Prudent considerations as a dividends investor

dividends investor

Remind dividends investor who take dividends as the starting point for their investment, whether it is US stocks or Taiwan stocks; if you incline to dividends investing or you are an elderly retiree, many of the biggest risks of dividend investors must be paid attention to. Let discuss below.

Stock has limited upside potential

Don’t fall into the woods — Many companies that distribute dividends are listed companies whose business will not grow significantly; this means that the stock price will no longer grow significantly in the future; your principal may be eaten up danger. Even if you buy the few semiconductor stocks that I mentioned that will distribute dividends, on average, their stock price upside potential are relatively poor, and they may be lower than the market. The worst scenario will be you will be fortunate if the principal is still there.

I took Coca-Cola as an example before. This is a very good example. Taiwan’s China Steel is also an example, and China Steel, strictly speaking, is in an industry that is far more disadvantaged than Coca-Cola. Moreover, Taiwan’s national conditions and overall industrial structure, industrial benefits and profits are really not suitable for steelmaking in the long term. For details, please refer to my other blog post “Coca-Cola has been inferior to Pepsi in and even return rate is negative in past 10 years!“.

Inflation and interest rates

The importance of inflation and interest rates cannot be overemphasized. Most people underestimate the lethality of inflation and interest rates on everyone ───Let’s say that they can pay for stocks that exceed the rate of inflation plus interest rate increase every year. Not very few, but extremely rare! Investors must face up to the pressure of rising prices (purchasing power, this is the most important thing). Dividends investor rely solely on dividends to sustain their lives should be caucious to your dividends investing. Readers who are interested in this topic can refer to my previous article “The most two serious killers to investors inflation and interest rate


There is a so-called rich person in Taiwan that sells stocks during the period when dividends are paid, and then buys back stocks after ex-dividends, in order to avoid a large amount of taxation. This is a rare phenomenon in the world. There is no reason for it, just because of tax law revisions — dividends have been incorporated into comprehensive income.

Even if you are a U.S. taxpayer buying U.S. stocks, dividend income should be taxed at the capital gains rate or the higher ordinary income tax rate. In contrast, unless you sell and realize gains, you do not need to pay taxes on stock price appreciation. This is the reason why U.S. stock companies do not like dividends and switch to stock repurchase; see my other article “Why do more U.S. technology stock companies tend not to pay dividends?” for details.

If you are a U.S. taxpayer, please make good use of your 401(K) account, because you use 401(K) to purchase shares. Dividend taxes are deferred in your 401(k) and traditional IRA, and are tax-exempt in the Roth IRA.

Dividends is an uncertain income

Companies do not guarantee that dividends will not be interrupted, and they continue to increase dividends in line with inflation. In the history of U.S. stocks, there are only “extremely rare few” companies (for the full list, please see my book “The Rules of Super Growth Stocks Investing”, sections 5-6) maintain such records. Most of them will be interrupted, mainly because of the limited lifespan of listed companies. Another reason is that business encounters difficulties, leading to business difficulties, and must be cut to maintain cash flow.

Stock price highly linked to dividend policy

The stock price of a listed company that pays dividends will almost always be highly linked to the company’s dividend policy — increasing dividends, reducing dividends, suspending dividends, starting to pay dividends, and resuming dividends; any of them will immediately affect the company’s stock price . For example, when General Electric (ticker: GE) cut its dividend in 2018, its stock price fell from approximately US$78 to US$51.54 in six weeks, a 34% drop.

Is dividend-based investment bad?

The dividend-based investment method is not bad, because each investor’s situation, needs, financial status, and age have different considerations–Financial institutions, non-profit organizations, retired people, people without paying jobs, or any investors who need rapid liquidity of assets are very suitable to adopt dividend-based investment methods. I have repeatedly emphasized that there is no such thing as “sure” or “definite” on the road of investment.

Only if it is suitable for you, and the investment method that suits you, will you have the enthusiasm for investment and will automatically form habits. Forcibly applying other investment methods and adopting methods that are hard for oneself to agree with will not last long. Only by finding an investment method that suits you can you be successful in a long-term, long-term investment and long-term flow. All my central ideas are the same.

dividends investor
credit: Flickr

Where to Find High Dividend Companies

If you invest with dividends as the starting point, I recommend you to refer to my other article “Dividend-rich industries and 6 big differences from Taiwan” for details.

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