Compounding Dividends is still a new project. Over time there will be a watchlist, write ups on individual companies, and we'll build a portfolio. Stay tuned!
There is one feature of dividends not mentioned in the 21-page PDF (which I need to re-read) and that feature is taxes. Miguel Medeiros might have hinted at this. Dividend payments are a taxable event. In the US dividends fall under one of two categories: Qualified and Ordinary. I'm not a tax expert but I think I can safely say that Qualified Dividends are taxed at a lower rate, as if they were capital gains. Ordinary Dividends are taxed like ordinary income and can reach higher rates if the income is high enough. Rather than receive Ordinary Dividends it may be better to sell appreciated shares and only be subject to the lower tax rate of long term capital gains. There's a down side to the strategy though. At some point you may run out of shares to sell! 😳
International taxes are another subject that each investor needs to investigate based on their home country. 🌍
Just like Warren said interest rates are like gravity to asset prices and keeps them low, taxes suck the oxygen out of dividends and reduces them.
Personally, and this is just me, all dividends are money I would not have had. It's either a bonus or a bonus. Pick one. 😋
The S&P report talked a lot about different sectors and yields and market forces on dividends and returns. I think it's cool to see how the different factors influence dividends but that may be too much for some. Some people just want a fund or a portfolio of 10 simple to understand stocks that pay a sustainable dividend for a comfortable life. In that case, I always like to think we should invest in what we can see and touch. It's easy to understand Coca-Cola (KO) because you can hold a can in your hand and drink the soda. 🥤 It's easy to understand Bank of America (BAC) because you go there to pull cash from the ATM to stuff Christmas envelopes for the kids or grand kids. 🏧 A company like Roper Technologies (ROP) may be harder to understand unless you worked in the industry. If you don't understand it then you may feel less confident holding it through rough times. As a self-professed computing and technology but that grew up with computers in the 1980's I ~totally~ get Microsoft! It's 🎶 to my 👂! 😀
The S&P report alluded to the compounding effect dividends have. Imagine starting with dividends at an early age and watching them compounding your investment. At some point you could be receiving so much dividend income from the dividend reinvestment alone that the initial capital you started with is inconsequential. It reminds me of a quote from Guy Spier who said that his father told him you are truly wealthy when you can live on the interest of the interest. I think compounding dividends can get you there!
Always enjoy reading your comments Boris. Taxes are difficult to cover for a broad audience. They depend on so many factors - where you live, what kind of account you're investing in, etc. that what's true for one person won't be true for another.
Love your point on the compounding power. One calculation I like to run is to assume a reasonable growth rate and figure out how long it will take to get my original principal paid back to me in dividends. At that point, I look at the investment as if I own the company for free.
Instead of paying dividends (which are taxed), Terry Smith and I prefer companies invest those retained earning in project with the highest ROCE
There are lots of investing strategies, you have to find the one that works for you!
Would love to see the list of dividend growth stocks that would get the ‘buy’ label today, also covering the non-US markets. Thanks for considering.
Compounding Dividends is still a new project. Over time there will be a watchlist, write ups on individual companies, and we'll build a portfolio. Stay tuned!
I'm all in for dividends! 💓
There is one feature of dividends not mentioned in the 21-page PDF (which I need to re-read) and that feature is taxes. Miguel Medeiros might have hinted at this. Dividend payments are a taxable event. In the US dividends fall under one of two categories: Qualified and Ordinary. I'm not a tax expert but I think I can safely say that Qualified Dividends are taxed at a lower rate, as if they were capital gains. Ordinary Dividends are taxed like ordinary income and can reach higher rates if the income is high enough. Rather than receive Ordinary Dividends it may be better to sell appreciated shares and only be subject to the lower tax rate of long term capital gains. There's a down side to the strategy though. At some point you may run out of shares to sell! 😳
International taxes are another subject that each investor needs to investigate based on their home country. 🌍
Just like Warren said interest rates are like gravity to asset prices and keeps them low, taxes suck the oxygen out of dividends and reduces them.
Personally, and this is just me, all dividends are money I would not have had. It's either a bonus or a bonus. Pick one. 😋
The S&P report talked a lot about different sectors and yields and market forces on dividends and returns. I think it's cool to see how the different factors influence dividends but that may be too much for some. Some people just want a fund or a portfolio of 10 simple to understand stocks that pay a sustainable dividend for a comfortable life. In that case, I always like to think we should invest in what we can see and touch. It's easy to understand Coca-Cola (KO) because you can hold a can in your hand and drink the soda. 🥤 It's easy to understand Bank of America (BAC) because you go there to pull cash from the ATM to stuff Christmas envelopes for the kids or grand kids. 🏧 A company like Roper Technologies (ROP) may be harder to understand unless you worked in the industry. If you don't understand it then you may feel less confident holding it through rough times. As a self-professed computing and technology but that grew up with computers in the 1980's I ~totally~ get Microsoft! It's 🎶 to my 👂! 😀
The S&P report alluded to the compounding effect dividends have. Imagine starting with dividends at an early age and watching them compounding your investment. At some point you could be receiving so much dividend income from the dividend reinvestment alone that the initial capital you started with is inconsequential. It reminds me of a quote from Guy Spier who said that his father told him you are truly wealthy when you can live on the interest of the interest. I think compounding dividends can get you there!
Always enjoy reading your comments Boris. Taxes are difficult to cover for a broad audience. They depend on so many factors - where you live, what kind of account you're investing in, etc. that what's true for one person won't be true for another.
Love your point on the compounding power. One calculation I like to run is to assume a reasonable growth rate and figure out how long it will take to get my original principal paid back to me in dividends. At that point, I look at the investment as if I own the company for free.