What's so good about dividend investing?

[dealtn]

I tell you what though - there's a hell of a fuss regularly generated over something that's 'exactly the same', wouldn't you agree?

So what?

Does that somehow make the mathematics wrong or the point not worth discussing?

It makes the mathematics disappear as a point worth arguing about, which then leaves everyone able to say -

'Right then, we've shown that it really doesn't matter mathematically how you do things, so let's all just do what we want, however we want to do it, because there's really no point in arguing too much about either approach....'

So, why is it that one side of the discussion is happy to take the above view, and yet the other side remains committed to demanding to know why, if nothing really matters, why doesn't everyone just take the same single approach....

Are you able to answer that specific question?

Cheers,

Itsallaguess

Intrigued why you see it as one-sided.

One side says it doesn't matter but income investors (mainly) deny that it doesn't matter and label others as TR, as some kind of insult.

Viewed the other way one side insist it doesn't matter so doesn't get why some, as a preference, prefer dividends when the simplicity of that "devolved" income flow has its virtues in that simplicity and devolved decision making.

I think its double sided in the main if I am honest.

[Itsallaguess]

It makes the mathematics disappear as a point worth arguing about, which then leaves everyone able to say -

'Right then, we've shown that it really doesn't matter mathematically how you do things, so let's all just do what we want, however we want to do it, because there's really no point in arguing too much about either approach....'

So, why is it that one side of the discussion is happy to take the above view, and yet the other side remains committed to demanding to know why, if nothing really matters, why doesn't everyone just take the same single approach....

Are you able to answer that specific question?

Intrigued why you see it as one-sided.

One side says it doesn't matter but income investors (mainly) deny that it doesn't matter and label others as TR, as some kind of insult.

Viewed the other way one side insist it doesn't matter so doesn't get why some, as a preference, prefer dividends when the simplicity of that "devolved" income flow has its virtues in that simplicity and devolved decision making.

I think its double sided in the main if I am honest.

My view on why it's one sided is because the arguments only ever happen on existing income-related threads or income-related boards, that are then forced to argue these tiresome points over and over again in those income-related spaces.

If it were a double-sided issue, we'd see the flip-side of that happening, where income-investors with strong views on the subject are seen to raise these tiresome points on specifically TR-based threads or TR-based boards...

I'll quite happily concede my 'one-sided' view if you're able to highlight a number of times where that's ever happened...

Cheers,

Itsallaguess

[hiriskpaul]

I often find the operation of some ITs with respect to their smoothed out dividend payments in conflict with the wishes of investors who do not want to draw income from capital.

The investor seeks regular dividends, but the IT manager chooses to take charges out of capital (ie sell shares) so as to "enhance" the yield, pay dividends out of capital gains (ie sell shares), or pay dividends from the revenue reserve account (sell shares previously purchased with retained dividends).

The income-IT investor seeks regular dividends, and to a large degree that's exactly what he gets.

I don't think there's a 'conflict' in the way you might describe - it's simply the case that those known underlying processes are not something the investor wants to action themselves to actually deliver what they're looking for, which is regular dividends....

If I ask my window-cleaner to clean my windows, because I'm perhaps too old to be going up ladders, there's no 'conflict' in knowing that he has to go up ladders himself to clean them....

Cheers,

Itsallaguess

So the investor is entirely happy about drawing income from capital, but does not want to action that themselves? Not unreasonable, but I am not sure you are speaking for all income investors in this regard. I have seen many comments on TLF, TMF and elsewhere from people who don't want to touch their capital.

I am sure there are other ways of doing the same thing, but maybe not enough. Vanguard I know will make automatic fixed monthly payments, selling investments as required for zero additional charge. It would be necessary to log in once per year or so to alter the payment amount.

[dealtn]

It makes the mathematics disappear as a point worth arguing about, which then leaves everyone able to say -

'Right then, we've shown that it really doesn't matter mathematically how you do things, so let's all just do what we want, however we want to do it, because there's really no point in arguing too much about either approach....'

So, why is it that one side of the discussion is happy to take the above view, and yet the other side remains committed to demanding to know why, if nothing really matters, why doesn't everyone just take the same single approach....

Are you able to answer that specific question?

Intrigued why you see it as one-sided.

One side says it doesn't matter but income investors (mainly) deny that it doesn't matter and label others as TR, as some kind of insult.

Viewed the other way one side insist it doesn't matter so doesn't get why some, as a preference, prefer dividends when the simplicity of that "devolved" income flow has its virtues in that simplicity and devolved decision making.

I think its double sided in the main if I am honest.

