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Investing Advice 2016 – Dividend Growth Investing

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Investing Advice 2016 – Review

I think that one of the single biggest challenges for investors is understanding that dividends do not matter.

Referenced in this video:
Picking Stocks – https://www.youtube.com/watch?v=AecvTErBQY8

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37 Comments

  1. P Chan
    July 31, 2021 at 1:09 pm

    You change my mind instead of I change yours. Highly recommended video.

  2. Quintonir
    July 31, 2021 at 1:09 pm

    I currently run a 7-ETF globally diversified small cap value tilted portfolio, with aims to FIRE once I hit CAD$1.2m.

    My question to this debate is regarding dividend portfolios (I will use fellow Canadian Youtuber "Passive Income Investing" as an example). If my current target is CAD$3k a month expenses on a $1.2m portfolio, would not a portfolio similar to PII's current version that returns CAD$6k a month at CAD$670k invested not make more sense if my target is to FIRE as soon as humanly possible. Meeting my cash-out goals at a quarter of the value seems like a no-brainer decision. :/

    What am I not considering here? What am I missing?

  3. Nick Wilson
    July 31, 2021 at 1:09 pm

    I understand your logic. However, the one point I think you may be missing is that a stock that doesn’t pay a dividend provides the shareholder no value, absolutely zero value, until it has been sold at a higher price. Some people don’t want to trade stocks every other day, week or month to make a few quick bucks. And they don’t want to wait and hold until they’re 70, 80 or 90 before they reap any of the rewards from their investment. Furthermore, it is not even guaranteed that the stock will be worth more then than it was at purchasing price. It could be worth nothing if they went out of business for any unforeseen reason.

    So personally I would rather reap the benefits of my investments over the span of my lifetime. And that’s what the purpose of a dividend is for me. Although of course it can be cut or disappear. I’m well aware of that. But passive income creates financial freedom.

  4. apothe6
    July 31, 2021 at 1:09 pm

    Could there be an argument to avoid dividend stocks???

  5. Thomas Crew
    July 31, 2021 at 1:09 pm

    There was no mention of automatically reinvesting dividends in more share purchases. We still have a few Large Cap Insustrial stocks on our family that my grandfather bought in 1938 anticipating WW II. Of course there were no index funds back then, by oh my ploughing those dividends back into more shares with the compounding effect is an eye popper.

  6. Janus Face
    July 31, 2021 at 1:09 pm

    The problem with this is that you can only get exposure to factors in the way outlined by investing in ETFs. Unfortunately, for many investors who do not happen to live in the US or Canada this is impossible. So we are forced to stock pick. I would also argue that investing in 20 to 30 solid dividend paying companies by no means leaves you underdiversified. You point out that this strategy will likely not beat the market. But since the goal should only be to achieve market returns I dont see much of a problem. It strikes me as a thoroughly sensible (though perhaps not the absolutely optimal) strategy. And as you point out, the psychological factor is extremely important for "amateur" inverstors. Since dividend investing is likely to encourage investors to stay invested over long periods of time even when the markets suffer a downturn it might, in fact, be a very good way of achieving market returns (which is notoriously difficult for investors even if they are invested in ETFs)

  7. gloriousholy
    July 31, 2021 at 1:09 pm

    I think it was Kevin O’Leary or perhaps mixed sources who said dividend stocks make investment sense because the payment of the dividend is a sign that the company is healthy. (Of course exceptions apply but in general.)

    Also. Ive heard investment defined as something which pays you to own it, whereas everything else is speculation.

  8. Brandon Tran
    July 31, 2021 at 1:09 pm

    I love dividend stocks. I love other stocks that don't have dividends. So I think it's safe to say I just love investing. This did help clear something up for me. Is this an accurate interpretation? Getting a dividend is not a free pay check. Getting a dividend is, the company force sold 5% of my shares for me and gave it to me in cash. I then had to pay some taxes on that 5% cash because it is income.

  9. Minas Mina
    July 31, 2021 at 1:09 pm

    What is your opinion on market cap weighted dividend ETFs, like Vanguard All-World Dividend Yield?
    Could it be used to reduce volatility in a portfolio or used by people towards retirement?

  10. fatrat600284
    July 31, 2021 at 1:09 pm

    "Dividends do not matter"

    "Dividend paying companies in the s and p 500 have outperformed the the general s and p 500."

    Pick one. You can't have it both ways. The logic behind this video is shaky at best.

    Also, you gave the example of dividends being favored up until the 70s, yeah that's because share buybacks where FUCKING ILLIGAL until 1982, i stopped watching after that because this video is so disingenuous.

