It seems that everywhere you look, you're told you need to build a dividend investing portfolio.
Every YouTube video, blog and social media influencer is telling you how great dividend investing is and that you need a to start a dividend investing portfolio too.
The problem is that much of this advice comes from poorly informed sources and the explanations seem to lack an understanding of what dividends are or why they are paid.
And in this video I try to explain the other side of dividend investing that is not quite as rosy but is very important for people to hear.
Because the advice we all hear about dividend investing stemming from the 1950s or 1970s simply isn't relevant and the world of investing has fundamentally changed.
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Every YouTube video, blog and social media influencer is telling you how great dividend investing is and that you need a to start a dividend investing portfolio too.
The problem is that much of this advice comes from poorly informed sources and the explanations seem to lack an understanding of what dividends are or why they are paid.
And in this video I try to explain the other side of dividend investing that is not quite as rosy but is very important for people to hear.
Because the advice we all hear about dividend investing stemming from the 1950s or 1970s simply isn't relevant and the world of investing has fundamentally changed.
💵 GREAT INVESTING APPS I USE
GET A FREE SHARE WORTH UP TO $150 WITH STAKE (UK, Australia, NZ)
https://hellostake.pxf.io/qnA3xq
You will get a free share if you sign up using this link and deposit a minimum of £50.
GET A FREE SHARE WORTH UP TO £200 WITH FREETRADE (UK ONLY)
https://magic.freetrade.io/join/sasha-yanshin
You need to sign up and make any deposit to get the free share.
SIGN UP FOR ETORO (Global)
https://med.etoro.com/B15358_A95689_TClick_SSasha.aspx
67% of retail investor accounts lose money when trading CFDs with this provider. Your capital is at risk. Other fees may apply.
👍 SUBSCRIBE TO MY CHANNEL
https://www.youtube.com/c/SashaYanshin?sub_confirmation=1
DISCLAIMER: Some of these links may be affiliate links. If you purchase a product or service using one of these links, I will receive a small commission from the seller. There will be no additional charge for you.
DISCLAIMER: I am not a financial advisor and this is not a financial advice channel. All information is provided strictly for educational purposes. It does not take into account anybody's specific circumstances or situation. If you are making investment or other financial management decisions and require advice, please consult a suitably qualified licensed professional.
Hey guys, it's sasha, if you are an investor, you've, probably heard a thing or two about dividend: investing. It seems that almost every finance youtube channel out. There is telling you how amazing dividend investing is popular finance, blogs are waxing lyrical about dividend, investing and finance influences. All over on instagram tech talk are showing you their dividends rolling in and they are telling you that you need a dividend investing portfolio.
The problem is the dividend, investing sucks there. I said it - and i am in this video going to explain what the big problem with dividend investing is, and hopefully i'm gon na go a little deeper on explaining this and the analysis than what i've seen. Other people cover. Uh people who advise you to you know stock up on dividend stocks.
First off. Let's talk about what being a shareholder means because understanding this is really crucial and i actually think a lot of people who strongly advocate pure dividend. Investing at the moment. Don't necessarily understand this bit being a shareholder in a business means that you own a part of the company and if you own, a few shares in a huge public company.
That means you own, a very tiny proportion of that whole company. But you still do own that little chunk and being a joint part owner of the business gives you two major financial ownership rights. The first is the shared right to the company's current current asset pool. You are a joint owner of the company's current assets if the business for whatever random, weird reason tomorrow decided to stop trading or enter liquidation or something else, then you, along with all the other shareholders of that company, get to split the cash sitting in the bank And all the other assets between you after debts are settled and according to whatever rules, but as a shareholder, you also own a part of the future cash flows of the business coming in.
So you own the rights to money, the company will earn in the future. As well as the money that they already have and in a very simplified way when the company goes and earns that money in the future, it will be added to the company's assets. So at that point the total amount of assets will increase, and so your share of that total will increase too and that's why, when we value companies, we place a value on the current assets that have some kind of near liquid value and we also forecast the Future cash flows and we add those to the total notice how dividends are not part of this calculation. They are somewhat irrelevant in the setup, and this is why, when the company earns money - and it's added to the company's bank account, if you will you already own that money as a shareholder, if the company chooses to pay a dividend, you do not actually gain anything As an investor, just let that sink in the dividend that you receive does not give you anything that you don't already own.
