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What's so good about dividend investing?

General discussions about equity high-yield income strategies
Itsallaguess
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Re: What's so good about dividend investing?

#439857

Postby Itsallaguess » September 5th, 2021, 5:35 pm

pje16 wrote:
A share IS worth MORE just before it goes Ex div


But it's very important to note with regards to your 'pregnancy' analogy that the share price might not necessarily reflect that, and that's the critical point where the analogy falls down...

Cheers,

Itsallaguess

pje16
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Re: What's so good about dividend investing?

#439867

Postby pje16 » September 5th, 2021, 6:15 pm

Agreed
but I repeat
it is theory and assumes no other market movements
cheers
Paul

Itsallaguess
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Re: What's so good about dividend investing?

#439873

Postby Itsallaguess » September 5th, 2021, 6:56 pm

pje16 wrote:
Agreed
but I repeat
it is theory and assumes no other market movements


I wouldn't put it like that.

More accurately, the 'pregnancy' analogy assumes (or more accurately - requires) market movements that favour the analogy, but ignores ones that might not...

Cheers,

Itsallaguess

pje16
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Re: What's so good about dividend investing?

#439877

Postby pje16 » September 5th, 2021, 7:17 pm

Sure, like any investment it relies on the market going up - why else would you own any equities
I have never been brave enough to "short" :shock:

absolutezero
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Re: What's so good about dividend investing?

#439880

Postby absolutezero » September 5th, 2021, 7:27 pm

pje16 wrote:Sure, like any investment it relies on the market going up - why else would you own any equities
I have never been brave enough to "short" :shock:

You are trying to make the data fit your model rather than your model fit the data.

The reasons why people would own equities have nothing to do with your analogy.
The point is your analogy falls to bits in anything other than a rising market.

pje16
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Re: What's so good about dividend investing?

#439881

Postby pje16 » September 5th, 2021, 7:28 pm

Please yourself
I do know what I'm talking about :roll:
I was trying to explain it to you

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Re: What's so good about dividend investing?

#439883

Postby xeny » September 5th, 2021, 7:40 pm

pje16 wrote:It is a theory and I do mention the assumption for there being other market movements
It IS correct and I am losing the will to carry on with this thread
A share IS worth MORE just before it goes Ex div
You will pay more as it has the value of the dividend (included in it)
I can't help it if some don't see that :roll:


I acknowledge the rationale behind the theory.

My experience is that rather than the expected long slope up and step down in share price, such behaviour is often lost in the noise of the market buffeting the price around in a brownian fashion.

As an aside, with reinvesting dividends, wouldn't this be expected to cause a spike in share price due to concentrated demand? Might this make dividend reinvestment a less attractive way of achieving capital growth, and moreover might the effect of people anticiping it nullify some of the anticipated drop in price when the instrument goes ex div?

Dod101
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Re: What's so good about dividend investing?

#439887

Postby Dod101 » September 5th, 2021, 8:19 pm

I have just returned home after a day seeing my daughter and family.

Without getting too deeply into this, I see 'natural yield' as the dividend that falls into the shareholder's lap without any effort. That of course is from the shareholder's point of view. From the FD's viewpoint that will probably not be the case, much closer to dealtn's view but that does not usually bother shareholders and it is as shareholders that we are mostly posting.

To NotSure I do not see every dividend paying company as eroding its capital to achieve the dividend. The dividend is usually a distribution of at least some of its profits, the balance of which is added to its revenue reserves and used as working capital. Your attitude would mean that there should be no distributions by way of dividend as it is just eroding the NAV but I see it as a just reward for shareholders contributing capital to the enterprise.

Each year the company starts off with a certain amount of capital and trades for the year. It ends up with a profit or loss. It can distribute part or all of the profit or can absorb the loss or ask shareholders for more money, but the end result is that it has more or fewer reserves and thus shareholders' funds, but I do not see a dividend payment (which is from revenue) as eroding the NAV until the balance has been added to the reserves.

Dod

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Re: What's so good about dividend investing?

#439961

Postby 88V8 » September 6th, 2021, 9:24 am

An elephant we are all ignoring... tax.