  11. Thomas P
    July 31, 2021 at 1:09 pm

    Great video! 100% spot on. However, I would add that while growth investing or basic broad-market index funds should be the focus during the accumulation phase, switching to an income-focused strategy as you approach retirement could have merit. It's much easier to weather the storms and uncertainty in retirement if you can comfortably live off your dividends, interest, options premium, rental income, etc. vs. being dependent on selling shares when the market is undervalued. A portfolio of dividend stocks may eliminate or greatly reduce the sequence of returns risk, allow the investor to sleep better at night, and also provide a stable foundation for establishing generational wealth.

  12. Reagan Yuan
    July 31, 2021 at 1:09 pm

    This guy just destroyed so many youtube investors lol

  13. William Fisher
    July 31, 2021 at 1:09 pm

    The drip is what matters

  14. John Demetriou
    July 31, 2021 at 1:09 pm

    Saying that in 2009 companies slashed or held back their dividend as an example, even though you are talking about a financial crisis when everything crashed………. is a bad example. Especially given that dividend aristocrats in that crash beat the market by 15% (they crashed less than the whole market)

  15. Pranav Merchant
    July 31, 2021 at 1:09 pm

    Andrei Jikh saw this video and quit dividend investing… 🤣

  16. Brian
    July 31, 2021 at 1:09 pm

    The only thing I will add is that when you get paid a dividend, you get to choose how that money gets compounded from there. You could say that this is equivalent to a slow-selling of the growth over time, but you can make the choice to buy that stock again or something else. I got really interested in dividend investing, but I have a hard time fully trusting that any company can at least retain its value compared to my growth-focused companies. I'm somewhat split in my portfolio now. I'll pay a small premium for a dividend, but I won't pretend that's everything.

  17. chris willy
    July 31, 2021 at 1:09 pm

    Instructions unclear. Invested 100% into QYLD

  18. Pranav Merchant
    July 31, 2021 at 1:09 pm

    Awesome!
    Why does the share price fall by the exact same amount though? Is the market discounting the dividend immediately? Is the market so rational?

  19. Jeremiah Burkett
    July 31, 2021 at 1:09 pm

    So utilizing the DRIP method is futile? I’m so confused. I’m not using my own money to purchase more shares so how am I not winning in the long term. We could simply use the drip growth portfolio as a savings account and generate an increasing income stream.

    Am I missing something?

  20. Skilliard
    July 31, 2021 at 1:09 pm

    Ben- I agree with you that in theory, a dividend itself does not provide value, because the company loses the assets it pays out.

    However, couldn't you make the argument that dividends increase liquidity by providing a bit of shielding from short term fluctuations in the market?

    For example, suppose you have $1 million in stock, of which you need to pull $2,000 a month from. A severe stock crash happens, and the market panics and drops 75%(ie tech bubble of 2000), but dividends are barely down.

    At this point, it doesn't matter if the company is technically worth more because it reinvests its cash, if the current inefficiencies in the market reduce market price below its fair value. So rather than selling off .2% of your portfolio per month, you're selling off .8%. A dividend is less vulnerable to the panic of investors flooding the market with sell volume.

    Historically, you could argue that if you need short term liquidity, or a hedge against stocks, or income, you would buy bonds that pay interest. But with interest rates below the rate of inflation, is there a place for a dividend portfolio to fill this gap in the market?

  21. BenCarnage
    July 31, 2021 at 1:09 pm

    I have one property with an attached rental unit, index funds and a portfolio of mostly dividend stock. I'm not chasing the dividend, I'm picking companies with a very long and stable history that aren't overly represented in my index funds. I like the dividend aspect because it doesn't require management. I avoid selling stocks. I avoid paying the market too much attention. Dividends automate some liquidity into the process. I usually use the dividends to diversify further or buy into a dip if I have reason to think it will give better returns.

    Older, large and quite stable companies often pay a dividend. The dividend also automates the process of cashing out a little of the investment, meaning it takes all aspects of psychology and timing the market out of the process. Sure you could just sell a set percentage of all investments, but that's also not ideal. Dividend paying stock also sometimes adjust their dividend to circumstances. So it's not just the same as selling a flat percentage regardless of current market value.

  22. Ran Lee
    July 31, 2021 at 1:09 pm

    hehe, sorry, i'm very distracted by that drop of liquid on your camera lense at the left of the frame.

  23. Sachin
    July 31, 2021 at 1:09 pm

    What about REITs??

  24. Thomas D
    July 31, 2021 at 1:09 pm

    "Diversification is a protection against ignorance." Quote by Warren Buffett

    Concentration builds wealth, diversification protects it.

