increasing in price forever and finding someone willing to buy your shares.
Dividends are for stability and remaining in the game. Use your dividends to buy growth if you want. Dividends are for the crashes. Growth is secondary and anyone who has lived through downturns and watched their retirement accounts decline daily while being incapable of finding a job would understand that.
That "sequencing risk" graphic is going to give me nightmares 😁 Thank you for pointing to a potential solution that I'd never normally consider. Oh, and for making it understandable and entertaining. You are amazing 🌟
Love you Alison, don’t let it scare you now you can prepare for it. I often talk about having a cash buffer at retirement that I can lean on if the market dips. This is my current plan for preparing for sequencing risk but there are lots of ways
I built an excel model (im that guy) to look at sequencing risk and basically do probability analysis. A 3 years of expenditure (not income - as that is taxed) cash buffer really does help a lot. I suspect i will do that when I’m older and maybe another 2 years in bonds (actually in buying specific short term Gilts, as opposed to a bond fund) as long as the returns are more like long term averages, as opposed to the 0.5% we had for a long time
Of course a good dividend fund is less volatile. They are usually based on companies that sell things we always need.
Make sure it's an accumulation variant.
@@Exposure2life Would you have any recommendations to give us a starting point?
@@Exposure2lifeThat could make your life more complicated if you have to pay tax on it. You'll need to work out the amount of dividends that got re-invested.
@@JayJamsSpams If it's in a tax wrapper, it's not an issue. Outside of a tax wrapper, selecting a Income/Distribution variant makes it easier to keep track of the dividends.
I’ve heard this re dividends not mattering and how the stock only drops. They leave out people moving money out of the stock after the ex dividend date. They also fail to take in to account limits like ISA limits. So once you’ve put in 20k you can’t invest more. So Dividends can provide additional investment capital to buy additional stocks that you couldn’t if you were relying on stock growth to sell a stock to buy more stock.
Without dividends why own the stock? You are relying on the value of the stock going up which with tech is a big risk. I’ve see so many tech companies go under even when they were the number one in the market.
The main benefit of dividends to me is " you get them " , which is a lot easier than deciding when to sell the stock to realise the gain. Also , even when the stock is down , dividends can still be rising.
That is an enormous book for you to pull one sentence out of! At least you now have a good monitor stand
Legend says that if a finance youtuber says "Dividend" into a mirror 3 times, Ben Felix comes out of the mirror and lectures you on "Dividend Irrelevance"
Today’s American large cap give ceo bonuses in stock, so the leadership is only motivated by inflating stock value. In the long term that isn’t necessarily compatible with the health of the company. So for long term stock holders, dividends are more relevant than buybacks and acquisitions
Boeing is a good example, I think, of why paying CEO's in stock is a very bad idea. Imagine you bought Boeing shares when they were around $450?
It depends on what your goals are. If you want to replace some or all of your regular income then dividends are absolutely essential.
Or generate income from DCA'ing out of any other stock or fund.
I enjoy the small dopamine hit of getting “free money” every month, which I can reinvest and get more free money the next month!
Do you watch The Compounding Investor on YT? th-cam.com/video/IipabEwlY8o/w-d-xo.htmlsi=Nyciuy8lsbTew0oP
Its not free money. Dividend is a gift out of your own pocket cause the value is subtracted from the stock value
@DarkoFitCoach the value of that stock drops on the payout date but will return to normal within the next few days.
Some growth stocks like Nvidia and Apple are growing in value and dividend
@@soze8415 yes so gift out of own pocket. End value if accumulating vs distributing is ofcourse exactly the same
So pleased you don't edit out bits like the coloured paper printing thing at the start. Cracked me up. Never lose that Damo, it's gold.
2:15 The business cannot reinvest that money, but at the same time, they cannot squander that money by bad decisions (looking at Intel). Potentially less return, but less risk. Of course, diversification kinda protects you from that, because what are the chances *every* company would make bad decisions?
Look at GEC / Marconi for an extreme example of that. Fun fact: At one point GEC could have bought BAE Systems with the cash they had in the bank.
Maybe a good thing to mention also is that your local tax rules might partially dictate your approach. In Belgium there is a 30% dividend tax, but 0% capital gains tax. This heavily skews in favour of non-dividend stocks. As the market adjusts on an international level, having local imbalance in taxes can create favour into one direction or the other.
Dividend Investing can encourage certain people to invest a lot more than they actually would in other investments.
It was the first kind of investing that made sense to me, and I was actually excited about researching the best dividend stocks.