In the glory days of HYP, dividends were untaxed, and capital gains were taxed at 40%.

We tend to ignore tax when posting on here, we speak of yields as if there were no tax and capital gains as if they were untaxed.
But I pay 32.5% on divis, and 20% on gains and I'm sure that many other Lemons do too.
So in terms of the pound in my pocket, capital liquidation could be more effective than divis.
I concede that I should pay more attention to that irritating fact.

Logical follow-through would require a slant towards 'growth' stocks that can be trimmed - selling divi stocks to generate an income is self-defeating, like burning the boat to keep warm.

I have never been into 'growth'. Unpredictable and precarious. An unwelcome complexification. My one essay in that direction, a mining portfolio, produced growth of red ink.

Fortunately I do not have to do anything, I am not short of income. I can continue drawing divis and leave complexification to others.

But one should think about tax.

V8

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Re: What's so good about dividend investing?

#439963

Postby tjh290633 » September 6th, 2021, 9:29 am

88V8 wrote:An elephant we are all ignoring... tax.

In the glory days of HYP, dividends were untaxed, and capital gains were taxed at 40%.

We tend to ignore tax when posting on here, we speak of yields as if there were no tax and capital gains as if they were untaxed.
But I pay 32.5% on divis, and 20% on gains and I'm sure that many other Lemons do too.
So in terms of the pound in my pocket, capital liquidation could be more effective than divis.
I concede that I should pay more attention to that irritating fact.

Logical follow-through would require a slant towards 'growth' stocks that can be trimmed - selling divi stocks to generate an income is self-defeating, like burning the boat to keep warm.

I have never been into 'growth'. Unpredictable and precarious. An unwelcome complexification. My one essay in that direction, a mining portfolio, produced growth of red ink.

Fortunately I do not have to do anything, I am not short of income. I can continue drawing divis and leave complexification to others.

But one should think about tax.

V8

If you take full advantage of the available tax shelters, ISAs or SIPPs, according to your situation, and having "His and Hers" accounts if possible, one does not need to consider tax, except for IHT.

TJH

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Re: What's so good about dividend investing?

#439966

Postby pje16 » September 6th, 2021, 9:39 am

tjh290633 wrote:
If you take full advantage of the available tax shelters, ISAs or SIPPs, according to your situation, and having "His and Hers" accounts if possible, one does not need to consider tax, except for IHT.
TJH

It's a good idea to start as young as you can to transfer any shares into an ISA, and avoid tax as mentioned above, tax on dividends can mount up
I started doing that a few years ago and all mine are now "protected"
@TJH thanks for the IHT exemption - forgot about that :lol:
Last edited by tjh290633 on September 6th, 2021, 5:53 pm, edited 1 time in total.
Reason: Tag corrected - TJH

88V8
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Re: What's so good about dividend investing?

#439969

Postby 88V8 » September 6th, 2021, 9:44 am

tjh290633 wrote:If you take full advantage of the available tax shelters, ISAs or SIPPs, according to your situation, and having "His and Hers" accounts if possible, one does not need to consider tax, except for IHT.

I wish.
We never had SIPPs. Always in occupational schemes.
Both have ISAs and previously PEPs, but... the first but is that the annual limit is too small... nice problem to have... and the second but is that when last we moved house ten years ago it seemed a good idea to liquidate most of my ISA rather than borrowing.

So, alas, last year 68% of our investment income was exposed to tax.

V8

pje16
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Re: What's so good about dividend investing?

#439972

Postby pje16 » September 6th, 2021, 9:52 am

£20,000 pa
even if it takes 10 years you will have a sizeable chunk protected
surely better to protect some than none :roll:
PS good move to use it up against your mortgage

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Re: What's so good about dividend investing?

#439974

Postby pyad » September 6th, 2021, 9:55 am

Dod101 wrote:...but I do not see a dividend payment (which is from revenue) as eroding the NAV until the balance has been added to the reserves.Dod


A div reduces NAV because at the moment this occurs the company has reduced its assets by the amount of the payment. Cash is an asset so the payment reduces this asset (or increases debt which has the same effect). I don't think there can be any logical argument against this. Seeing it any other way is just fooling yourself.