    There ARE retail investors/traders that consistently beat the market, mutual funds and ETF's. They do it by picking a handful of stocks that meet their criteria. Diversification through mutual funds and ETF's creates mediocre results. Too many laggards mixed in with winners.

  25. FRANCK THE TANK
    July 31, 2021 at 1:09 pm

    I max out my IRA and 401k and invest 100% in index funds. I also have a taxable brokerage that is my "fun" account and I play with dividend stocks in. It's my hobby and I know full well that it probably won't beat the market.

  26. Nicolas Charlery
    July 31, 2021 at 1:09 pm

    I see that your point is that if we compare returns, dividend are indeed irrelevant.
    So, do you suggest a growth strategy with ETFs, and then when retirement arrives, to sell those shares and replace them with dividend stocks? That way, since they are less volatile, you get the (taxed) income, but kind of keep your wealth preserved for the long run. Does this sounds like a good strategy?

  27. Damien Talks Money
    July 31, 2021 at 1:09 pm

    You are just great.

  28. Rocky Ali
    July 31, 2021 at 1:09 pm

    I will call you out on this one buddy. Dividends matter because with share repurchases, the cunning CEOs will then dish the shares back out to the executive team including them selves in the form of stock based compensation, thus diluting existing shareholders. In other words, buy back shares from shareholders, and give them to themselves as compensation. BS!!!

  29. enigma
    July 31, 2021 at 1:09 pm

    Crazy or not (I don't think you are) — you keep me grounded!!!

  30. inbar cohen
    July 31, 2021 at 1:09 pm

    How can I check how much my investment portfolio is exposed to factors and which of them? Thnx a lot!

  31. SZLYK
    July 31, 2021 at 1:09 pm

    This video is just EMH in a nutshell. Whether you live by that or not, it's up to you. He said "dividends do not matter" not in the sense that they're useless, but in the sense that they're equivalent to share buybacks. He also said there is no evidence of picking dividend stocks and consistently beating the market. That is absolutely true, just as with any other groups of stocks bearing the same properties.

    Overall good video, and I take its message as "dividend investing is not superior" instead of "dividend investing is vastly inferior". Remember, the stock market is not solved. Educate yourself financially, and stick to a strategy that you can get behind the most in terms of mindset and risk tolerance.
    Whether it's growth, value or dividend, do your DD and diversify to an optimal extent.

  32. B Aviation
    July 31, 2021 at 1:09 pm

    5:156:00 SHEESH HE JUST DESTROYED VALUE INVESTING

  33. Andrew Sharpe
    July 31, 2021 at 1:09 pm

    I am really having a hard time wrapping my head around this "dividends are irrelevant" concept.
    If your sole purpose of investing in the market is income from dividends, then YES, DIVIDENDS ARE RELEVANT.
    However, it appears what Felix is actually trying to say is "dividends are irrelevant when your goal is higher market returns". Which I agree with. I think most if not all people who invest in dividends for income understand they are not going to "beat the market".
    However, why make a big deal of saying dividends are irrelevant when they actually are relevant in some cases? Unless there is some subset of investors I didn't know existed I'd say Felix is ghost-busting.
    I have to conclude that frequently making the statement "dividends are irrelevant" in an unqualified fashion is done for trolling and to trigger dividend investors.

  34. Yuval Gilad
    July 31, 2021 at 1:09 pm

    I think this channel is a must for every investor, not only Canadian ones. I told all my friend from Israel to subscribe 🙂

  35. Commando303X
    July 31, 2021 at 1:09 pm

    I appreciate much of ideology you share in your videos. One disagreement, however, is with your unflappable conviction in an eternally efficient market.

  36. Commando303X
    July 31, 2021 at 1:09 pm

    Dividends matter because they are more consistent and reliable, than is the effect on share-price of stock-buybacks. In addition, a company that pays no dividend, as well as does not re-purchase shares, could simply be sitting on non-productive cash. Finally, if an investor needs income, then, insofar as stock-ownership is concerned, this must be through the dividend; price-appreciation means nothing to one who intends to remain invested in the company.

  37. yasnogor
    July 31, 2021 at 1:09 pm

    A hypothetical scenario: Company "A" is trading at $100, an identical company "B" is also trading at $100. "A" pays $5 dividend while "B" does not. Now "A" is trading at $95 since the price got adjusted by dividend amount paid. All of price sensitive ratios of Company "A" are now lower than company "B". Price to earnings, to book, to sales, to anything. Let's assume that both had earnings of $10 and therefore P/E of 10 prior to dividend paid. After dividend "A" has a P/E ratio of 9.5 while "B" still has the P/E ratio of 10. This leads to more demand for company "A" from value-oriented investors that pay attention to these ratios and evaluate stocks at least partially based on them. How would you characterize this scenario?