Welp, I took the ACT today. After six weeks of grinding, I think I did pretty well. I will not get my scores back for a month, but I am PRAYING that I can finally be done with this accursed test. I am shooting for a 35, but we shall see. Thanks for all of the kind messages; it really means a lot.

Maybe it is just because I am a youngin’ but I have always been a capital appreciation man. Anytime I hear my family member say stuff like “Man I love those dividends” I cringe. Also, I am biased. Ever since I saw Grant Cardone (human filth) get people to buy his course, and then “teach” them that they should not buy Google stock because they would not pay a dividend, I have hated dividend investors, or at least the cult ones. I have just always looked down on them as amateur, and naive.

Recently, the question, “Are dividends irrelevant?” came to the surface again online. I had always assumed that dividends suck because you are taking money out of the company. I always saw that as a short-term gain for investors, and a long-term loss for the company itself. As an investor who tries to focus on the long-term, this pains me. However, those dividend dollars that come in from companies I hold do feel nice, espescially when a DRIP (dividend reinvestment plan) is enabled. So, I set out to answer this question for myself, is dividend investing just a waste of resources?

Yes, dividend investing sucks, let me tell you why. EVEN if you are an older person who sees dividends as a more stable form of investing, it is still harmful.

First, as I mentioned, dividends hurt the company. Do not imagine dividends as a reward for long-time holders of the stock like you; imagine dividends as a reward for investors swooping in a week beforehand. It is not in the best interest of the company to shell out cash for these hawks, espescially if their competition does not. That money is being taken away from a project, hiring, or planning. Dividends do not improve the company itself.

Last year, Costco (a favorite of mine) paid out $1.7 billion in dividends, which was a 70% decline from last year. That $2 billion could have been to good use in so many different areas. I love Costco, and it would take a lot to sell, but they do face steep competition (sort of). As an investor, I would prefer for that $2 billion to be put towards scalping talent from competition, lowering prices, or expanding locations. The companies that do not pay a dividend will see a rise in stock price that will exceed the value of the dividend.

Second, if you only focus on dividend stocks, you reduce your total scope by so much. Only half of all stocks in the US actually pay a dividend and so few tech companies. If you only bought dividend stocks over the past decade, you would have missed out on explosive growth. If you spent $100,000 on Coca-Cola, (the most famous dividend stock) five years ago you would currently have added $15,000 in growth of the stock, and about $43,000 in dividends, for a total of $158,000. My math may be wrong, do not hate on me or I will cry. If you had invested in the opposite direction, ignoring dividends and going full-tilt boogie on growth, and bought QQQ five years ago, you would currently have $201,000. That is-ironically-a $43,000 difference. By focusing on dividends, you limit the breadth of who you are as an investor, and you never want to close your mind like that.

Third, dividend policies are abused oh so easily. Stock buyback programs are abused quite often, but so are dividends. The quickest way to lose your seat on a board is for the price to tank. The price of your company tanking is pretty easy if your company sucks *ahem* Icahn. Icahn is an excellent example of using an unsustainable dividend yield to draw investors in and keep them chained. He was paying dividends to old investors by issuing new shares. The price tanked because the market found out that his company sucked, and even if you got out before that, you probably still lost money because your shares were becoming continually cheaper. With all of these high-yield stocks, eventually, the price will tank because the market will figure out that your company sucks. If you are an older person, this can totally wipe you out, and wash out any positive effect the dividends had on your portfolio. To me, high yields are often a sign of struggle. The company has to rely on yields to support their stock, because the underlying company is not strong enough.

Fourth, your mindset probably needs to be corrected. Too often investors look at dividends as being money plucked off a tree and handed to them. Investors see dividends as being wholly different than capital gains. This results in dividend investors not re-investing their dividends like they would capital gains. If you are set on being a dividend investor, you have to enable DRIP. DRIP will automatically invest your dividend back into the stock, and over time it will net real results.

Fifth, a stock buyback is better. A stock buyback automatically makes your shares more valuable. By merely reducing the number of shares in the pool, a company makes your shares worth more. With a stock buyback, you also do not have to pay the taxes you would with a dividend.

Final thoughts, dividends are not the worst. In fact, I own a couple of dividend stocks: Microsoft, Costco, and Apple. I did not buy into them because they were dividend stocks; I bought into them because they are excellent companies. You should not rush to sell your stocks, and set your hair on fire. However, you should closely re-examine your portfolio and see whether or not the underlying company is truly worth investing in. There are well-run companies (Costco, Microsoft) that pay dividends, and there are poorly-run companies that pay dividends (Icahn, AT&T). Dividends are a nice to have, not a need.