NotSure wrote:Dod101 wrote:NotSure wrote:
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.....
I do not understand the rather cryptic comments here. Can you explain what you mean please?
Dod
I simply mean that if you believe that a companies worth ('NAV') is unaffected by the distribution of dividends, then HYP looks like a no-brainer. It's like 'free money'. However, if you accept that a company is worth less the day after it pays out than the day before, then valuing that investment is more nuanced.
Not saying I know one way or the other, but it definitely affects the equation - an IT paying 4% where 2% is from selling down shares (reduction in NAV) clearly "looks" worse than a company paying 4% from it's cash reserves. But if the reality is that the companies 'NAV' has reduced by 4% as a consequence of paying out a dividend, then which is 'worse' then?
I'm not sure if Dod is clear about your cryptic comment now, but it has really helped me to understand what you were driving at.
Whether I am well off or less well off doesn't seem to come into it. In fact, the less well off wouldn't have money to invest anyway - those that do, all have excess income to invest by definition.
I'm not particularly bothered about the mechanism, and neither is Dod or any one else living off dividend income. The value of the company - given that it is not being run into the ground, but preferably trading on an even keel - isn't of much consequence. A dividend investor does not want his cake and eat it - I prefer to think of seed corn. The seed corn, or capital, is only there to as a mechanism for producing dividends. Provided it carries on producing, I am not to bothered (within limits) what someone thinks my stock of seed corn is worth. Its worth is its income producing power.
As Dod said right in the beginning: we like dividends seemlessly popping into our accounts without having to think about selling bits of a shareholding, with all the extra decision making that entails.
Arb.