Warren Buffett talks about how dividends can be a bad thing. Many investors, both new, experienced, and professional, classify themselves as “dividend investors”. These investors focus on buying stocks with high dividend yields. This video talks about how investing purely for dividends can hurt long term investment performance.
Warren Buffett is the CEO of Berkshire Hathaway and is considered by many to be the greatest investor of all time. Through his holding company, he owns stocks such as Apple, American Express, Bank of America, and Coca-Cola….(read more)
LEARN MORE ABOUT: IRA Accounts
INVESTING IN A GOLD IRA: Gold IRA Account
INVESTING IN A SILVER IRA: Silver IRA Account
REVEALED: Best Gold Backed IRA
Warren Buffett: The Big Problem With Dividend Investing
Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway, is widely regarded as one of the greatest investors of all time. His success and wealth have attracted attention from aspiring investors seeking to follow in his footsteps. One strategy that Buffett often emphasizes is value investing, which involves buying companies at prices below their intrinsic value. While Buffett has been known to invest in dividend-paying stocks, he has also voiced concerns about dividend investing as a primary strategy. In this article, we explore the big problem with dividend investing according to the Oracle of Omaha.
To understand Buffett’s perspective, it is important to first grasp his view on dividends. Dividends are cash payments made by a company to its shareholders, usually on a regular basis. These payments are often seen as a reward for investors who hold the stock, providing a steady income stream. Dividend investing involves selecting stocks based on their dividend payments, with the aim of generating income. This strategy is particularly popular among investors seeking passive income or steady cash flow.
Buffett has highlighted two primary reasons why dividend investing may not be the best strategy for long-term investors. Firstly, companies that consistently pay large dividends may be restricted in their ability to reinvest profits back into the business for growth. By distributing a significant portion of their earnings to shareholders, these companies may limit their capacity for research and development, acquisitions, and other forms of expansion. As a result, they may sacrifice future growth potential to satisfy current income needs.
Buffett is a strong advocate of investing in companies that can compound their earnings over time. By reinvesting profits into the business, companies can fuel growth, increase their market share, and generate larger returns for investors. When companies reinvest their profits, it leads to organic growth, rather than relying on external stimulus such as mergers or acquisitions. Buffett’s success with long-term investments in companies like Coca-Cola, American Express, and Wells Fargo demonstrates the power of compounding.
The second major concern highlighted by Buffett is the tax disadvantage of dividend investing. In many countries, including the United States, dividends are taxed at a higher rate than capital gains. This means that investors who rely heavily on dividend income for their cash flow may end up paying more in taxes, thus reducing their overall returns. Buffett argues that by focusing on capital gains rather than dividends, investors can defer their tax liability and potentially pay less in taxes.
Moreover, Buffett often points out that a company’s share price may decline after its ex-dividend date, as the stock’s value is adjusted to account for the dividend payment. This results in a decrease in the investor’s net worth, offsetting the dividend income received. By prioritizing capital appreciation, investors can potentially generate higher returns without the negative impact of declining stock prices due to dividend payouts.
While dividend investing can provide a reliable income stream, especially for retirees or investors seeking passive income, Warren Buffett’s concerns offer a fresh perspective. By focusing on capital gains and identifying companies with strong growth potential, investors may be able to benefit from the power of compounding and minimize tax liabilities. While dividend investing can still play a part in a diversified portfolio, understanding its limitations and considering Buffett’s insights is essential for long-term investors aiming to achieve substantial wealth creation.
Mr. Buffet is my Mentor and King! As he teaches, YOU MUST KNOW AND UNDERSTAND THE COMPANY! Nobody should be buying a company they don't understand. I reinvest all my dividends!! Thanks for the great video!! He owns lots of Coca-Cola, and it has a dividend of 3.16%. Its a strong , well know company which has been around forever! It's not going to die (at least not soon!) Thanks for the great video!!!
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family…
I started investing late in life, and I am not afraid if there's that usual down turn in the market. The current investments I have, I am not concerned. The market is a roller coaster, it will go up and down. That's a fact of life. When the roller coaster goes down, that's my opportunity to buy blue chip stocks; for bargain basement prices. I am not writing this to profess my intelligence to the world, I am writing this to not be afraid. When the market/roller coaster goes down, that's the fun part; when everyone starts screaming. And we're buying blue chip stocks, at bargain basement prices; I see that as an opportunity. Good luck to one and all !
So another words I should invest into SWPPX, SCHG instead of SCHD?
This video completely ignores what dividend investors mostly buy: ETFs that generate dividend payouts using covered calls ( QYLD ) or synthetic covered calls ( Yieldmax TSLY, APLY, ) or shorting the CBOE Volatility Index ( SVOL) or ETFs that hold Master Limited Partnerships, companies that receive extremely favorable tax benefits because they, by law, pass on certain amount of profits as dividends ( Alerian AMLP ), or low risk treasury ETFs that retain their book value ( SGOV). I only mentioned U.S. ETFs There's a whole world of ETFs to learn about.
Dude you are woke
For the average Joe, it is much more satisfying to own dependable and solid dividend stocks and produce regular income stream. You are free from having to monitor or sell at a loss. Besides, cash flow is king.
Buffett NEVER says "paying out dividends is a bad thing". He talks about the phases a company goes through and WHY THEY SHOULD pay a dividend and why Berkshire (Buffett's company) does NOT pay one.
Coke out performed Berkshire buy a lot. And they gave out dividends. Apple also did well too. And they guve out dividends. McDonald's i have to look up but in sure they are fine. Find companies that been paying dividends for over 30 years and are solid companies. You dont need to be an investment expert to know coke and apple are great stocks. Had you put all your investments in those two for 40 years you would be filthy rich.
