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Subject:  Re: "Secret" Date:  3/12/2018  1:12 PM
Author:  kelbon Number:  11038 of 11984

To get an idea of how the relative performance between dividend payers and "growth stocks" play out over the course of a cycle, one could compare SPY to SDY over the last 10 year period which still includes the crisis years. This takes the "stock picking" factor out of the equation too.

SPY is not a growth stock index; it’s a broad market index which contains many dividend paying stocks that are doubtlessly duplicated in SDY.


There have only been a few times in history that the market has gone straight up for a decade.

There are many ten year periods over which the market has gone up. Over time the direction of the market has always been up. Sure, it has been an interesting decade and over most of that time the market has successfully dug itself out of a deep hole. However, I think it worth pointing out that at the beginning of the last ten years; the point I calculated returns from, was the beginning of the slippery slope, not the bottom; stocks were starting to go down in March 2008 but they hadn’t yet picked up steam on their downward trajectory.

The whole capitalist theory is based on the idea that you, as owner, have a claim on the profits of the corporation. If you do not get dividends, you never, and I mean never get those profits. You may make money selling your claim to someone else, but that is a different thing.

You only never get those profits if you never sell a share. Selling your claim to someone else is not a different thing than claiming your portion of company earnings; it’s how you claim your stake.

Stocks sell at multiples of a company’s profits. If profits rise over the years stock prices do too, sometimes pausing along the way. An investor has to assess whether to take some of his tiny portion of a company’s earnings off the table by selling shares, or instead to believe that the company will continue to grow earnings and there will be better opportunities in the future to drawdown, or cash out entirely. It makes logical sense to take profits when a company’s shares are selling at a higher than average multiple to earnings while also keeping the valuation of the broad market in mind, and to buy shares when they are trading at a below average multiple to earnings.

I realize most people don’t care about the distinction, but pick a company that has been profitable for a decade or two, never offered a dividend, and then suddenly go upside down and the issue becomes more tangible.

It could be worse for an investor of a dividend paying company that goes bankrupt if the investor reinvested the dividends. In the case of the company that didn’t pay a dividend the investor ends up with nothing. With the reinvested dividends company the investor ends up with less than nothing if he paid taxes on the dividends he reinvested.
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