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  • Warren Buffett Is Wrong About Dividends [View article]
    Or look at it this way. Long-term dividend growth rates and price appreciation both follow long-term earnings growth. The 4% yield stock only has to grow its earnings by 3% each year for you to maintain your purchasing power, compared to the no-yield stock which has to grow its earnings by 7.291666% each year. Guess which is more sustainable.

    There's also the risk that Mr Market won't recognize the earnings growth in the stock price of the no-dividend stock every single year. Dividends are not subject to his whims.
    Feb 7 05:51 PM | Likes Like |Link to Comment
  • Warren Buffett Is Wrong About Dividends [View article]
    I am comparing the growth of what you would be relying upon for your income in each scenario.

    I think that the first, in addition to being lower, is also much more reliable than the second.

    I will concede that the 3% growth, 4% yield dividend stock has an implied expected 7% total return (which is still better than the 7.291666% required by the growth stock).
    Feb 7 04:50 PM | 1 Like Like |Link to Comment
  • Warren Buffett Is Wrong About Dividends [View article]
    >>>The main problem I have with dividend investing is that you're buying the stock regardless of value.<<<

    Not necessarily. Most dividend growth investors also follow a value approach.

    >>>Dividend investing in a taxable account is very inefficient.<<<

    False! http://seekingalpha.co...
    Feb 7 04:43 PM | 1 Like Like |Link to Comment
  • Warren Buffett Is Wrong About Dividends [View article]
    A small calculation inspired by this article.

    Question: How much must a 4%-yield dividend stock grow (its dividend) each year for you to maintain your purchasing power under 3% inflation?

    Answer: 3%.

    Question: How much must a no-dividend growth stock grow (in price) every year for you to maintain your purchasing power under the 4% withdrawal rule and 3% inflation?

    Answer: 7.291666%

    (Example: You have $1,000,000 of no-dividend growth stocks. You withdraw 4%, or $40000 today, leaving you with $960,000 invested. If it grows at 7.291666%, you will have $1,030,000 in a year, and 4% of that is $41200, which is exactly 3% more than $40,000.)

    I'll stick with dividend growers, thanks.
    Feb 6 11:36 PM | 4 Likes Like |Link to Comment
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