Is Dividend Investing Worth It?
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- เผยแพร่เมื่อ 20 มิ.ย. 2024
- Here's what we really think about dividend investing, cons you need to be aware of (taxation, reliability, money that could be used for something else), and their performance compared to the overall market.
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4K shares of SCHD here. Just retired at 33!
NICE! I think you’re sitting in a great asset! Enjoy the increased cash flow in retirement (:
which companies would you recommend or where should I invest a hundred K to get the best dividends right off the bat?
Several leading indicators point towards an upcoming market correction. I’m skeptical about this recent market uptick, just have to see how it all points out.
The market will crash, eventually. It always does. But pro tip, people will ALWAYS be talking about the coming crash (: Literally, always. It has been like this for a decade, and many, many people have lost juicy returns by listening to that advice.
Scared money, don’t make money
SCHD yield over 10 years has beaten the overall S&P 11.72% vs 11.02% and it’s much less overall risk. I think it’d be a positive to look at dividend etfs with low expense ratios in comparison rather than single issuers. Dividend investing is great even for younger people.
They also didn't take into account that those 9.60% + dividends = more like 12% in return 😆 so their example actually proved dividends are better than accumulative etf or growth stocks
I stopped listening and taking financial advise from these TH-camrs, because at the end of the day, I end up with a bunch of confusing stocks without knowing when to take profit, In reality, all I needed was professional advice to take advantage and make profits.
I started out with a financial advisor called *" Rochelle Dungca Schreiber ".* Her honest approach gives me complete ownership and control of my positions, and her rates are incredibly affordable given my ROI. However, do your due diligence before contacting a financial advisor.
Look at SCHD recently, I know tech stocks have made a difference these past few years, but SCHD is not going in a great trajectory for the past year.
Additionally, I think ETFs like SCHD are exclusively good for older people NOT for younger people. If you crunch the numbers and just compare SCHD vs a growth ETF like QQQ, younger people would do better investing in something like that and THEN selling off their stock at the peak prior to retirement and buying dividend ETFs like SCHD. This also accounts for the 15% capital gains tax youd lose. SCHD performs that poorly over a 20-30 year time span when compared to growth stocks. Just my opinion though.
I think you are overstating your case. With regard to the 9.6% return vs. 11.0% return, you aren't taking into account lower risk/volatility of the dividend payers. For many people, that is important. And for me, I like being compensated at least somewhat for stock ownership. Over time, those new shares bought through dividend reinvesting add up nicely.
As a CPA, it is important to note that a tax deferred account is not double taxed. A REIT is not taxed at corporate level, nor in a tax advantaged account.
Unless you really want to nerd out with it, successful dividend investing can really just come down to ‘SCHD and chill’.
Add O and EPD. You have your 3 fund dividend approach. 😂😂
when you need/ want the cash, dividends are better bc you dont have to sell the share to gain your money. You can keep holding onto dividends stocks without selling them and enjoy the income without selling the asset itself, like you would do with a growth stock.
To have any kind of impactful cash flow, youd already have to have a significant amount invested into dividend stocks. Most people that are already rich enough to have good cash flow, probably wont need to sell their stocks for cash.
@@liptongtrI initially wrote off dividends because the forward dividend was only like 3-4% compared to the price of the stock for a lot of companies. However, after working for a tech company (that pays a dividend) with an employee stock purchasing plan I started to realize how that initial 3-4% turned into higher percentages on my initial positions over time. So yes, initially it seems quite small, but don’t underestimate the power of dividend increases over time which will start to really multiply that cash flow over time.
In my opinion, dividend-generating positions are a really powerful asset when you are first building your portfolio: by choosing to invest in dividend stocks first, the extra source of income (on top of your contributions) boosts your buying power bit by bit - making the often more expensive, growth oriented stocks that do not pay dividends more attainable.
It’s not that effective in a low capital portfolio because you can barely DRIP, your dividends are cents (can make $15.5 dollars an hour working minimum wage), etc. I think building your capital is most important when starting out
True, the dividends do start out quite small - but it never hurts to start compounding that dividend snowball early! As someone else mentioned too, having a sizeable dividend income later (assuming you continue to consistently grow these positions over time) could give you some more flexibility in balancing your portfolio without needing to sell off as many positions given the extra cash on hand.
Yeah.That’s how I started off investing. But personally since I’m 42 I’ve focused on cash flow generating companies that can reinvest their earnings into more cash flows but with the help of my financial Adviser .
