I have read a lot of discussions on this sub and others regarding dividend stocks. Most of it seems to center around whether they will statistically outperform a respective index during either a bull or bear market. However I have a different perspective on the importance of having a large part of my portfolio in dividend paying stocks that I wanted to share. To put it simply, I want to get my money.
For a stock or other type of security that does not make any distributions to shareholders the only way to realize any gain is to sell the underlying security. However, if it is a stock that is performing well and its price continues to appreciate in value, that is something that as an investor I would not want to do. If I am in need of money, such as in retirement, my only option becomes to sell the things that are supposed to be making me (uncrystallized) money.
Let's take an extreme example and say that the only stock I own is BRK.A and I have exactly one share of it that I bought 5 years ago. For most people, even one share of this behemoth would represent a portfolio that is healthy in size. However in order to unlock any of the gains I would have to sell it and miss out on any future gains.
This scenario could be avoided in part by receiving some form of distribution from the security. This is what allows me to remain a long term investor of the company regardless of what its share price is doing - I know that I am getting rewarded for my continued loyalty. It also allows me to increase exposure to other stocks if I choose not to reinvest the dividend as I will have freed up capital.
Why are more people not insistent on receiving a dividend? I am aware that there is more favourable tax treatment for capital gains but I don't believe that can be the only reason.
Submitted August 28, 2017 at 12:57AM by Spicyice http://ift.tt/2iC6BmN
