Dividends are irrelevant

weenie · 16 October 2019 11:43

But I’m not just selecting dividend paying stocks, I have growth stocks too.

The strategies are not mutually exclusive, I get income and growth.

60minuteman · 16 October 2019 11:47

yes but the video and this thread are about people that DO… so it obviously does not apply to you.

60minuteman · 16 October 2019 11:50

Jamie you are agreeing with the video - when we dont know about the future then we should be concerned with risk, if selecting dividend stocks only for your portfolio is more risky with no guarantee of greater upside its not the smartest move to make.

He also states that it is fine to go with a strategy that feels good IF it keeps you invested long term, BUT it is naive to ignore the math

60minuteman · 16 October 2019 11:52

If you pick UK dividend stock only 24 of the ftse 100 dividend paying companies have cover of more than x1 and pay higher yield than the index as a whole - on a risk reward basis you are better off to just buy the whole index (probably be less costs too)

Jamie1088 · 16 October 2019 12:07

My argument to that point which is great btw, and this is relevant to me, is that by picking some individual stocks you are receiving income every single month. Which is what I want from my investing to supplement my income and pay for bills etc.

Whereas an index will pay you 4 times a year, yes okay it’ll be a lump some if you have a lot invested. But having that income coming in every week for me is what motivates me to keep going in the market, aswell as my circumstances being self employed.

I’m not disagreeing at all with ETF’s because I will, when I get to a certain stage, have a big percentage of my portfolio in such funds.

60minuteman · 16 October 2019 12:55

I started off selecting dividend growth stocks and built a portfolio of £23,000, but the more I crunched the numbers the less happy I was with the risk of a concentrated portfolio. Eventually I have sold the lot and moved the money into a single low cost fund - globally diversified. I still have the bug for looking at individual companies but just dont risk my money there. I dont need any income now, just low risk growth and compounding

saf · 16 October 2019 13:08

Some of the ETFs are paying a decent dividend at the moment. See below for a list.

List of ETFs on Freetrade paying Dividends

Data sourced from Finki.io on 16th October 2019 at 14:08.

Disclaimer - The above “List of ETFs on Freetrade paying Dividends” list is for information purposes only. It is not a recommendation of any of the listed ETFs.

Kezberg · 16 October 2019 17:07

If you are perusing a stock picking strategy then dividends can provide you with cash flow which you can deploy by reinvesting in opportunities that are priced favourably given market conditions in that point in time. His examples used seem to be based on the perfect markets theory and the notion that company A&B are priced completely fairly based on book value and earnings whereas the realities of the market don’t always live up to that.

60minuteman · 16 October 2019 20:29

Im not sure you understood his example, if company A pays you a $4 dividend it’s price will drop 4$ - no different to the company not paying you the dividend, the gain is exactly the same. If you believe you can time the market and buy when conditions are more favourable you can do that with any portfolio by selling some stock where prices are over valued…Dividends are not a factor

Kezberg · 17 October 2019 00:05

No I understand that point. Whilst that may be true for company A on ex-dividend day that the stock price will drop by that amount it doesn’t necessarily mean that company B who doesn’t pay the dividend of 4 will retain a price that’s in tandem with the book value. If many years go by and company B is hoarding cash without increasing it’s earnings at a faster rate than company A.

The investor who holds stock in company A receives 4 in dividend, and can invest that dividend money in the expectation to make compounded returns. Unless Company B is able to do the same with the retained money (invest it in the company and grow earnings), the stock price wont appreciate, that’s why you see some examples of companies trading at discounts to book value as earnings growth becomes more sluggish.

60minuteman · 17 October 2019 00:17

company A is only getting back what it paid out, company B already has the $4 as it has not paid it out… theyre the same

Dave · 17 October 2019 07:38

This all makes sense in an ideal efficient market. But dividends have an effect on investor sentiment. watch what happens to the share price when a company announces it’s cutting the dividend. According to the logic in that video the share price should stay the same, but of course it doesn’t.

Dividend yield does drive demand for the stock, even if it shouldn’t in theory

adavid · 17 October 2019 08:46

Says a youtuber…

60minuteman · 17 October 2019 10:18

so you are saying buy the highest yields and demand will always drive the stock price higher??.. regardless of earnings, profitability

Dave · 17 October 2019 10:28

I’m not saying that, I’m saying dividend yield has some effect on demand

Edit: although as a stategy that may have some merit… Dogs of the Dow - Wikipedia

O’Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well.

60minuteman · 17 October 2019 10:35

But not because of the dividend, because of other factors

60minuteman · 17 October 2019 10:42

there are indeed some good companies in that group, but it is still too concentrated. You can compile a portfolio of zero dividend paying companies that have performed better.

shane-aurora · 17 October 2019 10:44

I’d never heard of Dogs of the Dow thanks for posting. A Motley Fool article on 2019’s Dogs of the Dow. Some great heavy hitters in there

weenie · 17 October 2019 11:30

I’ve been running a real-life ‘Dogs of the FTSE’ experimental portfolio, UK’s equivalent of Dogs of the Dow.

Money Observer run a semi-regular feature on their portfolio:

In my first year (2017), it returned just 1%, which is rubbish but still compared favourably with the 0.81% achieved by the FTSE 100 Total return.

In my second year (2018), it returned 16%, compared to FTSE 100 Total Return of minus 2.02% over the same period.

It’s been less than 6 months with my third such portfolio and currently, it’s not looking great but we’ll see how it ends up after 12 months.

The first two years, some of the returns got eaten up by trading fees.

:freetrade: is the perfect platform to run this experiment with no such fees.

Note, it’s a risky strategy, hence it’s only a small experiment and not my main investment strategy!

60minuteman · 17 October 2019 12:01

I have no doubt these sort of portfolios can and have generated good returns, the problem with them always comes down to risk. For me personally they are always too concentrated, in the FTSE you’re essentially betting on financials and oil/energy, just too risky (for me).
At the end of the day it is personal preference but I wonder how many dividend only investors are even looking at risk and just looking at yield and returns

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Dividends are irrelevant

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