What happens is this? The company takes the profit that is already sitting in the bank, account that you already own and it simply just pays. You out a part of that profit in cash, so money is moving from one place to another, but the total sum doesn't change. So now the value of the bank account that the company has drops by the exact same amount that they've just paid out. So you own the same amount of money in total, and this is where the concept of ex-dividend share prices exists. If you own stocks that pay dividends, you'll notice that the share price will drop every time, a dividend is paid out to reflect. The fact that the money has been taken out of the bank account from the company and placed into your bank account. If you will. Instead, so i think it's really important to understand that the day you get paid a dividend, nothing has actually changed in terms of your overall financial ownership of assets perspective, except that some of the value that you used to have in the share price has essentially been Converted for you into cash, but as a dividend, investor.
The theory is that you go and reinvest that money right back into the company right. That's what people tell you you need to do because then you are reinvesting the dividends and then it all grows and accumulates. So the net effect for you as a shareholder, is, if you do that is if you is that you will now own a slightly larger number of shares that are worth less each than if the dividend was never paid in the first place, but in theoretical principle The total value of that shareholding in dollars or pounds is the same whether the company is paying dividends that you reinvest or not investing in dividend stocks simply scratches an itch. You get to see the actual money you get to see physical amounts entering your account.
You get a little statement notification saying that a few dollars have been deposited into your account and it triggers those parts of our brain that, like receiving rewards the same parts that like collecting pointless tokens in games on mobile phones or gambling. But here is where the problems with dividend investing really start in company valuations. The value of future cash flows is almost always a much bigger component of the share price than the value of current assets, and the share price goes up. If the expected value of those future cash flows goes up, and in order for the value of future cash flows of a company to go up, the company needs to be able to grow.
It needs to be able to make more profit, which means generating more revenue and making higher margins. Potentially on that revenue and in order to generate more revenue and maybe also get higher margins, the company has to build more factories. It has to invest in more research and development, it has to invest in its infrastructure, it has to hire more staff, it has to hire more qualified staff. That will therefore be more expensive staff.
The company has to spend money on marketing on higher operating costs. The company needs to spend money to grow. That's the general principle and if the company that you are investing in is paying money out into dividends, then guess what you will not have as much money to spend to pay for future growth. And that is a sign that the company is running out of ideas on how it can spend its cash. It is a sign of stagnation and i'm by no means saying that this is a universal absolute truth. It's not true to say that every company that pays any form of dividends or maybe the share buybacks, is uninvestable completely. Not what i'm saying i invest in some companies that do pay dividends. I just don't invest in companies because they pay dividends and when you look at dividend stocks stocks that pay particularly high levels of dividends, you can actually begin seeing a pattern.
Here are some of the really big dividend: paying companies around altria group. They sell cigarettes philip morris, they also sell cigarettes on the oak, they sell. Fossil fuels chevron sell fossil fuels, oh here's another one imperial brands, they sell cigarettes and sure this might be cherry picking, but i literally picked the top ones from some of the popular google search results for high dividend stocks, but in there are other companies in other Industries like insurance or companies that buy distressed debt sure there's a whole load of other companies. But if you take the roast tinted dividend, investor spectacles off high dividend yields are very often a very bad sign for the future prospects of a company.
Typically, companies that are paying very high dividends are doing it because they have to. They are typically companies that are in industries that are dying out or going away. Companies and industries that are on the up and are growing like crazy will usually not be paying. Eight percent dividend yields it's almost like a bribe by a company to get someone to invest in them to prevent the share price from tanking sooner than it perhaps otherwise would, and the problem is that the share price graph of high dividend companies does not look pretty Vodafone is a very popular dividend stock in the uk trading at one pound 10, which is lower than this price back in 1997.