My view on why it's one sided is because the arguments only ever happen on existing income-related threads or income-related boards, that are then forced to argue these tiresome points over and over again in those income-related spaces.

If it were a double-sided issue, we'd see the flip-side of that happening, where income-investors with strong views on the subject are seen to raise these tiresome points on specifically TR-based threads or TR-based boards...

I'll quite happily concede my 'one-sided' view if you're able to highlight a number of times where that's ever happened...

Cheers,

Itsallaguess

Well that may be true in terms of location (and perceived attack). The argument is 2 sided though.

Incidentally where are these TR based threads and boards you refer to? I would proclaim that HYP, especially over the long term, is a TR strategy. Where do all those long term "current" incomes get paid from other than from the cashflows of the underlying businesses, which in turn depend on the undistributed earnings.

Only yesterday I was "attacked" for pointing out a "hopeless investment", as defined by a long term income investor, that qualified as a HYP share, had made a capital gain of 60% over the last year. I don't think its the one-way street you proclaim.

[absolutezero]

Only yesterday I was "attacked" for pointing out a "hopeless investment", as defined by a long term income investor, that qualified as a HYP share, had made a capital gain of 60% over the last year. I don't think its the one-way street you proclaim.

I have noticed on the other discussion (HYP waning as a concept?) several people have said they don't post very much because there is nothing to say.
I'm thinking people don't post because they get attacked for asking questions and trying to generate a bit of discussion.

Nobody is saying THIS IS HOW YOU SHOULD RUN YOUR PORTFOLIO AND EVERYONE ELSE IS WRONG but some people seem to see everything that way.
Why?

Isn't the point of a discussion board to, you know, discuss?

[Itsallaguess]

My view on why it's one sided is because the arguments only ever happen on existing income-related threads or income-related boards, that are then forced to argue these tiresome points over and over again in those income-related spaces.

If it were a double-sided issue, we'd see the flip-side of that happening, where income-investors with strong views on the subject are seen to raise these tiresome points on specifically TR-based threads or TR-based boards...

I'll quite happily concede my 'one-sided' view if you're able to highlight a number of times where that's ever happened...

Well that may be true in terms of location (and perceived attack). The argument is 2 sided though.

Most arguments are two-sided - it's what makes them arguments...

What I was pointing out was that the arguments are almost exclusively *started* by non-income-investors invading income-investor discussions and/or boards, and forcing the arguments to start in the first place...

Incidentally where are these TR based threads and boards you refer to?

Here's a good example of a regular spamming technique, and you'll note that it again takes place on an income-related thread, and on an income-related board -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=28808&p=407406&hilit=gold#p407406

The poster is regularly seen imposing such off-topic, TR-based discussions into the middle of income-related threads, and is hopefully also remembered for being a quite prolific poster of specifically TR/SWR-based threads as well.

I could give you a very large number of examples where TR-based off-topic distractions and arguments have been forced into income-threads and income-spaces from similar interventions, but I couldn't give you a single example where an income-investor has raised their own strategic preferences into any of those TR-based discussions, but again, if you're able to find one, then I'll again be happy to concede on this point...

Again though - there's no doubt that these types of arguments are two-sided once they're taking place, but I think it's very important, before people perhaps take that view, to re-wind a bit on each occasion these types of arguments start, and examine how they start in the first place, and I think it's almost exclusively the case that they are started from the same side, similar to the above example...

Cheers,

Itsallaguess

[Itsallaguess]

I often find the operation of some ITs with respect to their smoothed out dividend payments in conflict with the wishes of investors who do not want to draw income from capital.

The investor seeks regular dividends, but the IT manager chooses to take charges out of capital (ie sell shares) so as to "enhance" the yield, pay dividends out of capital gains (ie sell shares), or pay dividends from the revenue reserve account (sell shares previously purchased with retained dividends).

The income-IT investor seeks regular dividends, and to a large degree that's exactly what he gets.

I don't think there's a 'conflict' in the way you might describe - it's simply the case that those known underlying processes are not something the investor wants to action themselves to actually deliver what they're looking for, which is regular dividends....

If I ask my window-cleaner to clean my windows, because I'm perhaps too old to be going up ladders, there's no 'conflict' in knowing that he has to go up ladders himself to clean them....

So the investor is entirely happy about drawing income from capital, but does not want to action that themselves? Not unreasonable, but I am not sure you are speaking for all income investors in this regard. I have seen many comments on TLF, TMF and elsewhere from people who don't want to touch their capital.

I didn't think either of us were thinking we were speaking for all income-investors - I was simply replying to your post taking your specific 'The investor' as an example that you were hypothetically talking about...