It meant I maxed out my ISA and pension every year.
Some people love the simplicity of index investing, others want to find the next AAPL or NVDA. I love finding boring companies that not many people know about.
Find what you love investing in.
It also gave me the skills to understand when some growth companies were undervalued. META isn’t a dividend company but I was able to roll some of my profits from aristocrats into it when it was undervalued a few years ago.
@DamienTalksMoney is love to see a video on exist strategy. Exist from accumulation to decumulation stage that is. Moving from 100% equity to something to mitigate sequence of returns risk. Maybe dividends is part of that, but doubt it for me, more likely a few years of fixed income buffer to ride out storms, but when and how to build this buffer and what does it look like. Love the channel and the pod by the way.
After 40 years every portfolio should have a growth component and a dividend component. Period.
My biggest individual stock is one with a good dividends rate and I bought it purely for the dividends rates (Legal and General).
Yes it might be the wrong thing to do but it just feels good.
I am a low income person so will never be investing the money you all invest so that feeling of a payment coming is nice (this next one will be my 1st - I started investing in June)
I am now however thinking of bumping my ETF's up and in fact I made a automate pie in T212 for the ETFs and have S&P500, All world and All world high dividends with a 40/40/20 split currently. Again might not be the best thing to do but I'm still learning and it's better than spending it on junk (in my eyes lol)
Excellent video. Security Analysis is a great book. But to appreciate the evolution in investing you should look how Chalie Munger and Peter Lynch moved Warren Buffett from a cigarette bud investor into business moat investing. In moat investing, dividends can be one of the indicators of a sound business…
Dividend compounding is the simplest road to wealth, not necessarily the best, but by far the easiest as it requires little in the way of skill and expertise.
If dividends didn’t exist, the stock market would be essentially like owning bitcoin, property with no income or Art. Just speculation on a principles level. Fundamentally it has to be the goal for any profit making company to provide a dividend at some point.
Not really. You would invest in one business in a sector because you liked its business plan over a competitor in the same sector that had no business plan and poor management.
Wrong. The fact that upon a winding up the net assets of the business would be distributed among stockholders gives the securities real value regardless of whether some of those assets are distributed periodically from time to time.
There is also a psychological benefit to dividends. When the market crashes chances are your portfolio decreases less than the index AND if your dividends decrease they will likely decrease LESS than the value of the index.
I dont see a problem with dividend investing myself. When the company pays a dividend the value of the company goes down but then the expectation is that the company will sell more products/services and make more money and the value of the company goes up again. Its cyclical.
*Some hard cold facts:* about this topic of "when a company pays dividend they do not have that money to invest...", a company that is paying dividends shows a solid proof to their investors that "we are stable and profitable and moated enough so that we can share a bit of our success with the people who put their money into our company", meaning that such company values their investors.. whereas a company who wants to use the profits to just re-invest does not mean that the bigger and bigger profits will turn back to the stock holders, what happen with those hyper growth companies is that they are using (literally) retail investors as a cash cow (when you buy a stock of a company you basically give them money in return to a stock) to have more money to "play with", and eventually the only people who get to benefit and reap the rewards are the company's executives who know when to buy and when to sell , and the institutional investors.. the retail investor is left holding the bag. you can downvote as much as you like - hard - cold - facts.
Combining growth stocks and dividend stocks in your portfolio would offer a balanced approach that combines potential capital appreciation with a steady income stream.
9:30 Damien the colour of the lines is way too similar for the colourblind among us, please use something high contrast
Sorry about this! We used the original colours of the chart but I will make sure in the future it is better
Thanks Damien, wonderful info and explanation, i started a small Dividend Portfolio a year and a half ago and I did read the Dividend Aristocrats Stock List as the Inspiration behind it. It is also a Phycologial boost to see those Divi Payments come in month by month regardless of Market Conditions as you so well explained in the Video. Brilliant Content!
Hi Damian, very interesting video, is there a fund/etf in vanguard or trading 212 with the dividend aristocrat shares? Still some time to switch but I would like to start playing with it just to get a feeling. Thanks a lot!
Excess Free Cashflow can be used in one or more of five possible ways:
Reinvest in the business
Make acquisitions
Pay down debt
Buy back shares
Pay dividends.
Mature companies pay dividends so that investors can reinvest Their Money where they can make a better return, or buy additional shares, or enjoy the income...
Share Buy-Backs can be the route through which shares can achieve Multi-Bagger Status.