But it doesn't stop a whole load of people on youtube telling you that you really absolutely need to have some shares in your portfolio. If you're in the us - don't worry, you don't have to invest in uk stocks because you have at t your own exact version and they pay an incredible dividend as well, and their share price was also for some reason worth less than it was in 1997. But that's okay, you're getting almost an eight percent dividend yield, except when you add the dividend, yield and the share price growth together and look at the total performance of the stock and then those dividend, stocks either underperform the market quite considerably or in the best case. Roughly match the market because remember the dividend: stocks do not pay high dividends during periods of high growth. In fact, those dividend yields are considerably lower. So it's not the case that you have to add the maximum dividend yield over that whole period to the growth. It will actually come out a lot lower and some dividend. Investors will tell you that dividend stocks outperform non-dividend paying stocks, which is actually, incidentally, true, unfortunately, that completely pointless data point doesn't prove what those people think it proves.
Companies don't pay dividends for two main reasons: they either choose to not pay dividends because they have better things to do with cash. Like you know, reinvesting it back in the business to help fuel company growth or the company is not making a profit or making very low profits and dividends can only be paid if the company is profitable. So yeah companies that pay dividends happen to do better than companies that are losing money. That is true, but the fact remains that real, robust growth stocks can and do outperform dividend stocks.
Over time i can get a nine percent percent of my money by investing in a total market etf and not worry about anything, not have to do any picking just put my money every month and forget about it. If i decide to pick my stocks and i'm one of the very few people who do happen to beat the market by picking the right ones, which most people will not, i might be able to get 15 or 20 return on my money. But as a dividend investor, it is pretty much impossible to get double digit returns, so you're signing up to match the market return in the best possible scenario. And for me, the truth is that the technology has pretty much killed the point of dividend investing, but people haven't realized it yet because we're still following the same approaches and the same ways of thinking that were developed when this wasn't the case.
Shares in companies are much more accessible and are much more liquid than they ever were in the past because of our retail investor ability to access the market, companies can grow in value considerably faster than they were able to in the past because of those advances in Technology and the combination of these factors means that the proportion of market returns that is made up of dividends has shrunk from being 40 to 50 percent of the total stock market, return for a long period, and definitely at least from the 1940s to 1970s. As per data that people have collated to being less than 20 percent of the total returns now, and i personally don't think that that trend is going to change. In fact, i think it will continue and the return from dividend stocks will continue to fall over time. But who knows, i may well be completely wrong and i might be getting completely wrong under the stick and i'm sure a lot of people would disagree with me, but we'll have to wait for time to prove which way this one is going to go. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later, you.
A lot will also depend on the age of the investor. Someone in their 70's might be more interested in having the dividends in hand now rather than waiting 20 years for the share price to grow.
Yeah…i started off as the blue chip dividend stocks or index funds for investing. But i have ocd and watched so many investing videos that i realized the real value of growth stocks.
I now put most of my money into growth, and roth ira is for blue chip div stocks and some indexes for security.
And on the side i throw some cash at crypto and do some swing trading too with small amount of $.
Its working out amazingly thus far.
YES! Finally someone who understands the fundamental flaws in the high dividend investment misconception. From a total returns perspective, investors are totally agnostic towards dividends as indeed the price drops by the dividend on the ex-div date. And also, from a portfolio construction pov, overweighing dividend paying stocks also is not necessarily a good strategy. I keep bring amazed why so many people fail to see this.
What a load of nonsense…
Standard clickbait Sasha, craps all over MO/Altria Group. Conveniently ignoring the fact that.. since 2000 Altria is a top 5 best returning stock of all time? It returned 9,620% from 2000-2020.
Didnt mention that, AT&T returns since 1997 with dividends reinvested? No he just childishly ignores the 25 years of dividends in saying it’s gone nowhere
It is passive income and I've made tons of money off dividends. I sell covered calls against high quality dividends and generate 10% not including capital appreciation. Not sure why you think you can't get double digit returns? And these aristocrats do much better in correction events
The other important thing to keep in mind our recession. If you happen to retire during a recession, you're screwed if you're a growth investor. But if you're a dividend investor who chose their stocks wisely, you won't have to worry about losing that income. All of the best dividend paying stocks not only pay their dividend through every recession but they also increased their dividend during those recession. That's why I see it as a safer way to invest.