I’ll get back into dividend investing when I’m 30-40 years old. But I agree it never hurts to have dividend paying companies/ETFs in your portfolios
@@khalilronnie Who’s your adviser ?
For most people, it's much more satisfying to have cash flow than the thought of capital appreciation
You look at the top dividend etfs and stocks and you get a lot less downward volatility in tough markets like these. I dont doubt that when the market recovers and theres easier gains in other areas there will be a shift into those holdings
3:04 warren loves dividends. I think his yield on cost for ko alone is 50%. He doubles his original investment every two years. His firm bought out see’s candy and and reinvests the profits to buy more stocks and other businesses. He is very much a dividend reinvester
Huh. He is against dividends. If you’re reinvesting money to buy more companies, he’s not giving out dividends in his business. He’s against giving out dividends in his company. Him giving out a dividend means he’s giving money back to shareholders instead of reinvesting that money to turn a profit. He is against that?
@@XxLockdownxX28obviously he doesnt’t pay dividends. He gets dividends from the stocks/companies he owns. Did u not read what i said?
@@XxLockdownxX28especially the part where i said he is a dividend RE-investor
What dividend investor focuses only on income. AAPL, MSFT, Broadcom, Lockheed Martin, Starbucks, are all dividend “growth” investments that I own. In 2022 I was up in overall return. S and P 500 pays dividends and you tout ETFs that are in the S and P 500. Berkshire Hathaway’s investments, for the most part, pay dividends.
Wow!! this is one of only a few videos produced by these guys which is completely wrong. There are stocks and ETFs that provide good dividends and appreciation. Also dividends are taxed less than regular capital gains - sorry this is a positive. Second Warren Buffet example was completely wrong....Warren loves companies that pay dividends. Of course, dividends go up and sometimes come down, but if you own ETF dividend paying funds...which are more steady and appreciation of ETF plus the dividends paid out consistently doing better than just. You guys should have done more homework before producing this segment...have you ever heard of dividend snowball effect. I will not own a stock or ETF that doesn't pay out dividends. I've done this for a long time now and the amount of money I make off the dividends (and reinvesting a portion) allows me to no longer need to work.
I focus a lot on SCHD for dividends and then also do majority of my investing just in S&P500. So I like doing both.
I do the same thing. Have both to fuel a total return containing a bit more income per year.
@@matthewszasz1895 exactly!
@@matthewszasz1895 Yeah, so you can average that 11% return and your 9.6% return and get a good 10.02% or something
I still love my dividends😂😂
I mean it’s worked really well for me. There’s tons of companies that have increased their dividend every year for 50 years or more
I own VIG and DGRO and they hold baskets of companies that increase their dividend. So when Disney and AT&T cut the dividend, I didn’t notice at all and I still got a raise.
If you’re curious, I do videos on my channel explaining this
Bo said it, but they didn't dive into the topic. Maybe because it doesn't support their thoughts?
Buffett loves dividends. He just hates to pay them out. Think of the millions of dollars Berkshire receives in dividends each quarter just from Coke and Amex. He might not buy those stocks at today's valuations, but he's enjoyed growth and dividends for decades.
Here in Brazil, dividends are not taxed (yet), and it happens quite the opposite, where dividends perform better, it feels awesome to reinvest only from dividends and not caring a bit about taxes while doing so, some people even put a minimum DY value to invest in a given stock.
Some stocks appreciate and increase the dividends, those compound like crazy and are a go-to when one wants a "safer" portfolio
Wow!!! Just wow!!! I usually like these guys content but I will NEVER agree with this!!!
The VAST majority of Apple's capital appreciation came after 2012 a/k/a AFTER they started paying a dividend.
Stock buy backs disagree.
That may be a small part of the total return, but Apple also grew their net income from $6B in 2008 to $102B in 2022. Apple stock mainly appreciated because they grew, not dividends.
Like you guys for getting out of debt, but not for investing - just like Dave Ramsey.
That is why it is good to diversify.
If you're going for dividends, I say put your valuable money towards qualified dividend paying ETFs like SCHD, so your dividends are taxed as long-term capital gains rather than income, and just DCA into it. Now take your even more precious time and brainpower and put them towards doing something cool, like cultivating a side hustle, learning something new, or creative work.
I think good investing should be boring, so you don't have to worry about it too much.
Why should investors prioritize dividends over other sources of returns such as revenue growth?
