Why dividends?

2nd best form of cost basis reduction.

in tax free/deferred its pretty goat tier

This is why you need to be here more.

It's thank you for playing money

OUTSIDE a tax-advantaged account, a dividend stock will lose out to a growth stock over time because the dividends are taxable as long-term capital gains. This eats into your investment capital, and saps your compounding.

Consider two equivalent stocks -- a growth stock (Stock G) and a high-dividend stock (Stock D) -- both of which yield 10% per year. Stock G earns its 10% by price accumulation alone, and Stock D earns its 10% by paying a 10% cash dividend. You own 1 share of each, and they are both worth $100/share. At the start, therefore, both Stock G and Stock D are worth $100.

At the end of 1 year, Stock G is now worth $110 (10% growth), and Stock D is still worth $100 but has paid you a $10 dividend which you re-invest. Your return on both stocks is the same -- before taxes. After taxes, however, Stock G is still worth $110 (no tax consequences) but Stock D has only returned you $108 because you paid 20% in capital gains taxes on the dividends. (I'm using 20% to keep the math simple in this example, but the principle is the same for any tax rate.) So after one year, Stock G is ahead by $2.

After year two, Stock G is now worth $121 ($110 x 10%), and stock D is worth $108 ($100 original + $8 reinvested) but has paid you a $10.80 dividend, reduced by taxes to $8.64, for a total gain of $116.64. Stock G is now ahead by $4.36

Hopefully you can now see where this is going. Every year the spread between Stock G and Stock D is going to get wider and wider because taxes aren't depleting any of your Stock G capital.

INSIDE a tax-advantaged account, you don't suffer the tax hit when dividends are declared. You get to reinvest the full amount. Therefore, inside a tax-advantaged account, growth and distributions both add EQUALLY to your growth and your compounding. So what you should be focused on is maximizing your overall return (growth PLUS dividends) instead of focusing on one or the other.

>>1351862
Thank you for that explanation.

>>1351862

Jokes on you. I have dividends from Muni bond close ended funds. 7% tax free.

>>1351862
tl;dr, capital gain tax is criminal

File: dividend-1.jpg (30KB, 464x253px) Image search: [Google]

30KB, 464x253px

>>1349984
>Dividends Were Responsible For 42% Of Stock Market Returns Since 1930

>>1351935
I pay income tax on my income.
I invest my income.
I pay capital gains on muh gayns when I sell my stock for monies
I take the monies from stock sale and buy a car with it
Huge taxes on car purchase
Personal property tax on car
Gas taxes

And when I finally fucking die
Inheritance tax


WHY THE FUCK IS EVERY DOLLAR I EARN TAXED 50 DIFFERENT WAYS???

dividends are typically only good for slow growth, large, blue chips.

a dividend for in and out burgers? shit.
a dividend for ibm? (historically, at least) good

>>1351944
Because it's not the dollar that's taxed but the transaction.

Let me put it in another perspective. Lolbertarians really love to spin who pays for what different depending on what's expedient. There is talk about raising corporate taxes. Lolbertarians will say it's an additional cost rolled into the price paid by customers. But, when a CEO gets a fat bonus for fucking up, suddenly no, they're not paid by customers, the company pays the CEO. Either they're both costs borne by customers or neither. Same with how government employees are (over)paid by taxes but contractors, collecting a paycheck funded by taxes, somehow are not because there's a company in between.

Now, imagine all the arguments that would be thrown around to escape taxation and the subsequent fights to fund government services that nobody wants to pay for but nobody will give up, like police protection, foreign adventures, business subsidies/handouts, schools, courts, bans on behavior that's harmless but different and therefore must be monitored at any cost, etc.

>>1352078
The reality is that Lolbertarians predicate their dissolution of all government on the insane belief that everyone else will just agree to let them keep the status quo. Nobody will ever dispute ownership, nobody will ever rob you, nobody will ever harm you, nobody will ever violate an agreement, etc. But the instant they feel threatened by any of that, they run off to make an excuse for a goverment that shouldn't exist to step in and protect them. Just like how nobody wants to pay taxes, yet assumes, somehow, there will always be money available to find their pet causes.

>>1351862
>10% steady growth rate year over year
>not including the tax you have to pay when you realize your gains

>>1352254
>10% steady growth rate year over year
The historic annual growth rate of the U.S. equity markets for the last 90 years is approximately 11.2%. If you think using 10% in my example is unrealistic, I suggest you do some homework.

>not including the tax you have to pay when you realize your gains
You're right that if and when you sell your growth stock in my hypothetical, there may be capital gains tax. However, by that time, you've alway gained the benefit of years of compounding your undiluted investment. No realistic amount of tax at that point can change the outcome of the analysis because the growth stock will already be so far ahead of the dividend stock.

And all of this is even assuming you pay any tax on the growth stock at all. There are several strategies to avoid paying future capital gains that might be a fit for the financial plans of our hypothetical growth investor. And, unfortunately, these same tactics will never be available to save the underperformance of the dividend investor.

tl;dr You like dividend stocks? Ok, then allocate some (not all) of your portfolio allocation, and put them in a tax-advantaged account. Otherwise you're making a mistake.

If I could find something with an equivalent upside that RDS.A has, I would. I'll consider the 7% dividend a bonus.

REIT