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not sure I understand your logic here. when the stock goes x-dividend, the stock price is dropped to reflect the dividend, but after a few days it's no longer trading x dividend.
from my point of view, the 3% your friend collects is the income that is thrown by the stocks he holds. since he still holds the same number of shares, he has not lost principal.
I hope to be able to live off my dividends when I retire also.
I'm currently reinvesting $8k per year in dividends with the hope that it will grow enough to live off the compounded income when I'm ready.
i bought verizon a few weeks ago . verizon went ex div the day after i bought it . i invested 20k in verizon and the next day i ended up getting my money back when the price reset and now i had only 19,765.00 working for me at the ring of the bell and a 235.00 dollar dividend in pocket .
i have no gain what so ever , on top of the fact the next day verizon missed earnings and got hammered .
everything in investing is is based on the dollars invested . you start with this much and now have this much .
in this case you can see plain and simple that had i reinvested my dividend i would have the same 20k working for me i had the day before when i invested my 20k.
so when i got the dividend , it was my money i got back .
it is always like that , in fact a stock does not even have to make a profit to pay a dividend . the amount is decided by the board , profit in the company , or gains in your stock or not a dividend can be paid out ..
verizon stock has been at a loss all this year but it still pays a dividend and each dividend paid has driven the price per share lower in addition to market action driving it even lower .
a div payout is only getting back a piece of what you already had . if the stock appreciated 3% and they paid out 3% they paid out a portion of the value that was already yours to begin with .
it is always your own money . it was all yours the night before the reduction and it is all yours the morning after when the bell rings . but what changes if you spent the dividend is what you have left compounding for you over the next quarter . .
in this case i only have 19,765.00 left compounding in my investment going forward .
think of it as your bank account being credited daily with interest then each month the bank reduces your balance by the amount you got and sends you a check .
if you put the money back in the account then you get interest on the whole amount you had before getting the check . if you spent the interest then your balance gets interest on just that much less going forward .
it is really a simple concept yet few understand there is no magical money you are getting . there is only your already existing money .
if you took all your money out of the bank and bought a stock , isn't that money you are buying that stock with all your own money ?
you wouldn't count only the original portion of your money you put in the bank before getting years of interest on it , right ?
of course you would count what you took out of the bank as your money and the dividend is no different .
Last edited by mathjak107; 05-02-2017 at 04:09 AM..
If you have the dividends of your stocks, ETF's or Mutual Funds sent to your bank account instead of being reinvested, are you touching the principal of your investments?
My friend, who lives on a 3% average dividend distribution from his investments, says he is not touching the principal. I say he is because the investment drops the same amount of the dividend, So basically the dividend is a forced scheduled regular distribution of the investment's principal.
not quite ! you are correct . it is all your money that is being spent . it is the same effect if they give you back a piece of your share price as a dividend or you sell a piece of your holding to raise the same money .
it is all your money and invested dollars you are spending in either case .
if you had 100k the night before the dividend and had 3k in pocket and 97k still invested and available for compounding by markets the next morning after the adjustment , you just spent 3k out of your 100k you had . .
you can smoke and mirror it all you want but you got 97k left invested from the 100k you had and 3k in pocket as a payout .
the simplest way to look at it it is when i bought verizon two weeks ago which pays a 5% dividend .
unknowingly i bought it the day before it went ex div .
i invested 20k and next morning i had a 235.00 dollar dividend and only 19765.00 left invested . i had no gains at all . in fact if i reinvested my 235.00 i had the same 20k i handed them the day before invested . that 235 was my own money they handed me .
at any given time that value of your investment is already yours . it is your money . the payout only takes what is already yours and hands you back a piece .
Last edited by mathjak107; 05-04-2017 at 04:24 AM..
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