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My Thoughts On Dividends

15 March 2014

I'm a dividend investor because of several reasons (see Endless discussions in SA on dividends (I commented to several) are usually quite hot but repetitive. So I decided to put some my arguments in favor of dividends in this blog. I'll use some graphs and update blog than new ideas come.

OK, let me start. Larry Swedroe kindly send me DFA white paper "Global Dividend-Paying Stocks: A Recent History" written by Stanley Black in 2013. He analyzed 23 developed stock markets in Jan 1991-Dec 2012 and found that annualized compound return for payers and non-payers was practically the same (7.80% and 7.58%).

There are some question marks to this study (probably because its reported as white paper) but the numbers above are probably correct.

When we buy a stock we exchange money protected by the wealth of the country issued these money for piece of paper or electronic file which represent a partial ownership of the company issued the stock. I should point that country protection of its money is not perfect and even US Treasury did (had?) default ( see or or Of course a stock (in contrast with bond) is not protected and stock owner faces the absolute risk /probability to loose money (invested capital)/.

Common method to transfer a risk is to use insurance ( A party which accept a risk sells insurance, a counter party purchases insurance. Insurance is NOT free!

I consider dividends as insurance that CFO/CEO do not "cook the books". Based on Stanley Black results this insurance is free!

16 March 2014

I read that the following maxim was popular in XIX century : "Gentleman invests in bonds" I guess it was assumed that this gentleman had enough money to live on interest. Any stock at that time was consider as object of speculation. All ladies, gentlemen and not-so gentlemen did not face inflation policy in XIX century

Situation change and US government officially supported inflation in the second half of XX century and still supports it in XIX century. So a gentleman must be super-rich to continue XIX century style of investment. Fortunately some companies recognized this modern feature and try to increase dividends at least at the pace of inflation. Stocks of such DG companies should be a core of a XXI century gentleman portfolio IMO.