At least it’s paying a dividend

Concerning take-away #1 from this morning’s ‘retiree shareholder investing association meeting’;

investors are buying and chasing income (high dividend paying) stocks without any regard for valuation.

i.e. if it pays a 5% dividend, then its good and so I will buy it.

I tried to highlight the notion of not grouping oneself into a value or growth investor (who invented this categorisation anyway?), but rather to insist on buying a bargain or at the very least, a business which is considered ‘fairly valued’.

Dividends alone (nor does a descriptor ‘blue-chip’) doesn’t mean you won’t lose money.

I then introduced the notion of investing with a eye towards identifying the risk/reward of the particular stock’s price;

and then I mentioned an idea called ‘total return’, citing that it doesn’t matter if total gains are garnered with capital growth, dividend distributions or a combination of both.

and when I cited the sample chart below of Commonwealth Bank of Australia’s (CBA) return (80% if including dividends) to that shitty dividend paying company called Microsoft (650% return in 8 years)

The collective response was, ‘but who would’ve bought and held Microsoft for that long if they weren’t paying dividends?’

Much a disservice has been taught and dealt in propagating poor financial literacy amongst many retail investors.

May 19, 2021
by Rob Zdravevski
rob@karriasset.com.au