I'm so glad I had this video in my recommended. It answered so many of my questions and concerns as someone who recently got into investing more seriously, and the editing is at Netflix documentary level. So good! (and my ADHD self was easily able to get through a whole video for once 😅)
Nice subtle reference to Aaliyah in there 😂 “you can dust yourself off and try again”
Makes sense, especially that staples the second highest dividend payouts tends to do well or at least not as bad during a down trend
I literally have this dialogue with myself everyday. I’m all in on growth stocks but I believe as I approach retirement I’m going to shift to a dividend approach.
A wiseman did say, a broad diversified index fund transforms into a dividend one if you invest enough
Interesting topic. I kind of agree Dividends can be a little backwards. But it depends what you want/need from your investment. I've focused purely on Growth companies not providing dividends so I can have my money grow faster. Once I've achieved a nice pot within my ISA I will sell and buy UK Dividends to achieve a nice passive income that I don't need to focus on as greatly as growth.
I find a lot of companies use lies saying that by investing just 20 bucks you’ll get hundreds of dollars in just hours when real investment truths is you invest 100 you get back 7 dollars a month but if you invested over years you may just get 50 dollars back.
Divided investing has been highly motivational for me to keep adding money into my T212 account. Also I earn an average salary have a house that costs a fortune and 2 kids so reinvesting the dividend for me is money I would not have access to right now, that feels massive.
Which one you got, do you reinvest dividends
@@XORTION I have 12 High cap uk Stocks, HSBC, BP and the like 👍🏻
Aren't USA dividends subject to withholding tax if bought in UK? So we are 15pc worse off than if we lived in USA if we buy s&p dividend ETFs?
Good point, but paying 15% of the S&P is still better than paying nothing on the FTSE.
@@iangriffiths9498 FTSE companies generally pay much bigger dividends than S&P
There's a form you fill out whose name I've forgotten that gets that tax repaid inside SIPPs.
I submitted it to my platform provider when I moved a lot of funds from FTSE to s&p
Double taxation agreement with USA for British citizens. US dividend tax is 30%
But we Brits can reclaim 15% and only get charged the remaining 15%.
S&P500 overall pays a very low dividend of around 1.5 %
So the British get charges 15% of 1.5%
So that's not much more than 0.15% tax in say a VUSA ETF or VUAG ETF
@@lawrencehooper4341 you might want to revisit basic maths. 15% of 1.5% is obviously more than 0.15%. 10% of 1.5% is 0.15%
I've watched quite a few videos on the topic of dividends, this was the first one to give a valid case for where dividend investing actually makes sense. Shifted my thinking a bit and I always love that! And as an aside, as time goes on I do feel like Ben Felix's slightly smug "I-only-do-things-according-to-the-data" outlook is getting weaker and weaker as I find more and more counterpoints to his very self assured ideas 😅
I invested in 50k in iShares plc FTSE UK Dividend UCITS ETF (IUKD) on 9th October 2022 it’s now worth 60k plus it’s paid just over 6k in dividends (that includes this September dividend payout)
So if it was accumulating it would be worth 66k now
Same thing
@@DarkoFitCoach yes but iv spent the dividends (a couple of nice holidays) 👍👍👍
@@davidpearson243 so its the same like u sold little bit and paid for ur holidays. Dividends arent free money.
@@DarkoFitCoach time isn't free either, so enjoy the fruits while you can
@@Carl-hs420a u dont need dividends for that. Just sell some stock and enjoy life
I love dividends. I have some equity ETFs and a toe in various markets and sectors…. But mainly I buy USA and U.K. dividend stocks. I have about 30 individual stocks and I receive dividends of over 20k a year into my isa and SIPP. It’s well established and will be used as an income to help me retire early. I want to aim for the equivalent of £100 a day income from my stocks…. Having established £50 a day in 2021
Can I ask how much and how long you have invested for?
@@cragzrogers5157 in shares, just over £400k. Yield is about 4.9% been doing it for over 25 years. My father insisted I save before I buy anything else… get your salary, take off 20% and live off the 80%. Of course life events prevent that over the years but keep focused, maths and compounding reinvestments will always win. I subscribe to simply Wall Street to help me with my research. It’s a great platform
Nice work Damien. Enjoyed that.
Great video Damo! I think maybe the area you didn't touch on was buy backs.
