There seem a lot of conspiracy theorists online whether dividends are good or not… but overall does the stock price of a security decrease of the same amount of the dividend paid on the dividend date ?
If yes… why bother ? Meaning yes to purchase stock in a company you believe will do well… but not just on the “idea” you’ll get X amount of free cash… as the dividend value will be taken out of the stock price…so a zero sum game to me…
I was trying to find some historical data from MMM to prove this…
After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.
In theory, people would readjust their valuations of the company after they basically give away all this cash. So valuation should go down by the same amount the company paid it. But in the real world this doesn’t happen, share price usually recovers very quickly after the drop, if it even happens.
The problem you’re having is you’re assuming all companies can spend the money they keep. Established companies with huge cash flow cannot. They have too much that they cannot spend £1 to make £1. Therefore they need to return the capital to shareholders somehow:
Share buybacks. There are a lot of problems with this which you can look into yourself, and even with this there is no guarantee the same value will be returned.
Dividends: the cash is given out to shareholders. Many of them will reinvest this, meaning it’s actually good for the company, and it’s good for shareholders as it makes compounding very direct.
You asked for 3M data, here is how long it takes the share price to recover after the ex. date on average:
Look I’m not saying dividends are the best way to make money, but for these large businesses with lots of cash flow it seems like the better way to return value. But as a shareholder, your directly receiving cash which is very tangible, and you can do what you want with it. It’s also psychologically better for you to see the returns coming in, and it could potentially give better returns than share buybacks.
But you’re right, don’t chase companies for dividends, go after companies for their strength. But on that note, companies that are able to pay dividends consistently usually have stronger cash flow to do this which is a good sign, and they usually won’t stop doing it in hard times unlike share buybacks, which is why we have seen so many stocks who do this collapse during COVID.
That’s the psychology too, if you see a stock drop 1%, most people would ignore the fact the dividend was paid and see it as a good time to buy. Markets aren’t rational
App is DivTracker. Only on the App Store as “stock dividend tracker”
I somehow get it for individual stocks with momentum… where yes the mini-dip might attract people but not as overall rule… just looking for instance at most high dividend ETFs their performance is not stellar compared against an S&P 500 ETF. Both Accumulating.
Growth has been outperforming income for a long time. Might not always be the case, growth is looking very overvalued right now. I touched on this in my last video I think. P/E of VWRL (whole world so including both dividends and growth) is 22.3x, VHYL (high dividends only) is 14.8x. But this could just be because growth is naturally more expensive and forward looking. But going by that, income could be a better place to go right now
I’d like to see an ultimate chart of two similar stocks(in terms of performance) one with div and one without,… and see if the actual total return is higher with dividend.
Yeah it’s an opinion, which can be argued with facts. There are a lot of people who can explain why dividends are irrelevant, there’s not really an answer to it but my opinion is they are relevant
