Wednesday, October 7, 2015

Short Ramblings about Dividends

Giraffe Value has come up with a very long post talking about dividend stocks and I think it is a pretty impressive post.

I must agree that investors get too blinded by the catch phrase of "high dividend yields" as if they were the only few people to have ever heard and chanced upon this holy grail investment class.

However, I feel that the textbook and IRS classification of "passive income" is too strict.

To me, passive income is income that I didn't have to work for. Income that I work for is my active income, which is my job. I liked CW8888 line of thinking about human assets and financial assets.

We should try and transfer some of the products of our human assets (producing active income) and move them into financial assets (producing passive income) because there will become a point where we are no longer able to or don't want to work anymore. In that case, our human assets have been "depleted", but we can still enjoy the passive income from our financial assets.

Anyway, I will count my dividends as my "passive income". The only thing is that I also might also at the same time be realizing a "capital loss". Not ideal, but at least some cash back from my equity is better than it going to zero and leaving me nothing.

So, here's some posts from the past where I've talked about dividends:

High Dividend Yield? Or Simply Left Pocket, Right Pocket?
Why I Only Invest in Dividend Companies

It's important to know what you are investing in and their pros and cons. Are dividend stocks the best investment ever? Do you only need to paint with 1 colour? Do you wear the same underwear your whole life?

I don't think that there is a single investment that is suitable for everybody all the time, everytime.

The asset class and strategy that you can manage and make money, that is the best one.

4 comments:

  1. Hey GMGH

    Thanks for referencing to my post. I didn't know that you have a few posts on this topic previously. I'll check it out!

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    1. Heh, np GV, it was a pretty long and well done article that you wrote. I hope more people were made aware that investing solely on dividend yields may not be the best thing to do if it ends up to be left-pocket right-pocket!

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  2. I also consider it as "passive" income (i.e. not from me having do work). I understand GiraffeValue's point of dividend being a draw-down on the stock value but I consider it a fair means of getting my "passive" income in a sustainable way if I choose a value stock that can maintain or grow its share value in the long term (even after giving out dividends) while maintaining or growing its dividend.

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    1. Hi Anon,

      I am also satisfied with such stocks that can maintain their share value while paying out dividends. I'm not a great believer of growth, so I don't like to buy growth. I don't need stellar 10+% returns from all my stocks, stable mid-digits are quite perfectly fine for me!

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