Why hold dividend-yielding positions in an IRA?


Student with a Roth IRA here. I'm looking at buying into some dividend funds through Vanguard. E.g., VDIGX, VHYAX, VIG.

I'm confused about why someone would hold high dividend-yielding positions in an IRA. Here are two points I could think of in favor of dividend stocks in an IRA and what I think about them.

1 – Usually I hear “dividends are desirable because they provide passive income.” But that's moot in an IRA since you're not cashing out on those dividends.

2 – But maybe there are other +1's as to holding high dividend positions in an IRA. For instance, if I choose to automatically reinvest my dividends, that's (semi)continuous interest, which maybe leads to substantial asset growth over time for me. But something I've never understood — are dividend payouts (even close to) large enough that the interest induced by reinvesting them could be comparable to the long-term growth of plain old stocks/funds/etc. (that are not “high dividend yielding”)? Because if not, then this 2nd point is moot also–as far as accruing value goes, it would be better to just buy ordinary funds/stocks.

And I'm out of further potential (dis)advantages of high dividend positions.


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