Search “dividend stocks” and Google will return over fifty million results in less than half of a second. I got a good laugh out of some of the headlines:
- Get Rich Slowly Scheme for Everyone
- Double Your Passive Income with This Dividend Investment Strategy
- The $1382 Per Month Dividend Strategy
There is an abundance of conflicting information on dividend investing and today we are breaking it all down for you.
Dividend stocks have long been referred to as a solid investment strategy. Not because of their historical performance or tax efficiency but because they tell a good story. Unfortunately, when you really dig down into the numbers and compare dividend investing to the alternatives, the story falls apart.
In today’s episode we’re going to take a deep dive into the world of dividend stocks and explore the following:
- What a dividend is
- Why people love dividend paying stocks so much
- 5 reasons most people should avoid dividend paying stocks
- Smarter, alternative ways to create an income stream without dividend stocks
If you want to understand the world of dividends (in plain English!) and learn how to generate an income stream the right way, you’re going to want to check out today’s episode.
How to Listen to Today’s Episode
Episode Links & Resources:
0:47 – Welcome and introduction to dividend-paying stocks
0:59 – Making fun of the media
1:38 – Making fun of the media
3:04 – Making fun of the media
4:23 – What is a dividend
7:27 – Companies that re-invest their capital underperform companies that buy back their own shares. Another great article on the topic HERE.
9:35 – Why do people invest in dividend-paying stocks to begin with
13:24 – 5 reasons you should stay away from dividend-paying stocks [Define Financial Blog Post]
13:32 – #1 – Historical performance, current valuations, and interest rate environment
- 14:40 – There have been sixteen rising interest rate periods in the U.S. since 1927. During these time periods, Patrick O’Shaughnessy found that the high yielding dividend bucket underperformed the broad stock market by 2.6% compounded.
16:50 – #2 – Funds that focus on dividend-paying stocks are generally more expensive than broad-based index funds
19:42 – #3 – You’re not properly diversified when you only own dividend-paying stocks
21:34 – #4 – Investing in dividend-paying stocks leaves you susceptible to being part of a bubble or mania
25:58 – #5 – Dividends are subject to double taxation
28:57 – Alternative solution: Total Return Investing
34:47 – Total-return investing: An enduring solution for low yields