On your point about people 'who don't want to touch their capital', I think it's worth making the distinction about the capital that you were initially talking about, which is flowing within a given income-IT itself, and any 'capital' that such 'people' might not 'want to touch', which is likely to be the actual capital in their own investment-accounts, and I think that's the important distinction here, isn't it?

Cheers,

Itsallaguess

[pje16]

This article clears it up
DRIP is the best policy
https://www.simplysafedividends.com/int ... -investors
and if like me, it's all in an ISA, then you can forget about taxes

[mickeypops]

I “get” that TR investing has its place - the inclusion of tech shares, for example, which pay minimal or no dividends, can assist in building the portfolio value.

In retirement though, as I am, the flow of dividends which both meet my income needs and can match inflation increases, acting as an annuity alternative is a very attractive investment vehicle to some of us. I can get a decent income and, all things being equal, pass on the pot and its income after my demise. I trade some of the certainty of an annuity for that prospect - a fair swap methinks.

I can’t quite get my head around the Berkshire Hathaway model - possibly the ultimate TR share. Holding a BH share doesn’t pay the bills or buy the champers. I can only hope that at the time I need some cash someone wants to buy it off me for more than I paid for it. Meanwhile Mr Buffet is sitting on billions of shareholders cash looking for a home for it.

A somewhat simplistic view I know….

MP

[CryptoPlankton]

Only yesterday I was "attacked" for pointing out a "hopeless investment", as defined by a long term income investor, that qualified as a HYP share, had made a capital gain of 60% over the last year. I don't think its the one-way street you proclaim.

Give me strength...

[onthemove]

Only yesterday I was "attacked" for pointing out a "hopeless investment", as defined by a long term income investor, that qualified as a HYP share, had made a capital gain of 60% over the last year. I don't think its the one-way street you proclaim.

I have noticed on the other discussion (HYP waning as a concept?) several people have said they don't post very much because there is nothing to say.
I'm thinking people don't post because they get attacked for asking questions and trying to generate a bit of discussion.

Nobody is saying THIS IS HOW YOU SHOULD RUN YOUR PORTFOLIO AND EVERYONE ELSE IS WRONG but some people seem to see everything that way.
Why?

Isn't the point of a discussion board to, you know, discuss?

Is there any slightest possibility that any answer that anyone might give you, might have the remotest chance of changing your mind on anything?

Much of the time, the same questions keep being asked by the same people who have clearly made up their mind that high yield investing isn't for them, yet time after time after time after time they keep coming back and challenging the people who do like to receive dividends with the same tired old questions that the questioner has already heard all the answers to many times before, and then the questioner just starts banging on about total return blah, blah, blah in response to any answer they might receive.

Unfortunately, imv, it's abundantly clear that a number of people who keep posing the questions, clearly have no intention what-so-ever of actually changing their minds.

I did start to write an answer to the question posed in the OP earlier today, and then scrapped it, because I know that everything that I was writing I had written many times before both on here and on TMF, and others have written on here and TMF many times before.

It hasn't changed anyone's minds previously, and I'm pretty sure that most of those asking these such questions at this time on the HY boards on here are well aware of those previous discussions and have seen all the answers they are likely to receive already, so why should I believe it would change anyone's minds now?

So hence quite a few of us see little point in entering into these discussions yet again. If we thought the poster was a newbie, genuinely unfamiliar with the aspects to consider, and clearly exploring the ideas to make their own mind up for their own investing, I think most of us would be glad to help out. But such newbies don't seem to come around all that often; in practice it's usually the same very familiar user names, asking the same very familiar questions.

I can't help feeling that any expectation of changing people's minds is all one way - that those challenging high yield strategies and advocating to total return strategies, etc, seem to be the ones expecting that it's the high yield strategy followers who should change their mind in light of the challenges by the knight's in shining armour from the total return camp coming to save their souls and for which they will ever be grateful.

[hiriskpaul]

The income-IT investor seeks regular dividends, and to a large degree that's exactly what he gets.

I don't think there's a 'conflict' in the way you might describe - it's simply the case that those known underlying processes are not something the investor wants to action themselves to actually deliver what they're looking for, which is regular dividends....

If I ask my window-cleaner to clean my windows, because I'm perhaps too old to be going up ladders, there's no 'conflict' in knowing that he has to go up ladders himself to clean them....

So the investor is entirely happy about drawing income from capital, but does not want to action that themselves? Not unreasonable, but I am not sure you are speaking for all income investors in this regard. I have seen many comments on TLF, TMF and elsewhere from people who don't want to touch their capital.