The tech giants have generally favoured buy backs over dividends because it lets the investor choose when to realise the tax (or so the argument goes) as an individual investor you have no control over the issuance of dividends. The buy backs juice the EPS by reducing the denominator. Will this be maintained? I don't know but Meta started issuing a dividend recently and some of the other tech giants aren't spending their cash piles fast enough so i wouldn't be surprised if a few more of them start issuing dividends because they'll be in the same boat where they have market domination so they can no longer reinvest in the business for growth.
BTW - the editing on this vid was fab!
Yes Damien! Great educational piece. As an IFA I routinely talk about getting a natural yield from investments in retirement and how you can go for the lambo route when accumulating!
If sequence of return risk is one of your worries, then have a look into gold. Gold doesn't do very much, but the one thing it can do is significantly reduce the maximum drawdown of a portfolio.
Great video! Can you name any dividend funds or dividend index funds ?
Would love a video comparing these different all world funds and their pros and cons - FTSE all world UCITS ETF VWRP, FTSE Developing, FTSE developed and FTSE global all cap. As a bit of a beginner who has just been investing in S&P 500 for the past year and a half i'm finding the world funds a bit hard to gauge.
I'm 25 and I put 90% into accumulation global index fund and 10% into reliable dividend paying stocks. Is this a good idea?
It's boring but that doesn't mean it is bad. It won't get the best returns obviously as you're not picking individual winning stocks and are relying on the index to perform well. It'll increase over the years, just maybe not as much as it could with some higher risk stocks sprinkled in. But, this is adding risk which you need to weigh up whether you want that risk for that exposure or not. Neither approach is inherently right or wrong. It'll depend on your risk tolerance.
Great information!
How about hedging the risk by buying puts, to limit any broad market declines.
So... if dividends don't matter, what drives the intrinsic value of a company's stock?
I used to work for a company which made industrial electronic thingies, it was so successful that it had over 30% of the world market for those 'thingies'. There was a requirement to keep up-to-date with the applied technology and that required more investment, but basically the company was not going to grow its market share any further. You can think of it like jet-engine manufacturers, after Rolls Royce, General Electric and one other whose name escapes me, they each have 30% of the world market for jet engines with the other 10% spread around the specialist manufacturers and also-rans. What drives the stock price...
Always impressed with the graphics and animations on this channel - who should I aim my praise at please?
Damian, well done for making a balanced vlog on dividends. I like them for many reasons and they make up about 50% of my investment portfolio. I learnt some stuff that i hadn’t even considered, however. Quite a few etfs pay dividends, ie vusa distribution funds. SHCD is a great one too. Thank you for sharing your thoughts.
I’m in my mid 50s and realistically I’ve only got 20 years of need for materialism, after that, I’m sitting at home with the fire on in between hospital appointments. There may be 2 or 3 market crashes in that time, each crash means another 5 or 6 years of recovery so yes, reliable dividend stocks in solid, money-making, dusty old companies like banks are better for me. Oh and by the way, UK bank stocks are up 30% this year so I’m easily outperforming the ETFs this year
The average recovery time is 21 months , not 5 or 6 years.
Very confusing topic of growths or dividends. Added concern is one’s age and goals. The best might be SPY. Take 5% in an up year. STOP at 5% until SPY comes back. Issue then is who knows if it comes back. Dividends might drop then so does share price. A lot. My own plan is 40% bonds and 60% SPY. With 5% stops. At age 75, with an MBA in finance, my pensions alone suffice. But I hope to live till 100 and one never knows with an out of control national debt spiral. Your thoughts?
I know Terry Smith is not a big fan of dividends, and Berkshire Hathaway never pays a dividend. But i think both have returned extremely good value to the investors.
Are dividends the causation of the smoother ride or do companies that pay dividends correlate with the smoother ride and there's another factor that better explains the causation? If there's another factor (e.g. value) that causes the behaviour then it would be better to invest in that directly - if that's possible with the choice of funds available to you. Or, if the correlation is close enough then maybe dividend funds are "good enough"™ Also: do the taxation differences between dividends and stock gains make a difference? 🤔
Ben Felix would argue that any returns or positive traits of dividend payers could be attributed to 6 other factors (I believe it is 6) this is why I didn’t want to get into the weeds of the debate we would be here all night 🤣
The dividends dont even keep up with the debasement of the dollar.
I'm really new to all this. Does this essentially mean that the S&P 500 is good to invest in or bad? I honestly find all this baffling and this channel is helping me try to get started in investing. Don't come at me people I'm learning 😂
Great analysis. I'm still in the Lamborghini while retired at a fair old age. I think I'm gonna lose a few ccs on that engine.