. When you get paid a dividend, you now have more money in your portfolio than you had before. That's the point. Yes, the value of the share comes down temporarily, and I repeat temporarily, when the dividend is paid. But for the most part, depending on how good the company is, those earnings come right back and you'll still get that capital appreciation. The whole point of dividend investing is so you don't have to actually sell any shares. I personally don't think it's any better or worse than growth investing. It's just a different method. By the time I'm ready to retire, I'm either going to be taking out 5% of my portfolio by selling shares or I can receive a dividend on my total portfolio of about 5%. The difference is I don't have to sell anything.
Okay got it wait for the market to crash then buy some high yielding dividend stocks essentially on sale so it will be a win-win you'll get paid and the stock will surely make a comeback after a crash 😎👌
It depends mate I have built up almost £2000 dividend income tax free from mostly ftse100 shares and I'm up 7k growth too
I think you neglected to talk about Reits, take Realty Income, monthly dividend, and they just bought 3000 more properties.
just one data , dividend contribute to the total return in money invested in the SP for 43% from 1930….agreed that pay dividend is not the best efficiency way but no one company can growth forever. Best way is a diversification , maybe with a dividend ETF
Just because a company doesn't pay a dividend doesn't mean they will invest it back into the company. Often they just give the executives a big fat raise. Its just like the federal government raises taxes and what do taxpayers get for it? Nothing. I will only invest in safe dividend paying company's long term because at least I know I will get a return on my investment. I could buy a non dividend paying company and after holding for years something happens causing the stock price to drop, and I have nothing to show for it.
4 reasons to buy safe dividend paying stocks
1. Stock holders are less likely to surrender dividends on minor bad news, so the stock is less volatile.
2. If it does drop below your cost basis, at least you got some of that loss covered in dividends.
3. Dividends are taxed less than capital gains.
4. You can use that ongoing income to buy other investments.
Would rather take benefit in form of capital gains from a company that reinvests all that dividend cash into research & development
Home depot. McDonald's. Mmm. Dividend stocks to own. HD increases their dividend 10 to 15% each year and the capital gains are great
I'm currently at 435 dollars a year in dividends. I'm mostly invested in divided growth stocks which tend to have a low yield
Great video Sasha 🙂
Very informative with different angle than what you are taught in uni.
Would love to know what stocks to pick to get 15-20% return 🤔 🙂
Pretty bad take, you look at all the crappy cigarette companies and oil majors but not the likes of visa Apple Microsoft, do you think Tesla is a car company ?
if returns is all you consider buy crypto november last year bitcoin £8000 today £48000, my cryptos 4x in 2 months but were funded by dividends from blue chips , over the last 20years gold has outperformed the s and p and does nt get more passive, on gold my gold miners 3x and paid dividends
The advantage of dividends is you don't have to sell stocks to get money. You can live off this money or invest in other companies.
It's just trade-offs. It's not magically all good or bad.
Dividend payers tend to be more stable. Companies can't pay dividends without having real cash flow over time.
On the down side, dividends produce taxable income, so they're the opposite of tax efficiency.
To me, a good stock portfolio will have both an income portion and a growth portion. How to allocate among that depends on things like risk tolerance. There is no automatic right or wrong answer.
I think Sasha Yanshin is totally wrong in his thinking. I started purchasing growth stocks and converted to dividend growth stocks as opposed to growth dividend stocks. Last year when I focus on growth stock I made $165.81 from dividends. My focus is on low-cost stocks mainly Split funds and ETFs under $10.00 per share that pay 10 cents per share monthly. Note I am not focused on individual companies. My unrealized Capital Gain is still around 10%. My goal is to receive annually $12,000 from dividends around 2026. During the 10 months of this year, I have received $3,540.97 of tax-free income. Note: Unrealized Capital Gain is only real if you sell the stock. Dividend income is real income. Sasha did say something that is true. Around the ex-dividend date, some stock prices do drop for a day or two. This is a good time to purchase new stocks with your dividend income.