@@jz4461 because dividend paying stocks on average out perform non dividend paying stocks.
@@jz4461 you don't have to choose. SCHD is nice because it both appreciates in value as well as pays dividends. I like dividends, particularly qualified dividends, because it just feels good when they happen, and I don't have to ache over taxes due to the nature of qualified dividends. To me, I like seeking good assets with decent upside based on their fundamentals. The dividends end up being a bonus.
Qualified dividends (from stocks held an appropriate period that aren’t REITS or BDCs) are taxed the same as capital gains. So whether it’s McDonalds or SCHD you still get long term capital gains treatment. This does not apply to traders.
There is no reason to pay taxes on Dividends, especially if you are young, put it in a ROTH IRA or an HSA.
Or focus on qualified dividends and holding the investment long term.
@@josephlantz6331 yeah, I would do that if I was closer to retirement and needed to find a way to reduce the tax hit but it's still better to pay zero tax if you have long enough to build up the account.
So, the pay from my company is taxed at the corporate level & then I pay a personal income tax. This isn’t tax efficient either. Should I quit my job because of this efficiency?
While we're at it I guess people who own rentals should forego any rental income since the person who paid rent will be taxed at his tax rate and then when you receive that rental income you will be paying at a higher tax rate (income tax rate). Just buy the property. Have people live rent free and just keep the property for it's appreciation value. SMH
If you are retired, and you are not going to sell any stocks, and you are already rich, then dividends investing may be for you. They are highly tax-efficient for a retiree - I just did my tax worksheet, and I am paying $13.5K instead of $19K in income tax.
I also like that companies are returning the money to shareholders, rather investing in low-return projects. I still remember Exxon Office Products - yes, Exxon had so much money in the early 80s that they decided to make typewriters. What could possibly go wrong?
I was thinking keeping my high dividend in IRA would be better but my index funds in brokerage also pay dividends but I’ll just keep the accounts as is.
Thanks for the information!!!
After 41 seconds I already disagree with this guy
He says when you focus on dividend income you ignore stock growth that's just not true you buy dividend stocks to hold long term or for the rest of your life if you never sell them then you would never relize stock growth gains from the sell and if you do sell them they are a long term investment so as long as you buy dividend stocks with a long positive history like aristocrats or kings you get to have both income and growth
First time I disagree with The Money Guy. What of individuals are taxed at a long term capital gains tax and make under 44k? That's a 0 tax rate.
One thing you guys didn't mention is dividend growth investing vs. high dividend yield...
i've always seen dividend stocks (assuming you aren't DRIPping) as basically a hedge...yes your money could grow a lot more investing in a growth stock or reinvesting (and you're paying more taxes) but let's say a stock plummets at least in the meantime you made some cash.
The stats regarding return should look at the returns of those paying a dividend versus those that did not. I would venture to guess it is much closer. I have no way of knowing this, but this could be something that is easy to find.
What about S&P 500 index funds that track the market and also pay dividends?
A special case for those living abroad and using the foreign earned income exclusion on your taxes is that you won’t have to pay taxes on your qualified dividends until your dividends reach a certain amount. In summary, as long as you fall within the first capital gains tax bracket, you don’t pay anything in taxes on your dividends.
I love dividends but I try to buy companies that pay a smaller portion of their cash flow and I have a small portion of growth stocks I think will grow with time.
Total return is the big picture. A transition to income over time is key. I would much prefer to not have to sell shares of a diversified portfolio in retirement as that would slowly erode my income. I do like dividend ETFs as they are a diversified basket that rebalance periodically to remove companies that no longer meet the objectives of the fund. Additionally, there should always be a growth allocation in portfolio construction to complement the income even in later years. Everything in Balance.
I'd rather hold jepi than any ark etf. 😊
I would rather hold a piece of driftwood than any Ark ETF.
Dividend etfs like SCHD are great. While significantly higher risk thinks like TSLY and KLIP are a great place to put that money in your portfolio you like to play with. I’m more or less even on KLIP right now when I dropped 10k into it a few months ago. 5% monthly dividend yields are ridiculous and it’s a risk im willing to take. Beating the s&p 500 by 40-50% a year if it hits a point where it holds it value consistently is too good for me to pass up.
Shortest answer; YES!
Are bond dividends also double-taxed like stock dividends?
Nope, worse. Bond income is ordinary income unless they are tax exempt.