This is one of the most eye opening videos I’ve seen on investing since getting into it. Brilliant stuff Damo 👏
This is a superb opener. I'm looking forward to you unwrapping this more. Thanks - Great video.
I'm surprised you didn't mention Trackers which Warren Buffet is a big fan of. After getting burnt by Marconi I bought Llloyds shares because they were a safe and steady company paying a high dividend. That worked well until 2008 when the Government encouraged them to buy Basket Case Halifax.
Most dividend etfs are about 3/4 % , hardly seems worth it?
We all think we know the answer despite all of us being on our own journey and nowhere near the end.
Those who are at the end of their investment journey think they have it figured out but circumstances of the past don't necessarially apply today.
Focusing on the dividend stocks like this just seems like Survivor Bias to me, having decades of repeated dividends the companies left will obviously be the most successful. Compounded by as soon as a company is doing badly, they stop paying dividends and then clearly they fall out of the Aristocrats bundle, only making the group seem even stronger again. You need to be able to differentiate between past success and companies with a future (crystal ball time).
The ftse 100 index pays good dividends, most people have risk cuz rhey weight there portfolio on the us only
Im going for 2/3 index funds and crypto FTSE all world, FTSE 100 index and potentially S&P 500 index
Which are funds below
HSBC all world
HSBC FTSE 100 INDEX
HSBC AMERICAN
And crypto
Yes i use expessive HL but i like seeing the fund price quoated once a day keeps me invested
I'm wheelieing on my Ducati from point A to point B... 😎
Editor was on point in this video.
I like dividends , I would rather have money in my pocket to decide where to invest next. But be aware that if you have in excess of £25,250 in property other than your home or other assets in the UK. Then, if you need care , for you or your partner, then you will pay the entire sum and this can be £60,000 per annum plus, and no tax relief, It is a bit of a disincentive to save !
Damien, the Vanguard app is finally here! Yay!! 🎉
It depends on the legislation in which a company is operating in? If it is more tax efficient to complete share buybacks as opposed to dividends for instance?
Nice video as always Damo. I have been looking more recently at dividend paying index funds and came to a similar conclusion that I would be better served as I close in on retirement. As I'm 30 I will stick to growth funds for now.
Btw, I still find myself thinking about your most recent podcast episode. I have been thinking more about my relationship with money and why I am the way I am. Honestly incredible work you are doing and looking forward to seeing what guests you have lined up!
Cheers, Joash.
I was in the same boat, also 30. Growth over dividends is the one when you start looking into it, at our age anyway.
@@kieron8051 see you in the 5* retirement home brother 🤝🍻
@@kieron8051 see you in the 5⭐ nursing home brother 🤝🍻
Great video. I’m aiming for 50% dividend stocks, 25% ETFs and 20% growth and 5 % crypto when my portfolio is complete
Another great video Damo. Investing carries risk so always being well diversified over the past 25 years has helped me sleep at night. A mixture of growth, value and fixed income may not have been the best approach from a pure financial perspective but it helps you not do anything crazy when the market has a major dip. Also I find getting a dividend payment and reinvesting it somewhere very rewarding from a psychological point of view 👍🏻
Paying out dividends really depends on whether on where a company is in its life-cycle. If it is a mature company and there is no more growth initiatives pursuit then it is right that it return excess cash to shareholders through dividends or shares buybacks. In contrast, a small company should be aggressive in chasing after growth initiatives and shouldn't pay dividends.
What is a good dividend aristocrats ETF?
Usdv
Love this channel!!! Translate jargon into bit size chunks. Thank you
Thank you
Thanks for this. I've been thinking about strategies to mitigate sequencing risk
depends on the company i would say
So for me being mid 40's still accumulating but wonder when is it best to switch .. mid 50's
I'm a dividend growth investor. Best way to go, IMO.
Companies waste so much money, a lot of that driven by hubris. Id rather invest in a company that is going to give me a return on that investment than one that spaffs it on vanity projects, unnecessary tech or paying themselves huge bonuses (looking at you, Musk).
I invest in assets that pay dividends, and feed those back into other companies that pay dividends.
I hope to compound those gains over time to provide me with enough income that when I next get fired at least I can pay the bills still
Well I've found the person that still doesn't understand Elons complete lack of salary and share OPTIONS package. It's not a bonus!
@@mrbushpilot Well ive found the elon fan boy that would gladly not mind that he wants a bonus of shares that is more than the entire wage roll of the company, and that whilst he cant sell those shares for 5 years he can sell the = amount of other shares he already holds which gives him the effective ability to liquidate those assets any time he choses and retain his controlling stake in the company.