I'm not of course against divs as you know, very much the contrary, but nevertheless that is the accounting situation.

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Re: What's so good about dividend investing?

#439975

Postby Dod101 » September 6th, 2021, 10:07 am

88V8 wrote:
tjh290633 wrote:If you take full advantage of the available tax shelters, ISAs or SIPPs, according to your situation, and having "His and Hers" accounts if possible, one does not need to consider tax, except for IHT.

I wish.
We never had SIPPs. Always in occupational schemes.
Both have ISAs and previously PEPs, but... the first but is that the annual limit is too small... nice problem to have... and the second but is that when last we moved house ten years ago it seemed a good idea to liquidate most of my ISA rather than borrowing.

So, alas, last year 68% of our investment income was exposed to tax.

V8


I pay very little tax and I think that most posters who are retired will pay very little on their investment income either. Over the last 25 years I have managed to get nearly all my investments sheltered. Those that are not are because I chose not to and the dividends fall within the tax free allowance anyway.

Presumably when you moved house 10 years ago you did not have 'free' assets outside of your ISAs but you cannot have it both ways.

And to pick up on TJH's comments, IHT does not apply to most SIPPs either.

Dod

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Re: What's so good about dividend investing?

#439976

Postby Dod101 » September 6th, 2021, 10:11 am

pyad wrote:
Dod101 wrote:...but I do not see a dividend payment (which is from revenue) as eroding the NAV until the balance has been added to the reserves.Dod


A div reduces NAV because at the moment this occurs the company has reduced its assets by the amount of the payment. Cash is an asset so the payment reduces this asset (or increases debt which has the same effect). I don't think there can be any logical argument against this. Seeing it any other way is just fooling yourself.

I'm not of course against divs as you know, very much the contrary, but nevertheless that is the accounting situation.


I can of course see your argument and it does not at the end of the day matter how we view it. Fact is that I see dividends as the reward to shareholders for investing in the company. We also of course like an increase in the value of the business and for that to be reflected in the secondary market for its shares.

Dod

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Re: What's so good about dividend investing?

#439981

Postby absolutezero » September 6th, 2021, 10:31 am

pje16 wrote:Please yourself
I do know what I'm talking about :roll:

You have yet to convince me of that :roll:

You could start by fixing the holes in your pregnancy analogy.

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Re: What's so good about dividend investing?

#439989

Postby pje16 » September 6th, 2021, 10:49 am

Fix this in your OP
=================================================================================================================
Take two share classes in the same company. A and B. Both worth 100p.
A pays a dividend of 5p. On XD day the share price falls by 5p (plus other market movements). You now have 95p in shares and 5p in cash. You still have 100p.
B pays no dividend. There is no XD day. You still have 100p (plus the same market movements that affected share A)
There is no actual difference between selling 5% of the shares and taking a 5% dividend.
=========================================================================
It's nonsense :roll:

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Re: What's so good about dividend investing?

#440001

Postby hiriskpaul » September 6th, 2021, 11:26 am

pje16 wrote:Fix this in your OP
=================================================================================================================
Take two share classes in the same company. A and B. Both worth 100p.
A pays a dividend of 5p. On XD day the share price falls by 5p (plus other market movements). You now have 95p in shares and 5p in cash. You still have 100p.
B pays no dividend. There is no XD day. You still have 100p (plus the same market movements that affected share A)
There is no actual difference between selling 5% of the shares and taking a 5% dividend.
=========================================================================
It's nonsense :roll:

Why?

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Re: What's so good about dividend investing?

#440003

Postby NotSure » September 6th, 2021, 11:29 am

Dod101 wrote:
I can of course see your argument and it does not at the end of the day matter how we view it.....


It may not matter to some how they view it, but to others (less well off) it may be crucial. Adopting a HYP approach because you "believe" you can "have your cake and eat it" may cost some dear if it causes them to misjudge the risk/reward of the various approaches to trying to fund a respectable retirement.....


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