@@michaelswami
But are they taxed at the corporate level, like what Brian described about stock dividends?
That is, do they get taxed before they get paid out to bondholders?
Ahhh, I see your question. I believe the corporation would get a deduction for the interest payment, all else being equal, so yes, more tax efficient for the corporation, but less so for you. And government bond interest payments made to you are subject to ordinary federal income taxes, unlike qualified dividends, which are taxed at more favorable long term capital gains tax rates. Some distributions are not taxed as favorably, REITs and BDCs included. Lastly, all of this goes away in a Roth Account.
@@michaelswami Thanks!
Ha ha I'm definitely not guilty of over thinking this! In my 401k I picked the mix of mutual funds I wanted, bonds, small, mid, large cap stocks, international etc ... then I don't reinvest the dividends so they go to my cash account, I can rebalance from that account or take a monthly paycheck. I also of course occasionally sell some into that cash account to realize gains made
That's demonstrating another pitfall of dividends, though: that the dividend portion of the return is often treated differently than the capital gain. This is an example of mental accounting and leads to suboptimal spending and investment decisions. Investors often overvalue dividends (e.g., an investor who receives a $100 dividend but has an unrealized capital loss of $200 will often fail to realize that they've lost $100).
@@jz4461 Without dividends though you still have an unrealized loss of $200.
Yes dividend investing is worth it
I love dividends, and I live in a state that does not have state taxes.
You can make 40K per year in dividend in tax-free me and my wife plus the 24,000 standard deduction we can make $104,000 a year tax free
Briefly share with us how that is done I think we would all be interested
@@missouri6014 it depends on how many shares you have.
@@missouri6014 i believe justin is talking about the tax rate on qualified dividiends ( single vs married filing jointly)
@@lalew2 correct
Warren buffet makes close to 700 million per year on dividends, he loves them. I will be living on dividends in my retirement without ever having to sell a single share of stock to live on.
The "double taxation" notion seems a little off-base. The fact that corporations can't write off dividends is a factor for the CFO to take into consideration before declaring a dividend. It does not impact the individual investor beyond the fact that the company in which they invest has a higher tax burden which could impact earnings. That's a decision that lies with the individual investor. The fact hat Uncle Sam gets a piece of the corporate tax pie and the individual tax pie doesn't seem germaine. Perhaps there's a techincal notion of inefficiency that I'm not aware of, but I'm not sure why it matters when deciding whether or not to invest in dividend-producing securities.
Secondly, your Apple example contradicts the notion that dividend-paying companies don't innovate. Apple was simply unable to pay the dividend in 1996 and most likely for the 10 years that followed. By 2012, the company was healthy enough that it could reinstate the dividend. From 2012 to today, I would argue that innovation has continued perhaps not with category defining products like the iPhone but in subscription-based consumer services that put huge sums onto the top line of AAPL despite its quarterly dividend.
Just my quarterly $0.02. :) Keep up the great shows!
Dividends are a good source of income for the risk profile. Warren Buffet invest in value and many of these companies pay a dividend. He has different deals set up that the average investor can’t get as most of his purchases are off market. If you are ok with higher risk profile, you go growth and emerging markets. If an 18 yo invest in dividend stocks and reinvest those in more shares, they could easily become millionaires by 50.
Keep this intro and apply to all videos, please!
I wish they'd get ride of it. Sounds like a corporate prep video.
I don't understand people having issues paying taxes?
I live in a community where the school are not the best, which is why those of us who can afford to send our kids to private schools.
Why??.Taxes!!
I don't mind paying taxes at all.
I also have a special needs child who gets medical coverage from the government benefits from me paying taxes.
I don't mind paying taxes at all.
What are you talking about Buffet not liking dividends? While his fund doesn’t pay dividends, he buys into a lot of dividend companies. Mary Sees is why he’s filthy rich. He clearly states dividends for some companies is better and terrible for other companies. He knows HE can use thar free money better than paying it out.
Laser focusing strictly in dividends is a horrible idea.
The same as excluding a company because it pays a dividend - look no further to where Warren Buffet invests....
Smaller companies paying dividends (non-REITs) can be alarming - they should be able to find better use for those funds.
But, larger companies have wasted so much money buying failures because they had the cash to burn and weren't paying dividends.
- Even stock buy-back programs can be horrible value to the investor if the company has a high P/E ratio.
Edit: points/questions:
1. Buying Apple and expecting dividends for income is not wise, but there are dividend ETFs that pay fairly steady rates.
