Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Share
The problem with my $500+ dividend payday...
Published about 1 month ago • 5 min read
Here's your weekly helping of interesting investing information and insights.
Food For Thought
This week I got hit with a record dividend payment in my non-retirement accounts... $586.89!
But something still messes with my head a little, even after doing this for years: my net worth did not go up by $586.89 when that money arrived.
The second those dividends hit, the companies I own just moved money from their balance sheet to mine. That’s it.
If that sounds like a buzzkill, it’s not meant to be. I just think it’s really easy to forget this, even for people who’ve been investing a long time.
You see $587 show up and your brain goes, "Nice, free money." But it’s not free. It was already yours. It was just sitting inside the company instead of sitting in your account.
Some of that income comes from real businesses selling real products. Some of it, like with an options-income fund, comes from selling covered calls and passing that cash through to you. Either way, the same rule applies. If you own the asset, the dividend is just your own money changing accounts.
This is NOT a knock on dividends. A healthy, growing company should have more sales and more profit every year, which means more cash to keep sending your way. And if you reinvest those dividends into more shares, you can snowball that income over time.
But dividends come with a very real trade-off: every dollar a company or fund pays you is a dollar it did not reinvest into itself. It didn’t go toward new products, buying other companies, paying down debt, or research. It went to you instead.
Sometimes that’s the smart move. A big, mature business that is swimming in cash and running out of ways to grow should hand cash back to shareholders. But make no mistake, it is still a trade-off. Money paid out is money that can’t compound inside the business anymore.
There’s actually concrete proof of this. On the "ex-dividend date"—the day the market marks who gets paid—the stock exchange automatically drops the share price by the dividend amount. If a stock is at $200 and pays a $1 dividend, the price is adjusted to open at $199 because that dollar left the company's books.
So why do I still love dividends, trade-offs and all?
Because they make it so much easier to just sit still and hold.
Take AbbVie (ABBV). I’ve owned it since June of 2019. I've been tempted to sell a few times when the price ran up hard. But my "yield on cost" sits at 8% right now. That means the dividend I’m collecting today, compared to what I originally paid per share, works out to an 8% return every single year just from the payout. And it keeps climbing because they raise the dividend faster than inflation, and the business keeps growing underneath it.
That 8% is helping to keep my hands under my butt. That’s the real magic of dividends. It's not the cash itself, but what the cash does to your behavior. It keeps you holding when your emotions are screaming at you to do something.
Of course, that same behavior can bite you, too. I’ve held onto some real stinkers way longer than I should have, just because the dividend check kept showing up. (Looking at you, Leggett & Platt).
The lesson cuts both ways: the dividend isn’t the thing that matters. The business behind it is the thing that matters. A great dividend attached to a dying business is still a dying business.
Which brings us to the debate that never dies: dividends versus total return.
I’m not the total return police. I won’t tell you you’re doing it wrong. But personally, if a stock’s price growth plus its dividends can't beat something as simple as a basic S&P 500 index fund (like VOO) over a long stretch of years, I’d rather just own the index and have more money at the end.
At the same time, I get why people love income. You can’t pay for groceries or put gas in your car with unrealized total return. Cash in your account is cash you can actually spend. There is something deeply calming about watching predictable income show up every month or quarter, whether the market is up or down.
I'm not here to settle that debate. But more people discussing both sides just makes all of us smarter investors.
There’s more than one way to financial heaven, and you don’t have to pick just one path. You just have to pick the one that works for you and meets your goals. I keep a solid chunk of my portfolio dedicated purely to income—stuff I hope I never have to sell. And I keep another chunk chasing pure growth. It's the best of both worlds for me.
So tell me what works for you by hitting reply. Are you strictly total return? Strictly income? Or are you a hybrid like me? I’ll respond to every reply.
Did you know that Morgan Housel has a podcast? The format is an opening monologue followed by listener questions. There's ALWAYS a nugget of wisdom that you can use to apply to your life or investing.
Disclaimer: This is not investment advice. Do your own research before making any investment decisions.
😁THANK YOU to all who responded to the last newsletter!!
Simply Safe Dividends is a resource I use every single day. It's run by a handful of very knowledgable HUMANS and updated constantly. And with this offer, you can try it FREE for one full month with absolutely NO credit card required! 👉Check it out!
Seeking Alpha just launched their sitewide Summer Sale, and it’s the best time to upgrade your research tools. You can test out Premium completely free for 7 days, plus lock in huge annual discounts:
If you want data-driven insights and professional stock ratings to help grow your portfolio, grab the deal while it lasts. 👉 [Claim your discount here!]
*These are affiliate offers, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the images or links above.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Papa John's (PZZA) was yielding over 6% and that dividend looked shiny and tempting. I'm not going to pretend I didn't notice. It's been sitting on the fringes of my radar for a couple years now, price sliding, yield climbing and my daughter loves their pizza. (Reminder: liking the product doesn't make it a good investment. Plenty of us loved Blockbuster Video too.) Being attracted to a fat yield is fine. Normal, even. A largemouth bass sees something shiny and thinks food. The bass just...
So I'm listening to the VICI Properties (VICI) earnings call last week and an analyst asks about buybacks. The stock's been crushed, sitting near its 52-week low. So why not buy some of it back? The CFO basically said no thanks. And the reason he gave is something I don't think most people know, so let me try to explain it, because I've seen social media posts ripping REITs for "diluting shareholders" and there might be some confusion. A REIT (Real Estate Investment Trust) is just a publicly...
My international allocation is 0.62%, but the pros say 30% to 40% and I might be making another move to start bringing that higher. For years my excuse was that I owned PepsiCo (PEP) and Johnson & Johnson (JNJ), so I already had foreign exposure. That's half right. A company like PepsiCo gives you global sales, but not global stock behavior. PepsiCo still trades like a US stock no matter where it sells its soda. And the excuse is getting weaker: Goldman Sachs says 28% of S&P 500 revenue came...
