Apr 10, 2022·edited Apr 10, 2022Liked by Market Sentiment
The returns from the first study assume the individual reinvested the dividends correct?
Did they do any analysis on how it performs post an average tax rate? Meaning after paying ordinary income tax on dividends this is how returns really look.
Also did they examine potential bias for low performers in the non dividend paying group?
For example, not every company that avoids paying a dividend is a growth stock. It could mean they are in decline. If comparing high growth companies to mature dividend paying companies are the results still the same? Or do all good high growth companies eventually become dividend paying ones in the end leading to survivorship bias?
The Hartford research only looked at whether companies paid dividends over the last year and whether there was an increase or a decrease. That can be a bit tautological because companies that had a good year are likely to pay out a bigger dividend. It's like saying, "the most successful companies were the most successful."
Perhaps a more informative study would examine a real growth index fund vs a real dividend index fund over a long period of time.
I found a Vanguard dividend fund, VYM. On the 'performance' page linked below it is possible to compare its growth to other indexes and funds on a line graph. I put it up against VBK (small cap growth ETF) and the S&P over ten years. S&P came first, the other two about equal second.
The returns from the first study assume the individual reinvested the dividends correct?
Did they do any analysis on how it performs post an average tax rate? Meaning after paying ordinary income tax on dividends this is how returns really look.
Also did they examine potential bias for low performers in the non dividend paying group?
For example, not every company that avoids paying a dividend is a growth stock. It could mean they are in decline. If comparing high growth companies to mature dividend paying companies are the results still the same? Or do all good high growth companies eventually become dividend paying ones in the end leading to survivorship bias?
The Hartford research only looked at whether companies paid dividends over the last year and whether there was an increase or a decrease. That can be a bit tautological because companies that had a good year are likely to pay out a bigger dividend. It's like saying, "the most successful companies were the most successful."
Perhaps a more informative study would examine a real growth index fund vs a real dividend index fund over a long period of time.
I found a Vanguard dividend fund, VYM. On the 'performance' page linked below it is possible to compare its growth to other indexes and funds on a line graph. I put it up against VBK (small cap growth ETF) and the S&P over ten years. S&P came first, the other two about equal second.
https://investor.vanguard.com/etf/profile/performance/vym
I chose those funds at random - perhaps someone can find one that did better.
Like Mulder, I want to believe. Like Scully, I cannot ignore the evidence that the broad index keeps on winning.