It is possible to advise against dividends?
Readers of this site know I am a big fan of dividends. I think dividends are great, and a large percentage of my assets are invested for the purpose of getting dividends. I usually reinvest dividends, so they accumulate and grow.
So it is possible that sometimes dividends are not worth it? Would I ever advise someone not to pursue dividends? Let’s get into it.
We are all familiar with charts that show how much one invests could grow if we invest X dollars for Y years assuming Z percentage gains. A similar graph can be shown for dividends. For many companies, increases in dividends are common, and over time, the dividends certainly add up. With dividend reinvestment, each dividends buys additional shares or parts of shares, making the next issuance of dividend based on a growing base of shares.
Over time, assuming the companies in question thrive and increase their dividends, we enjoy ever-larger dividends coming our way. There is one overwhelmingly important factor mentioned in that description: Time.
Time is what makes dividends and dividend reinvestment so powerful. That of course is why the earlier one starts, the better one’s returns are. One should add here: the later one starts, the less one benefits. Is it possible to consider that at a certain age it is “too late” to embark on dividend investing? That’s an open question.
Since time, in my view, is the most significant factor in the growth of one’s dividend income, what to say about someone who is considering embarking on dividend investment late in life?
It is never too late to focus on one’s financial situation, and more power to them, I would say. If the person is thinking of dividend investment to provide income, then there is the question of how much is being invested, what the expected yield would be, and when to expect to access the income. If the immediate return is significant, then that could be considered prudent.
And if the person is making these stock purchases has their heir(s) in mind as well, then the age of the purchaser need no longer be a highly significant point. The heir(s) will benefit, which is likely the purchaser’s intention.
Absent significant return for heirs to consider, then an investor can consider their life expectancy, and what dividends would mean to them while they are alive.
Are your dividends worth it? Let me know here.
The photograph of a hand with pen writing is by Thomas Smillie, ca. 1900. Smillie was designated as the first “custodian” of the Smithsonian Institution’s photographic “specimens” in 1896.
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