The fees for a dividend aristocrats etf are 5x that of a cheap tracker. Is this factored not the returns shown.?
Gilts weren't mentioned - I guess it's Lamborghini time - however being a bit older, (maybe not) wiser - Index-linked Gilts
4 1/8% Index-linked Treasury Stock 2030
Bullet proof Inflation plus 4.125% and it's government backed so NO RISK AT ALL and you get back more or less exactly what you put in!
You've misunderstood the difference between coupon and yield.
The current running yield on that gilt is 1.2%
Infotainment at it's finest! Thank you!
Gr8 info Damien, but any chance you could help find ETF's that focus on the aristocat ? Thx
Cracking vid, mate. Im here for the tree jokes 😂❤
My ISA is 100% in VWRL, global diversity and pays an alright dividend each quarter., keeping it simple :)
Mine is 90% VWRL or global equivalent the other 10% is me reminding myself why I’m 90% global
@@DamienTalksMoney VVUSEI - Is far superior over the last 10 years, yes America may not continue this outperformance but return has been about 6%!! Higher per year. 10 Year annualised 8.7% vs 14.4%. It will also outperform the more condensed S&P 500 funds over the next 5 years as small caps which are currently undervalued catch up to the mega caps.
I have AT&T shares and get a nice dividend, altho the shares arent gaining much lately.
@damientalksmoney Would love for you to do a video about the options you got when you come to retirement, should you put your pot into a annuity, or invest your fund into VHYL and live off that dividend income and reinvest a small portion to make sure you keep increasing your pot?
Shouldn't we diversify anyway?
I'm thinking more in "Money-Chunks". I have my Real Estate Chunk, my Gold Chunk, a Dividend Chunk, Pension Chunk, a Bond Chunk.
I'm done with my Gold Chunk. There's enough in it, so that I can pull out a set Amount of Money each Month when I'm retired. The Kicker is, that Chunk is complete now, but I'll retire in 25 Years. So till then, it can only get more better.
My Dividend Chunk is at 25% of it's Goal, the Pension Chunk at 35%. With 25 Years to go, I'll be done way ahead of Time. So the Dividend Chunk will do the same, if I don't pull out any Money, it will outgrow it's Goal.
I only wish I would've started earlier. Looking back, I could be quiet angry with my self for the Money I basically burned when I was younger.
As the stocks are going down from the second you buy them I am interest recently only in dividend aristocrats as at least I can have a compensation for my efforts.
I can’t stop looking at your hair now 😂 (another great videos thanks boss )
You're back! How was the holidays 😅
im in my late 50's looking hard in the face of retirement and that dividend income will suppliment my state pension until the pension is stopped then i can use the dividends entirely if the state pension is not stopped then my dividends will grow the pot and i can pass it down when i die.
The state pension will not ever be stopped, the eligibility age may be though
@@quokkapirquish6825 it never hurts to plan for the unthinkable 2020 showed us a great deal and if not then my children will have a very good time at my wake :)
Yeah why will the state pension be withdrawn??
The thing is , AI is different, it isn’t like the internet. AI fundamentally has a global impact in a large way, tech is different too, it isn’t one country that dominates in tech, we got a global market where AI can flourish, I’m betting hard on AI and AI integration with human society, a lot of jobs are going but a lot of limited companies will dominate in AI and replace these jobs, there is going to be super companies that dominate the world. OpenAI is one of them and Microsoft being a big shareholder shows Microsoft isn’t going anywhere.
Quality dividend ETFs are fire
The volatility story of the dividend aristocrats I can easily believe, but I don't have enough knowledge to decide what is causation and what is just correlation. I think I'll stick to bonds and cash for de-risking near retirement!
Question for you, Damien. Let's say that out of 2 equally profitable companies in a market cap weighted index, the 1st doesn't pay a dividend but the 2nd one does. So, the 2nd company drops in value every time it pays its dividend, but total return on investment is the same as for the 1st company, which rises in value. Does that mean the 2nd company is a better value investment (equally profitable, lower share price) than the 1st, but that the 2nd's weighting in the index will drop over time relative to the 1st? If so, does this mean market cap weighted indices are flawed, because they underweight good dividend payers?
It depends on whether your portfolio is only going to reach your minimum requirements.
If your portfolio can pay out 100k but you only draw 50k, the argument is immaterial.
This is very true