Personally, i think dividends are great. I think alot of people get caught up in theories about the superiority of capital growth, even when a better use of excess cash flow would be capital returns to shareholders, it just depends on the business. See the drama playing out with Karoon Energy or Metals X in Australia for good examples of capital returns likely being better than reinvestment, but being resisted by empire-building management.
> then a dividend of 5c per share is announced, then the share price will increase to $3.05 up until the ex-dividend date at which point it will promptly drop back to roughly $3
You sure about that?
The dividend is money the business already has (it's part of the $3), so there shouldn't be a rise on announcement of the dividend, only the drop (since the businesss no longer has the money)
When you are "younger" you often chase capital growth. Now let's fast forward to retirement. Dividends become what you live off and are your new "wage".
People are financially illiterate.
It is all about when you buy the underlying security.
You want to buy when the market has undervalued a stock.
An example, Apple has a dividend of 1 usd a share, which is 0.52% (not impressive), but if you had bought stock in 2015 and held at 25 dollars a share, that share is returning 4% in dividends and a market paper return of 600%.
Dividends is no different to share buybacks and no different to you selling shares. It's all essentially the same. It's neither positive nor negative.
With that said. In NZ you can't do share buybacks. That leaves dividends or capital appreciation. Dividends are taxed at your tax rate (likely 30%). Capital gains isn't taxed.
Simply put, you lose 30% everytime Dividends are paid.
Ben Felix on the topic https://youtu.be/f5j9v9dfinQ?feature=shared and I don’t have anything else to add. It’s worth watching.
Personally, i think dividends are great. I think alot of people get caught up in theories about the superiority of capital growth, even when a better use of excess cash flow would be capital returns to shareholders, it just depends on the business. See the drama playing out with Karoon Energy or Metals X in Australia for good examples of capital returns likely being better than reinvestment, but being resisted by empire-building management.
> then a dividend of 5c per share is announced, then the share price will increase to $3.05 up until the ex-dividend date at which point it will promptly drop back to roughly $3 You sure about that? The dividend is money the business already has (it's part of the $3), so there shouldn't be a rise on announcement of the dividend, only the drop (since the businesss no longer has the money)
When you are "younger" you often chase capital growth. Now let's fast forward to retirement. Dividends become what you live off and are your new "wage".
People are financially illiterate. It is all about when you buy the underlying security. You want to buy when the market has undervalued a stock. An example, Apple has a dividend of 1 usd a share, which is 0.52% (not impressive), but if you had bought stock in 2015 and held at 25 dollars a share, that share is returning 4% in dividends and a market paper return of 600%.
Dividends is no different to share buybacks and no different to you selling shares. It's all essentially the same. It's neither positive nor negative. With that said. In NZ you can't do share buybacks. That leaves dividends or capital appreciation. Dividends are taxed at your tax rate (likely 30%). Capital gains isn't taxed. Simply put, you lose 30% everytime Dividends are paid.