This sub seems to really love dividends and I've seen people posting coherent, polite (not aggressive) contrarian views get down voted so I am going to give it a shot! In my field I know a few people with similar or slightly higher salaries than me that manage their money very well. I've learned a few things about why I am not chasing dividends. I will attempt to say why in a few paragraphs, sorry if it does come off a bit incoherent!
I'm already maxing out my tax advantaged accounts. So this discussion will only pertain to non-tax advantaged accounts.
In my state I pay state capital gains tax. I realize this isn't the case for everyone (I actually should look up which states do this and which don't). This obviously includes dividends whether they are re-invested or not. And of course everyone in the US pays federal capital gains. Our combined household income is fairly high so this is not an insignificant amount, but I think that there are many people here that are in high paying careers as well judging by the amounts people say what they earn or what they have invested in my years reading this sub.
I'm a young guy (mid 30s), I have to imagine the vast majority of people on this sub fall into the typical Reddit age demographic. If you are young that is a whole lot of years paying capital gains on all these dividends opposed to indexes and/or individual companies that are not high dividend payers. The tax implications of selling securities for cash when you are retired is less than if you are continuously paying state and federal capital gains through your entire working life.
If you are heading towards retirement or are in retirement I can understand the appeal of high dividend stocks. I think that fear of having to sell securities for cash in a market downturn is a valid concern. However like I say above I am young and I can make those adjustments towards more bonds, and so on as I approach that age.
If you are young, have you calculated how it will work out with these high paying dividend companies compared to a popular index ala S&P500 or total US stock market? With a stock that mostly trades sideways (or worse goes down) over decades but pays a 5% dividend as opposed to those two indexes that pay a sub 2% dividend but have decades of data behind them? To use an analogy we can see that even minuscule changes in expense ratios can results in tens of thousands (to hundreds of thousands depending on amount invested) of dollars in difference over 30 or 40 years of investing. Talking about percentages as small as 0.20-0.30% here. Now can you imagine what this difference in net worth will be when we are discussing whole number percentages? It will be staggering.
I've spent days working out the math for our incomes and the implications of standard indexes (say S&P500), Berkshire, growth, high dividend, etc. I would strongly suggest you do the same before jumping into any set investment strategy for yourself/family.
Submitted May 19, 2019 at 09:16AM by directheated http://bit.ly/2VzzvSE