Schd isn’t bad though. It holds with the s and p 500 and has a nice average return historically
I view this a little differently. I buy companies that I don't believe are going anywhere anytime soon and pay a decent dividend yield. These companies also historically keep up with the S&P 500. My goal is to make as much money in dividends per year, equal to the amount of cash I am putting into the account. Dividends that are reinvested automatically or by me are compounded. A 5% dividend yield that is re-invested will pay even more next year, and so on. So with the cash I put in every month, plus the compounded dividends, I don't think it's a terrible strategy. Plus, whenever I die, my kids will get income, on top of whatever value is available. Again, not too bad of a strategy IMHO. At the end of the day, if you're not hitting it big on the next amazon, this and similar long term strategies are the next best thing. Consistency is everything. Nothing happens if you aren't putting money in the account.
A companies dividend history is actually a key indicator of their past and future performance. If you can find a company which has for decades been paying a steady and growing dividend with a low payout ratio who’s stock price has increased with it then it generally means they have consistent revenue growth and free cash flow with a low debt load. You have to be a well established and capitalized business to keep that commitment to shareholders for that long. Dividend aristocrats and kings may seem like those boring, blue chip companies your uncle worked for in the 80’s and still gets a pension from, but they’ve been making people rich long before that and ever since, and a big part of that is through their dividends. People forget Warren Buffet makes 900 million per year in dividends JUST from Berkshire Hathaway’s holdings in Chevron…without buying or selling a single share, and that’s what like under 3% of their whole portfolio ?
I'm still new to investing but from what I gather, wouldn't it make sense to accumulate enough stock that dividends will allow you to reinvest, and provide a decent supplement to your earned income? And if managed correctly will be able to fund your retirement entirely alongside accumulated assets such as properties which generate income by rent etc. I can see why a company paying very high dividends may be limiting its capacity to fund growth but no dividends also seems impractical. like to have an investment that grows but only until you sell and then you are no longer in the game of using your money to make more money?
if the dividend has a 3 to 5 percent yield is good anything greater than be worried about the company.
They do not pay dividends but like to receive dividends of course..
Like Warren Buffet said, dividends are only good if the business you’re investing into can’t make good use of that capital. So if you’re trying to invest into businesses with actual growth, looking at dividends is a waste of time. Why are you investing into a company if they’re returning capital to you because they think you can make better use if it than they can. It’s not much different from bond investing. The way I see it if you have a $1 million at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income…
Its quiet interesting how we reject the reality of our situation and expect to be able to observe it, control it and even change it. I used to be financially depressed until I read a book that made me realized that the secret to making a million is making better investments.
Like Warren Buffet said, dividends are only good if the business you’re investing into can’t make good use of that capital. So if you’re trying to invest into businesses with actual growth, looking at dividends is a waste of time. Why are you investing into a company if they’re returning capital to you because they think you can make better use of it than they can. It’s not much different from bond investing. The way I see it if you have a $1 million at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income…
mutual funds for me. Cant go wrong in investing in majority of the Countries market. If one goes down no harm. To come at a complete loss would mean were all screwed anyway if the Us market fails. Investing in a diverse portfolio of the most crucial and successful companies doesnt seem to me like a bad idea to me. Im more of a long term fund guy myself Im not looking for immediate profit. I also dont invest into individual companies because of the high risk.
Am I missing something? Buffet loves dividends! He wouldn't be able to do what he does, without them. It's a little bit selfish that he doesn't share the benefits with his shareholders. Who can afford to own a business for 50 years, that doesn't pay them a cent!
Buy good healthy companies that pay dividends. Then reinvest and/or live off the dividends.
Not point in killing a healthy chicken, if you can live off its eggs or use its eggs to grow more chickens, or both.
‘We keep your cash because we can spend it better’ Soon as he kicks the bucket stocks going to 0.
I am a video editor if you are looking for let me know
It's about the overall discounted cash flow over time regardless of the dividend.
Do you really trust other companies with your money (dividends)? That's ridiculous. Invest for long term dividend growth and diversify.
Dividends keep shareholders from selling the stock
Huge fan of Mr. Buffett. Great content ❤
If divden investing is your style thats cool.Bershire does not pay a divden is true.They do however recive over 4 billion in divdens annually from there holdings.Warren loves getting divdens he can use that money and invest it in other things.After Warren passes will the returns continue we shall see.Anytine you invest it is a risk no matter the asset. Companies come and go so learn to invest the way you like.Happy investing/stacking.
Buffett never said dividends are a problem. Berkshire always uses it's cash to buy more stuff, and a lot of that is dividend stock like Coca Cola and others.
lol clickbait, the moral as a newbie ive learnt is not to buy high paying dividends typically from bad companies vs strong businesses with great moats, not dividends is bad infact a) buffet says its good for coke does it as it suits its model b) buffet makes tens of millions in dividends ITSELF for its own investing
You should also have mentioned the tax haircut on paid dividends
I feel like there's a dividing line here though, between companies that are growing and ones that are simply stable. Coke can afford regular dividend payments to its shareholders because, realistically, the demand for Coke has been completely saturated. It's a consumer good that is WIDELY used and WIDELY available. Anybody that can wants to consume it and afford to consume it, is. There is no shortage of Coke that could be improved on by reinvesting profits. When you contrast that to ATT, well, telecomm companies especially ones that have built copper networks, are widely deficient and being challenged by fiber optics, cellular, and satellite: they're on the defensive and they need to be growing new networks using new technology to remain competitive. So a company like that should not pay a dividend, they should grow their company instead.