I started off as a dividend investor, worst thing I ever did. Missed quality time with shopify as was persuaded by so called sources on youtube that this was massively overvalued. Eventually learnt how to do my own DD and bought Tesla. It did OK 🙂
OMG! PG, XOM, ED, KO, SWK, CL, GIS all going out of business by next year! So what if they've been paying dividends for over 100 years, they are DOOMED! The fact that they are paying dividends means they are in a failing industry and can't afford to advertise! Let's just forget that they've continually paid dividends through 2 world wars, the great depression, the dotcom crash, the housing crash of 2007/2008 and the covid crash of last year. Let's also forget about Dividend Kings and Aristocrats. Let's forget about the snowball affect or Eintein's eighth wonder of the world, the magic of compounding.
Sasha, You again receive an “A+” for clarity of content. Always great logic in how you communicate your major points. Thank you, as you’ve pulled s together a lot of important information re: dividends.
Very interesting perspective man! You have some great points. I look at my dividend portfolio as a passive income stream. Keep up the good work 👏
The worlds economy is in such a terrible state right now that it could be very well be dividend stocks the only thing making you ANY returns at all on the stock market in the future for a long time. So i kinda disagree with you, but i can see your point and where your coming from. I just look at the amount of debt we have and its unsustainable, inflation is going haywire everywhere to the point where the entire world could be the next venezuela in 10 years from now unless something changes drastically.
In my country Sweden, you can really tell something is wrong when you cant even qualify for a mortgage to buy a house with a regular job anymore because houses are so expensive and we simply dont earn enough anymore. Inflation beats the salaries. Fueling your car is so expensive that for some people its not longer worth it to drive to work, so they either quit or manage to find another job, and some even choose to just live at their parents long into their late 20s studying trying to achieve a great job at some point in order to earn enough to live a life. I see struggle everyday, and sure some of it is self inflicted struggle because people can be so terribly bad with personal economics, but some of it is also not in their control.
Not everyone can become scientists or successfull bankers or politicians, not because they are lazy, but because maybe they are not smart enough or theres not any space for more people in those fields of work.
Alot of people these days are literally flipping burgers at Mc donalds after 6 years in university because there are no openings in their field of study, its kinda sad.
What im trying to get said with this long rant is that people will eventually not be able to afford investing or spending in order for companies to grow, so the market may become stagnant because of declining purchasing power, so thats why dividend companies may become the only choices you have for investment, because those are already established businesses with solid cash flow that most likely will and can survive any form of recessions.
I'd be more on your side if the market was primarily priced on factual evaluation rather than nonsense and manipulation. Your argument pointing out dying markets or companies "bribing" investors into buying to inflate their value backs this up. But i do agree with your sentiment about etfs.
Personally the concept of dividends is what made investing make sense and building cash flow is motivating and tangible. Even if they're not peak gain potential, they're generally easier for me to comprehend and track and align with my goals. So 🤷♀️
Dividends equate to consistent income. Monthy/ quarterly. If the shares or etf experience capital depreciation then it'd bad. If not it's a good investment for peace of mind.
Some valid points, but Dividends allow you to take some of the value whilst still owning the company and use this to invest in other companies that you may find as an investment opportunity. I don’t think people should just reinvest dividends into the stock it was generated by as it may be over valued.
If you bought for a margin of safety, dividends help you earn a bit extra income until the price goes back to the sticker price and you look to
potentially sell
I agree though, you shouldn’t just pick a company based on dividends
Your analysis sucks, Dividend stocks tend to trade within a range, sell at the top of the range and buy back near the bottom.
You are WRONG! Reinvesting dividends is a akin to share buybacks i.e. you are using company cash (dividends) to BUY shares in the company.
My reason for dividend investment is psychological, that I'll never touch my shares and still have cash to live on.
Missing the point, dividends pay my rent (keeping my stocks with the potential of futuru gains) but with stocks i would have to sell every month, therefore loosing my investment.
And they take tax off your dividends if you’re holding US stocks. Then you invest back 15% less compared to growth stocks.