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Careful here, math. It only means they can't reinvest it in their existing businesses due to diminishing marginal returns of scale. (Payout ratios aren't 100% either).
You are not bound by the same restraints. You have many more options to reinvest and compound. So in fact you have a much better chance than they do.
In a perfect world, all companies would prefer buybacks to dividends, but the buyback authorizations are at the discretion of the BODs, and buying back stock when the stock is overpriced is value-destructive.
Everything you say about the mechanics of dividends and capital gains is true. But I think you take the demonizing a tad too far. There is a time and place, and for most large-cap companies above $50B with powerful FCF, it is better for them to pay some out than hoard the cash or pursue lower-ROC projects given BOD limits on buybacks.
As you like to say, very often it is the best house in a bad neighborhood.
if they hand it back to you because they can't invest it with out pulling down their marginal returns then as an investor how does that great company I bought help me compound the money I am making with them.
it doesn't, I actually have to go looking for somewhere else to put it.
I could reinvest it but then I am right back again giving them back the money they said they couldn't invest in the first place and grow at the same rate..
it is like having a great paying cd and then I have to reinvest my interest in a much lower investment.
not a big deal when the companies were growing at enormous rates of return but that is no longer the case and as a report from s&p stated these big old guard companies have been growing at a fraction of what used to be.
when I buy a company I buy one for growth and compounding. I don't want my money back ,I want it to grow and compound, after all that is why I am buying the company.
you can't help but wonder if those ole s&p500 and dow companies either bought back their own stock or bought more market share with those millions given out in dividends what their returns might have been like,.
There is nothing a dividend payer can do for you that a non dividend payer with the same total return can't.
I have learned a lot from mathjaks posts but have to add my two cents here. In theory this is true but in practice you cannot sell off shares of a non-dividend payer every month or quarter in a cost-effective basis because of the trading commission costs that run about $10. So if your monthly distribution is say $100 and you pay a commission of $10 that is a 10% fee.
Of course there are exceptions, for example if you buy Schwab-branded ETFs you can trade them commission-free online but there are also practical aspects such as you can only sell in some kind of minimum increments and you have to manually make the trades.
So for people wanting monthly or quarterly no-hassle checks "in the mail" or directly into the brokerage account in the form of spendable cash, dividend stocks or ETFs are the way to go, knowing that convenience always comes in the form of some cost.
I have learned a lot from mathjaks posts but have to add my two cents here. In theory this is true but in practice you cannot sell off shares of a non-dividend payer every month or quarter in a cost-effective basis because of the trading commission costs that run about $10. So if your monthly distribution is say $100 and you pay a commission of $10 that is a 10% fee.
Of course there are exceptions, for example if you buy Schwab-branded ETFs you can trade them commission-free online but there are also practical aspects such as you can only sell in some kind of minimum increments and you have to manually make the trades.
So for people wanting monthly or quarterly no-hassle checks "in the mail" or directly into the brokerage account in the form of spendable cash, dividend stocks or ETFs are the way to go, knowing that convenience always comes in the form of some cost.
I agree , dividends are simple and a positive reason for their usage.
if they hand it back to you because they can't invest it with out pulling down their marginal returns then as an investor how does that great company I bought help me compound the money I am making with them.
it doesn't, I actually have to go looking for somewhere else to put it.
I could reinvest it but then I am right back again giving them back the money they said they couldn't invest in the first place and grow at the same rate..
it is like having a great paying cd and then I have to reinvest my interest in a much lower investment.
not a big deal when the companies were growing at enormous rates of return but that is no longer the case and as a report from s&p stated these big old guard companies have been growing at a fraction of what used to be.
when I buy a company I buy one for growth and compounding. I don't want my money back ,I want it to grow and compound, after all that is why I am buying the company.
Math, it is the law of diminishing marginal returns. It happens to every company, even ones like Berkshire Hathaway and ExxonMobil with superior capital allocation practices. It is expected.
Maybe it's just your language here, but you are being too harsh on the companies. There is no way to avoid DMRs in the large-cap space. As an investor, you either accept that handicap as the price of lower risk, or look elsewhere.
You are right to look elsewhere if you want to maximize compounding. I do not disagree. But do not fault the companies for not defying the universal law of DMR. There is a time and place for them too, and playing the best hand they're dealt with in no way makes them inferior.
You having to look elsewhere to reinvest is an advantage, not a disadvantage. It gives you an option they do not have.
Oh I wouldn't fault the company. if anything it is just food for thought. dividends are not always a good thing if you are trying to grow money as today they are the least efficient things a company can do with your money.
now that may not be a bad thing if you are not looking to max out gains such as in retirement.
something not to volatile that spins off some income isn't a bad thing.
it isn't anything I couldn't duplicate from my portfolio withdrawals with more consistency through good and bad times but if I have a plan in place for making up income shortfalls what the heck , its easy cashing a check.
the only point being made is there is no advantage or disadvantage dividend wise mathematically.
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