The Illogic of a Dividend Stock

If you would consider yourself as an investor then your role in life is to allocate capital and get the highest return over the longest period of time.

I’ve seen a few Substack Newsletters and YouTube channels over the years doing a song and dance about Dividend Investing for retirement.

Specifically focused on growing wealth.

One of the focus points of YourLastLife is Freedom - partly attained through wealth and partly attained through shaping thought. I advocating for growing your wealth to enable freedom and supply optionality to your life.

I aim for >= 30% per year.

How do Dividend Stocks register in our outlook for investing options?

Well - their main rationale can be summated in one observation - Dividends Stocks pay a dividend because:

the management team believe they have no options to grow the money in a meaningful way.

…so they give it back to you

Well - this doesn’t sound very good in regards to our objective to grow money - does it?

Why might companies not be able to grow capital? A lot of time it can be down to the size of the company - reaching maximum size with no real prospect of anywhere to grow within a market.

Any self respecting dividend oriented company will in fact make its dividends more reliable - such as a dividend paying Aristocrat, by being conservative and planning for predictable dividend growth and long term dependability. They might hold cash back to buffer the ability to produce dividends in down years, as well as grow the dividend. Meaning that the optimization of that dollar for that year might be reduced in favor of future guaranteed returns and brand reputation.

Compounding is compounding. Share growth of 5%, Dividend yields of 5% are both equal.

Also - when a dividend of 1 dollar is produced, logically the value of the company drops by 1 dollar.

What I’m saying is - there isn’t a magical breed of companies that somehow have more return than other companies.

Do dividend stocks have some utility?

Yes, I believe it makes sense to look at dividend paying companies if you are in the cash flow stage of life rather than the growth stage. There also may be tax reasons where dividend stocks are beneficial to you.

For example in Canada, the last I checked - a couple in British Columbia can receive $150,000 of eligible dividend income tax free.

So to me, when growing wealth, I don’t look at dividends. For retirement - yes I will use them.

Ben Felix gives a good overview in this video. I feel he’s quite a mainstream normie investor, but his logic stands in this video.