I didn't think either of us were thinking we were speaking for all income-investors - I was simply replying to your post taking your specific 'The investor' as an example that you were hypothetically talking about...

On your point about people 'who don't want to touch their capital', I think it's worth making the distinction about the capital that you were initially talking about, which is flowing within a given income-IT itself, and any 'capital' that such 'people' might not 'want to touch', which is likely to be the actual capital in their own investment-accounts, and I think that's the important distinction here, isn't it?

Cheers,

Itsallaguess

I think you have lost me there. I can envisage that there might be differences in taxation of cash flows in the account vs in the IT. For UK investors at least, there is no CGT to pay on gains made inside the IT and no income tax on undistributed income. Is that why you think that's an important distinction?

[Itsallaguess]

Much of the time, the same questions keep being asked by the same people who have clearly made up their mind that high yield investing isn't for them, yet time after time after time after time they keep coming back and challenging the people who do like to receive dividends with the same tired old questions that the questioner has already heard all the answers to many times before, and then the questioner just starts banging on about total return blah, blah, blah in response to any answer they might receive.

Whilst I agree with all of that, I actually think it's even more absurd much of the time now...

Quite often now, on income-investment threads and boards that don't even necessarily advocate HIGH yield investing, and where people are quite happy to discuss income-investing in more general, broader terms, and often at lower ends of the yield spectrum, they are *still* invaded by those knights in shining armour, clamouring to highlight that HIGH yield investing has the potential to perhaps lead income-investors into areas of risk that they particularly disapprove of...

You'd think the odd 'Yeah, we know mate - we're not talking about that, if you'd actually pay any attention' might be enough for them to perhaps modify their stance, and perhaps not condemn *every single income-investment approach* through the prism of HIGH yield investing at every single breath, but still, it doesn't seem to sink in at all....ever....

<sigh>

Cheers,

Itsallaguess

[Itsallaguess]

I think you have lost me there. I can envisage that there might be differences in taxation of cash flows in the account vs in the IT.

For UK investors at least, there is no CGT to pay on gains made inside the IT and no income tax on undistributed income. Is that why you think that's an important distinction?

I thought you were trying to ask how an income-investor 'who didn't want to touch his capital' might be happy for an IT-manager to do it for them, and if that was what you were asking, then I was trying to point out that an income-investor might not necessarily consider the capital that 'they didn't want to touch' as being anything other that the top-level IT holdings in their investment account, and where they might consider any underlying capital within those income-IT's as fair game for any of those IT-managers to just get on with managing below that 'top-level' of the IT share-holdings themselves, as with your examples of selling down sub-holdings or managing revenue-reserves etc...

As such, I wouldn't particularly see any real contradiction with that income-investor still being able to say that they 'don't touch their capital', as they don't directly do so as part of their own portfolio management processes....

Cheers,

Itsallaguess

[dealtn]

I could give you a very large number of examples where TR-based off-topic distractions and arguments have been forced into income-threads and income-spaces from similar interventions, but I couldn't give you a single example where an income-investor has raised their own strategic preferences into any of those TR-based discussions, but again, if you're able to find one, then I'll again be happy to concede on this point...

Well it wouldn't take long.

Let's take this very thread. The OP posed a question essentially about the fungibility of money.

The very first response (other than one clarifying the question), just a few minutes later started with

"There are some obvious fallacies in your argument ..." hardly a dispassionate beginning, and then continues with points about their strategic preference, for instance. Now it's not the strongest of attacks I grant you, and I agree the asymmetry on this site backs the view that income investors, at least HYP ones, face greater onslaughts than others, but that may reflect as much as anything the back history and preponderence of such advocates here.

I suspect those that adopt a growth strategy, for instance, don't choose to congregate here. Investing the effort to develop a growth focussed investment following might not be worth the effort, so they "play" elsewhere. In the same way income investors are noticeably relatively absent from other sites (and ironically where Stephen Bland has been posting and occasionally referred to here).

I don't advocate aggressively attacking posts, here , or elsewhere, but I get the feeling many see what they want to see, and as in investing, confirmation bias is a negative. Personally I prefer to be (politely) challenged as a helpful way of ensuring my thinking is free of bias, be that confirmation or any other type.

[hiriskpaul]

I think you have lost me there. I can envisage that there might be differences in taxation of cash flows in the account vs in the IT.

For UK investors at least, there is no CGT to pay on gains made inside the IT and no income tax on undistributed income. Is that why you think that's an important distinction?

