Hi, guys.
This was a flagged discussion. The argument was that apkmetro plagiarized a Wall Street Journal article with only the sort of tweaks that a college sophomore could imagine getting away with. As I checked their homepage, their business model appears to depend on copying stuff from behind paywalls and posted tweaked versions.
It's pretty bad. I'd prefer we not associate with, much less encourage, them.
That said, johnN is pointing us to an article that makes valuable points, as the Journal often does. My compromise with my conscience is to share (a) the link to the legit story, (b) the intro paragraph and (c) the point of the article.
Alex Edmans, Why Many People Misunderstand Dividends, and the Damage This Does
https://wsj.com/articles/why-many-people-misunderstand-dividends-and-the-damage-this-does-11591454292,
Wall Street Journal, 7 June 2020.
Dr. Edmans is a professor of finance at London Business School.
Over the past year, voices across the corporate and political spectrum have argued that companies are beholden to all stakeholders, not just shareholders. And indeed, many companies are recognizing these responsibilities in the current pandemic, with several paying furloughed workers and donating products. Investors have largely supported those efforts. But when it comes to corporate responsibility, there’s one red line that many shareholders say should never be crossed: the dividend.
- companies are so manic about protecting their dividend that they're willing to cut workers in order to preserve it
- dividends don't benefit investors because they're simply pulling money out of the company and lowering its share price
- stock buybacks are different, and better, because buybacks are more flexible. You can execute them when it makes sense (Snowball laughs out loud given the transparent record of buying back overvalued shares in order to prop them up) and skip other years. Dividends are sort of a permanent entitlement.
- in consequence, companies do stupid things to guard the dividend, investors overpay for stocks offering a dividend (you can lose 2-4% per annum in total returns) and it encourages investor complacency because they see dividend-payers are "buy it and forget it" stocks.
- solutions? Have reporting services focus on total return, not share price appreciation, stats and have companies treat all future dividends as "special dividends," that is, as one time payouts that will be resumed if and only if economic circumstances justify it.
David, with thanks to johnN
Comments
Stock buybacks I think are another story. They imply the CEO cannot find any other use for the money other than to inflate the EPS and usually raise his/her salary and stock options value. Isn't it ironic that most companies buy back the most stock when prices are high and not when the stock craters?
I also strongly agree with the statement "Brokerage accounts should show total returns rather than price returns to a position, and financial-information providers should display total-return graphs or indexes."
If I were to believe Fidelity my reinvested dividends, especially in my Roth IRA account, show that the shares obtained didn't cost me a cent. This leads to a lower cost basis per share for my entire position on a selected holding but it is not a true reflection of the gain/loss for that holding.
In the same vein it would be more helpful if a fund company report showed the gain/loss in/on their lists of holdings rather than the number of shares and the total market value of those shares. So what? My calculator works and I can figure that out but the report doesn't tell me if that holding is contributing to the value of the fund.
Maybe this is good accounting, and maybe it's how some other places do it, but not Fido, and it's a minor pain for someone slightly savvy, and downright misleading for others pondering 'Huh, should I sell this thing?'
Amount invested is simply what is paid out of pocket to purchase. While cost basis is made up of purchase amount plus any dividends and capital gains used to buy additional shares. At times amount invested and cost basis will be the same amount if one takes all distributions in cash, as I do, with no reinvestment of capital gains and dividends going back into the fund.
My broker provided statements reflect amount invested, cost basis, along with total return for each asset held. In this way, I know where I stand from an amount invested and cost analysis along with total return performance for each asset held from the date of purchase. Total return performance is also provided for the account.
I've got a few funds that are back of what I paid for them (mostly bond funds) but for the time held they are reflecting a positive total return. If sold, I could book a slight tax loss but also find joy in knowing I made money in them over the years held. I plan on keeping them as they are still producing a good income stream. In fact, some have paid out more money to me through the years owned than my cost of purchase. These payouts along with my growth of principal are what I call the organic growth of my money.
I have found that by holding my mutual funds for an extended period of time affords me the organic growth on my money that I seek. Plus, when you trade around the edges, as I have done, adds a little more growth to the portfolio as well. In addition, I have found that buying during the pullbacks generally offers good upward opportunity over buying during a fully valued market.
So, what is there not to understand about the power of dividends and how they help grow principal?
these are retirement accounts, but the same as reg brokerage
just wish they did it like fido