Quote:
Originally Posted by TheOverdog
I'm not sure what that even means.
People value dividend income because they don't need to sell their shares to realize it, which you have to do with non-dividend earning stocks, and often the tax rates for dividends vs stock sales are different. The income from a dividend stock also tends to be very regular, as opposed to the roller coaster of capital gains.
Also if you sell stocks and have to rebuy, you are buying at the current price, whereas most people who are attempting to live off dividends bought at prices far into the past. Compare this to a house on the coasts, ie has lots of value locked in and if you sell to extract value you lose out on future value, which could be just income or inheritance.
In short, different people have different goals.
Also, QED, but the fact that AT&T has performed below the market index shows that actually people don't "overvalue dividend income" unless you somehow live in opposite world.
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What it means is people often place too much value on dividend income, thinking often they are getting something in terms of return that they really aren't. Total return is what matters at the end of the day and people lose site of that or simply never understand that to began with.
You are correct that tax rates between dividends and interest and cap gains can be different. Ltcg and qualified dividends can carry similar rates. One main difference I see between the two is that you have more control over the taxation when you are selling vs receiving dividends. With dividends you cant dictate the amount or frequency of the income however you can when you are selling.
Your paragraph about selling and rebuying vs longer term basis and "value" actually makes zero sense. It doesn't matter what cost basis your shares have you aren't "losing" any value that was locked up or not.
Further more selling to meet cash flow needs allows you the ability to take losses if you so choose to negate or completely offset capital gains taxes, this is another taxation control advantage over receiving dividends
When I said people overvalue dividends I didn't say the market as a whole. People/individuals aren't the ones who necessarily move the market. It does bring up another point if AT&T paid less of a dividend they could have reinvested more into the company and possibly performed better