Dividends, part I, addendum

Hello everyone, I hope that each of you had an excellent weekend. A quick addendum to the first posting about dividends.

So I think I made a pretty good case that dividends are desirable. They are cold, hard cash return to investors. Because of that fact then you as an investor can deploy that cash in whatever fashion you so desire. However, another advantage of dividends as a source of return is that capital gains are only relevant if in fact you sell your ownership in a financial asset. This has two predominant problems. First, when you sell the asset you lose the opportunity to experience all future gains from that investment. So if you are retired and invested in assets that don’t pay you income then you are forced to sell a portion of your shares, bonds, etc. in the financial asset in order to generate monies for yourself. This is not a good thing, as the need for personal income in turn creates an artificial need to sell. The other problem with needing to sell in order to realize your capital gains is that it puts a tremendous onus on you to get the timing of your sale done correctly. Huh? When you are forced to sell to realize your capital gains then you are forced to become a “market timer.” If you sell too early then the asset continues to rise in value and you lose some upside. If you sell too late (as most people do) then the asset falls in value and then you are forced to sell even more in order to generate the same amount of income. Does this make sense?

So dividends are NICE.