I thought you were trying to ask how an income-investor 'who didn't want to touch his capital' might be happy for an IT-manager to do it for them, and if that was what you were asking, then I was trying to point out that an income-investor might not necessarily consider the capital that 'they didn't want to touch' as being anything other that the top-level IT holdings in their investment account, and where they might consider any underlying capital within those income-IT's as fair game for any of those IT-managers to just get on with managing below that 'top-level' of the IT share-holdings themselves, as with your examples of selling down sub-holdings or managing revenue-reserves etc...

As such, I wouldn't particularly see any real contradiction with that income-investor still being able to say that they 'don't touch their capital', as they don't directly do so as part of their own portfolio management processes....

Cheers,

Itsallaguess

Ok I see what you mean now and yes this was the contradiction I was implying.

I am at risk of taking this thread even more off topic now, but let's assume you are right that this income-investor is happy to draw an income from capital provided the fund manager is doing the selling. Unless I have missed something, the only logical conclusion here is that the investor is happy with this arrangement primarily because of convenience. Have I missed something? eg the investor believes the fund manager will time sells better than the investor or a broker might time automatic share disposals? Or maybe the costs to the investor of disposals potentially being greater than that of the fund manager?

[hiriskpaul]

I “get” that TR investing has its place - the inclusion of tech shares, for example, which pay minimal or no dividends, can assist in building the portfolio value.

In retirement though, as I am, the flow of dividends which both meet my income needs and can match inflation increases, acting as an annuity alternative is a very attractive investment vehicle to some of us. I can get a decent income and, all things being equal, pass on the pot and its income after my demise. I trade some of the certainty of an annuity for that prospect - a fair swap methinks.

I can’t quite get my head around the Berkshire Hathaway model - possibly the ultimate TR share. Holding a BH share doesn’t pay the bills or buy the champers. I can only hope that at the time I need some cash someone wants to buy it off me for more than I paid for it. Meanwhile Mr Buffet is sitting on billions of shareholders cash looking for a home for it.

A somewhat simplistic view I know….

MP

I think it quite likely that you would be able to generate an income from the gradual disposal of BRK-B Shares. Doubtless, many thousands of US shareholders already do. In the unlikely event you could not sell, I rather suspect the billions in cash was no longer there. In which case it could not be paid out as dividends either!

[Alaric]

Unless I have missed something, the only logical conclusion here is that the investor is happy with this arrangement primarily because of convenience. Have I missed something? eg the investor believes the fund manager will time sells better than the investor or a broker might time automatic share disposals? Or maybe the costs to the investor of disposals potentially being greater than that of the fund manager?

Recent history suggests an alternative scenario, The investor is retired and reliant on investments for living expenses and derives the income from dividend distributions. Then let's suppose there's a crisis causing wholesale dividend cuts and cancellations.

The investor in individual shares, trackers and OEICs would see a collapse in their dividend income. The investor in ITs generally doesn't. That's probably because the IT can maintain dividends from reserves. The IT outgoings as dividends still have to be financed and this can be done either by borrowing or selling assets. So it's not just convenience, but also risk (of dividend collapse) mitigation.

[hiriskpaul]

Unless I have missed something, the only logical conclusion here is that the investor is happy with this arrangement primarily because of convenience. Have I missed something? eg the investor believes the fund manager will time sells better than the investor or a broker might time automatic share disposals? Or maybe the costs to the investor of disposals potentially being greater than that of the fund manager?

Recent history suggests an alternative scenario, The investor is retired and reliant on investments for living expenses and derives the income from dividend distributions. Then let's suppose there's a crisis causing wholesale dividend cuts and cancellations.

The investor in individual shares, trackers and OEICs would see a collapse in their dividend income. The investor in ITs generally doesn't. That's probably because the IT can maintain dividends from reserves. The IT outgoings as dividends still have to be financed and this can be done either by borrowing or selling assets. So it's not just convenience, but also risk (of dividend collapse) mitigation.

I don't see the distinction between the investor in individual shares, trackers and OEICs having to sell to generate an income and the IT manager selling shares and paying the proceeds out as dividends. Borrowing might be trickier though, unless the investor has easy access to cheap borrowing, eg a margin account or offset mortgage.

[Alaric]

I don't see the distinction between the investor in individual shares, trackers and OEICs having to sell to generate an income and the IT manager selling shares and paying the proceeds out as dividends.

There is however a "strategy" popular in some quarters which seemingly has a "never sell" mantra as one of its principles. This "strategy" might have more credibility if it described how to run a personal dividend generating portfolio along IT lines with income maintenance as a core objective.