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Meb Faber: Investors Overlook Dividend Stocks’ Tax Bite At Their Peril
Thanks for posting, Ted. This is a fascinating topic, and one that I've spent a lot of time pondering.
Faber & Gray are smart guys. But they only told half the story. Buffett recognized that paying dividends robs the investor of the magic of compounding (in addition to imposing current tax liability). Imagine how contrarian that concept was 50 years ago!
As a result of Buffett's rationale, for a long time I never focused on building a dividend stock selection strategy (even though I knew that Buffett did not confine himself to non-dividend paying stocks).
Awhile ago, however, I came across the ideas of Geraldine Weiss, particularly that a stock's dividend yield cycles between highs and lows like PE ratios, and that high relative dividend yields can be a proxy for value. This led to the creation of a very interesting dividend model that produced far more capital appreciation than income in our testing.
So when I read Faber and Gray pit value against yield, my initial thought was "why not both?"
Comments
Faber & Gray are smart guys. But they only told half the story. Buffett recognized that paying dividends robs the investor of the magic of compounding (in addition to imposing current tax liability). Imagine how contrarian that concept was 50 years ago!
As a result of Buffett's rationale, for a long time I never focused on building a dividend stock selection strategy (even though I knew that Buffett did not confine himself to non-dividend paying stocks).
Awhile ago, however, I came across the ideas of Geraldine Weiss, particularly that a stock's dividend yield cycles between highs and lows like PE ratios, and that high relative dividend yields can be a proxy for value. This led to the creation of a very interesting dividend model that produced far more capital appreciation than income in our testing.
So when I read Faber and Gray pit value against yield, my initial thought was "why not both?"