My friend and I are constantly arguing about this and it's clear that one of us is not getting it.
He is a big fan of dividend paying stocks. He will not buy stocks that don't pay dividends “because with dividends, you get something back, cash in your hand, and you can reinvest it and buy more shares. Otherwise, I just have the same number of shares and if the stock goes down and I need to sell for income I'm screwed”.
This makes little sense to me. OK, great, it's his preference to buy divi stocks and there's nothing wrong with that but in the end, how is that any different from other stocks? Every time a dividend is paid out, the stock price declines by that much anyway. At the end of the day, you end up with the same amount of money bc a dividend paying stock doesn't go up as much as if they didn't pay out the dividend. In fact, getting a dividend means more trouble as you then have to buy more shares again and you have to pay for those transactions.
I just don't get his fascination with it. The only real deciding factor should be company performance. Dividends don't mean much if the stock is going down. You're still losing overall value.
Way I look at it is this, assuming two companies performing identically:
Company A (with divi): Keep reinvesting dividends until you retire. At that point, you have more shares and can live off your dividends, but the stock doesn't go up very quickly if at all.
Company B (no divi): Watch it grow and bc it's not paying dividends, the stock price will be much higher. Yes, you will have to sell shares for income when you retire but that's not fundamentally different from taking dividends.
He hates the idea of “having to sell shares for income if the stock goes down”, but I just can't see how that's any different from taking a divi when the shares are down.
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