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The dividend fallacy

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
hiriskpaul
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Re: The dividend fallacy

#473819

Postby hiriskpaul » January 17th, 2022, 2:22 pm

OhNoNotimAgain wrote:
88V8 wrote:
Avantegarde wrote:There is indeed a dividend fallacy, though not the one addressed here. It is the idea, often espoused by Terry Smith, that investors are usually better off eschewing dividends because it is much more profitable to let a firm's management reinvest the cash in its business, expand, and produce greater cash and profits.

Yes.
As I think of it, on the whole dividends are certain, growth is not.

V8


Dividends are not certain.

But if you get one you can spend it, unlike retained profits in, say, Carillion, Patissiere Valerie or Enron, or you can reinvest. You have a choice which you don't have with retained earnings.

Moreover, it suits Terry Smith, and every other active manager, to ignore the evidence from BEGS, Dimson, Fama, French, Sharp, Markowitz, Malkiel and many others.

You might want to argue and provide evidence to suggest that companies paying dividends grow faster than those that don't once the dividend is taken into consideration. Others will disagree and cite other evidence. Irrespective of these kind of beliefs, arguments, evidence, etc. they do nothing to counteract the dividend fallacy that is the subject of this board. The as, the belief that dividends are like interest payments, instead of each dividend payment being made at the expense of the share price.

If you want to invest a particular way, do it for valid reasons, not for fallacious reasons.


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