Why do people keep talking about dividends? Dividends either don’t matter or are bad/inconvenient (in the way of weather). The price adjusts in arbitrage after in-dividend date (the day when ownership of stock is counted towards how much dividends you get), so you could as easily have sold the equivalent amount of stock if there were no dividends, or you could’ve re-invested into the same stock to nullify the consequences of their payment. But the amount you get is forced outside your control, and you have to pay dividend tax.
There is no reason why you would want to convert stock to cash in a way related to how (or how much) dividends get paid, so it’s purely an inconvenience. And the FIRE safe withdrawal rate is similarly in general unrelated to the dividend rate. Dividends are not relevant to anything.
I wasn’t aware of that, albeit I was using the word “dividends” in the sense of all potential returns from the initial capital I had invested, and not the strict sense of stock dividends alone, and was implicitly trying to hint at the idea of the safe withdrawal rate.
I’m not astute enough to be more specific, but I’m using it in the sense that one can buy a house and then retire on the rental money, and while the rent and the price you bought it are strongly correlated, that doesn’t matter as long as you get the income you expect.
There is no reason why you would want to convert stock to cash in a way related to how (or how much) dividends get paid, so it’s purely an inconvenience. And the FIRE safe withdrawal rate is similarly in general unrelated to the dividend rate. Dividends are not relevant to anything.
No, because stock prices are more dependent than dividends on state variables that you don’t care about as a diversified long-term investor. See how smooth dividends are compared to stock prices: the dividends are approximately a straight line on log scale while the price is very volatile. Price declines often come with better expected returns going forward, so they’re not a valid reason to reduce your spending if the dividends you’re receiving aren’t changing.
If you’re just going to hold stocks to eat the dividends (and other cash payments) without ever selling them, how much do you care what happens to the price? The main risk you care about is economic risk causing real dividends to fall. Like if you buy bonds and eat the coupons: you don’t care what happens to the price, if it doesn’t indicate increased risk of default. Sure, interest rates go up and your bond prices go down. You don’t care. The coupons are the same—you receive the same money. Make it inflation-indexed and you receive the same purchasing power. The prices are volatile—it seems like these bonds are risky, right? But you receive the same fixed purchasing power no matter what happens—so, no, they aren’t risky, not in the way you care about.
There are many reasons you probably don’t want to just eat the dividends. By using appropriate rules of thumb and retirement planning you can create streams of cash payments that are better suited to your goals since choosing how much to withdraw gives you so much more flexibility and you have more information (your life expectancy, for example) than the companies deciding how to smooth their streams of dividends. But there also are good reasons why many people took dividends from large companies in the past and today use funds designed for high dividend yield, retirement income, and so on.
Why do people keep talking about dividends? Dividends either don’t matter or are bad/inconvenient (in the way of weather). The price adjusts in arbitrage after in-dividend date (the day when ownership of stock is counted towards how much dividends you get), so you could as easily have sold the equivalent amount of stock if there were no dividends, or you could’ve re-invested into the same stock to nullify the consequences of their payment. But the amount you get is forced outside your control, and you have to pay dividend tax.
There is no reason why you would want to convert stock to cash in a way related to how (or how much) dividends get paid, so it’s purely an inconvenience. And the FIRE safe withdrawal rate is similarly in general unrelated to the dividend rate. Dividends are not relevant to anything.
I wasn’t aware of that, albeit I was using the word “dividends” in the sense of all potential returns from the initial capital I had invested, and not the strict sense of stock dividends alone, and was implicitly trying to hint at the idea of the safe withdrawal rate.
I’m not astute enough to be more specific, but I’m using it in the sense that one can buy a house and then retire on the rental money, and while the rent and the price you bought it are strongly correlated, that doesn’t matter as long as you get the income you expect.
No, because stock prices are more dependent than dividends on state variables that you don’t care about as a diversified long-term investor. See how smooth dividends are compared to stock prices: the dividends are approximately a straight line on log scale while the price is very volatile. Price declines often come with better expected returns going forward, so they’re not a valid reason to reduce your spending if the dividends you’re receiving aren’t changing.
If you’re just going to hold stocks to eat the dividends (and other cash payments) without ever selling them, how much do you care what happens to the price? The main risk you care about is economic risk causing real dividends to fall. Like if you buy bonds and eat the coupons: you don’t care what happens to the price, if it doesn’t indicate increased risk of default. Sure, interest rates go up and your bond prices go down. You don’t care. The coupons are the same—you receive the same money. Make it inflation-indexed and you receive the same purchasing power. The prices are volatile—it seems like these bonds are risky, right? But you receive the same fixed purchasing power no matter what happens—so, no, they aren’t risky, not in the way you care about.
There are many reasons you probably don’t want to just eat the dividends. By using appropriate rules of thumb and retirement planning you can create streams of cash payments that are better suited to your goals since choosing how much to withdraw gives you so much more flexibility and you have more information (your life expectancy, for example) than the companies deciding how to smooth their streams of dividends. But there also are good reasons why many people took dividends from large companies in the past and today use funds designed for high dividend yield, retirement income, and so on.