8♦ – Dividends Don’t Matter

Dividends don't matter - but don't spend them until you need to.

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2 Responses

  1. Avatar Mark says:

    So one should avoid investing for dividend growth? I ask as I see several commentators (blogs) putting dividend growth forward as the holy grail.

    PS: Thanks for all your write ups.

    • Mike Rawson Mike Rawson says:

      It’s not so much that you should avoid dividends as ignore them. They are a minor outperformance factor for equities (a more visible proxy for value – but remember that value hasn’t worked for the decade-plus since interest rates were lowered), but there are better ones.

      The key points are:

      – dividends don’t come from the ether (the company becomes poorer by paying them)
      – they are not tax-efficient (outside of a SIPP or ISA)
      – relying on any single strategy is a bad idea.

      If you do receive dividends (as we all do) the most important thing is to reinvest them rather than spend them – but this needn’t be in the firm that you received them from.

      Earnings growth (and free cash flow growth) are more important than dividend growth – firms that stretch to maintain dividends usually run into trouble in the end.

      Mike

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8♦ – Dividends Don’t Matter

by Mike Rawson time to read: 6 min
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