| | | Answer that correctly and you'll understand why the dividend isn't income and why subsequent share price appreciation is required to make it income (income being defined as an increase in the value of your aggregate position).
I have been reading the back and forth and am not sure if everyone is even talking about the same thing.
You keep talking about a point in time (ex date) while most of the people here take a long term perspective on their investments. In your example, someone effectively bot the dividend just before ex and then you look at the price the next day? Most people here don't do that and in a taxable account I'd personally buy after ex. Over the long term, a corporation earns income and in theory, you earn along with them. If you buy a bond just before pay date, the price will be adjusted by the accrued interest earned through purchase date. After that you accrue interest on a normal basis. Kind of the same way with stocks.
I have seen a version of this discussion played out on SA and other venues about what is more important, the dividend or capital appreciation. From a DGI perspective that is a "chicken and egg" discussion. Some folks focus on the dividend growth history but that is usually accompanied by rising earnings as well as an increase in share price.
I have a good friend of over 40 years, who professionally manages money in the DGI space. Increasing dividends is one of many criteria used in the selection process. Some of the other characteristics:
1) portfolio approach across multiple sectors
2) some degree of business moat
3) increasing earning and other metrics over multiple time horizons (i.e. 3, 5, 10 year)
4) buy at opportune times
5) low payout ratio (by industry)
People tend to tweak the "rules" based on their own situation, finances, age, etc. People also set rules on when to sell or pare holdings, but the core concept is to buy stocks who have a history of dividend increases as well as earnings potential and hold them for the long term. I'd also note that many of the folks I know who use DGI are not purists and may include other types of investments in portfolio.
It seemed that the discussion started with someone being put T. Not my favorite DGI stock but I do own a few shares.
I guess that i am still curious as to your approach to investing. Are you a trader or would you characterize your self as an investor? What is the time horizon of a typical investment? Cheers |
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