2. Your stat about S&P500 performance, does this include with dividends reinvested?
A. If not, how does that change the return?
B. Pulling out dividends pre-retirement is not a wise strategy.
There’s no rational reason to focus on dividends. Total returns are what matter and dividends (despite being a portion of total returns) arnt what drive total returns.
A focus on dividends will likely to lead you to be under-diversified and tax inefficient.
Don't a lot of investors re-invest the dividends? So, the company has access to the capital anyway. My dividend income has increased 2.5 times over the past 10 years because of dividend re-investing and I expect it to increase another 2.5 times over the next 10 years.
When you reinvest a dividend (or indeed whenever you buy a share) the money does not go to the company. It goes to the person selling the share
@@ChrisShawUK If I re-invest the dividends, I am buying more shares of the company (mutual fund/ETF shares) from another owner. The more shares I have, the more dividends I will be paid and the more value those shares will have over time if the market grows.
@@vincentdesapio yeah, but when you say "so the company has access to the capital anyway" ... They don't.
Once a company has paid a dividend out, they no longer have the capital. If an investor reinvests that dividend, that capital goes to the previous owner of the share, not the company
@@ChrisShawUK Thinking about it, I believe you are correct and I was not precise enough in my initial comment. I can say though that if I do invest the dividends by buying additional shares, it would support the price of the shares, providing more capital to the company if they decide to issue additional shares of stock.
@@vincentdesapio yes, but a company who needs to raise more capital is not paying dividends either. Dividends are just a return of capital from the balance sheet.
If you have a share worth £20 and it pays a dividend of £1, on that payment day you now have a share worth £19 and £1 in cash. Your total investment has not altered in value, but your asset allocation has. There is no magic money.
I think there's a large overlap between bitcoin bros and dividend bros 😅
How do dividend stocks do compares to others under the assumption of DRIP?
It’s tax efficient in a Roth, homies.
Is it worth it? YES , no two ways about it.
would love their perspective over SCHD & JEPI
LOL, they're not that kind of TH-cam channel.
Slight cherry picking numbers here. Except for 2 years (I believe), dividend stocks have out performed every single year.
The most important aspect of dividends that people just don’t seem to (want to) understand is the fact that the stock price always drops by the dividends declared.
Nobody invests in apple for the dividend.
My perspective is that each company is made to eventually give a dividends or a big liquidity event when is stops existing and every innovation corporate wise is the discounted value of it's future dividends. That's why in my opinion every company should generally pay a dividend if it is able to.
Therefore the arguement of tax efficiency isn't totally valid (counter argument) although you should focus on total return.
I currently see dividend investing as a way to create more stability do you can take more risk elsewhere.
For example start-up investing & your own business while dividends could pay for your rent.
So dividends are bad ? Mmkay..
No, just that dividends are only one source of total return. Evaluating an investment on total returns net of taxes and fees and considering your risk tolerance is a superior approach to solely focus on dividend yields.
Take the dividend payer and reinvest the dividends and they come out ahead of the non dividend payers over time.
I could be wrong, but I believe Warren Buffett only purchases stocks that are classified as dividend kings. One of his rules for selection is that the stock has paid a consistent dividend for at least 20 years.
Dividend investing is only worth it if it’s dividend growth investing. All in SCHD
Best of both worlds!
Never be all in with anything.
SCHD for the win. Its track record is undeniable.
@@TIB1973 It’s an ETF with over 100 holdings..
@@ByteSizeMoney would love for this show to backtest with SPY including tax drag to see results 😁
The S&P 500 pays a dividend… so don’t own the market because the market pays dividends and they aren’t tax efficient? 🤔
Those target date index funds you guys pump pay dividends and a lot of even less tax efficient bond interest… so dump those too? 🤔
Lol no. Dividends represent the majority of market returns over long time periods for a reason. There’s no substitute for returning earnings to shareholders in the form of cash. Growing earnings and growing dividends are what you want. And if you’re buying a stock that doesn’t pay dividends currently, you’re paying for the dividends you hope it will one day pay. Or else you’re just speculating.
False, both dividends and earnings growth each account for half of total returns historically (source is Bogle's The Little Book on Common Sense Investing). That's the problem with dividend investing: that a substantial contributor towards total returns (earnings growth) is undervalued or outright ignored by dividend investors. Dividends are important, but overvaluing dividends leads to suboptimal returns.