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I feel like the easiest way to accomplish this is just investing into stable dividend stocks. I don't know the first thing about running a vending machine, or u

I feel like the easiest way to accomplish this is just investing into stable dividend stocks. I don't know the first thing about running a vending machine, or upkeeping a condo. But I know people who do - dividend-paying companies. I get ~$20 a month on a $6600 position. Could earn way more if i shifted other investments but it's not the best tax-wise (neither is running a vending machine, compared to buying an index fund).

gruez 5y ago
Is there a reason to prefer dividend paying stocks when they're less efficient than long term capital gains (ie. buybacks)?
- simonh 5y ago
  The dividend income is cash flow so which isn’t tied to the future value of the stock. You don’t need to worry so much about timing when you need to sell the stock to get back the best profit. Sure it’s not the best long term and in aggregate, but if you need an income then it’s a reasonable choice.
  - ivalm 5y ago
    But you can just sell stock continuously, as it is more tax efficient. Eg 2% dividend is just 2% of portfolio sold every year.
- ac29 5y ago
  Dividends are taxed the same as capital gains in the US. There can be value to deferring taxes, but $1 worth of capital gains via say a buyback is worth the same as $1 paid out in dividends, net of taxes.
  - dentalperson 5y ago
    A buyback does not trigger a taxable event, unlike a dividend. So the tax deferred value of buybacks is compounded over the years, which can be significant.
- flukus 5y ago
  The main reason for me is that it's intuitive/comprehensible (company shares profits with stock owners) and it aligns with my goals (create passive income) in a visible and flexible way. Other options are more abstract and require more specialized finance knowledge. It might be suboptimal, but when you're planning your financial future understanding what's happening is important and I suspect is one of the reasons more people don't invest. My country also has different rules on how dividends are taxed.
dehrmann 5y ago
I agree that you're better off with stocks. I know the first thing about running a website, condo, and vending machine, and it's that it's work. I'm not looking for a part-time job. I disagree about looking for stocks that pay a decent dividend. They're overpriced because boomers are all over that (which actually means the yields aren't great), and dividends are taxed as regular income (32% for our $200k doctors), not 20% like long-term capital gains. Dividends also more or less come out of the stock price (tends to be a bit less), so the draw do dividends is that the feel better than selling shares. The main takeaway from the article was just "live within your means and invest what's left."
- bruxis 5y ago
  I generally agree on not choosing dividend stocks (a solid ETF can include a reasonable dividend payout, which feels more like a bonus), but just a note that the tax rate on qualified dividends is the same as long term capital gains (0%, 15%, 20%). Not all dividends can be qualified (payouts from REITs for example are a common exception), but most typical blue chip stocks that pay dividends will become qualified after holding the underlying asset for enough time.
throw0101a 5y ago
> I feel like the easiest way to accomplish this is just investing into stable dividend stocks. Yes, you're generally better off with equities. Though going for total return is better. It's not that dividends are bad (they're an important part of returns), but (a) you're limiting your diversification options by only focusing on dividend-paying companies, and (b) there's little correlation between dividend-paying companies and companies that give you good financial results. > Dividend investors will tell you that theory does not extend to reality, and that dividend stocks do indeed do better than the market. I am not denying that dividend growth stocks have beat the market on average. But the dividends are not the reason why. Dividend stocks, particularly dividend growth stocks, have excess exposure to the value, profitability, and investment factors. That is what explains performance differences, which means the outperformance still doesn’t justify trying to pick individual stocks. * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil... * https://en.wikipedia.org/wiki/Fama–French_three-factor_model https://en.wikipedia.org/wiki/Fama–French_three-factor_model
benhurmarcel 5y ago
Right, but with stocks you need a capital of $1m+ to get a significant income, which basically takes an entire career to accumulate.
- Closi 5y ago
  Depends how much you are putting away each month - If you save $1k per month it will take you about 22 years (with compounding, assuming you take nothing out). There isn't no "get rich quick" in personal finance though.
jspash 5y ago
Correct me if I'm wrong, but investing $6600 for a $20/month return is going to take 25 years to break even. How is that worth it? (I'm totally naive about investing. This isn't a dig at you. Genuinely curious)
- christocracy 5y ago
  It also benefits from capital appreciation. As for breaking even, the security is highly liquid and can be sold at any time to recover one’s capital.
- flukus 5y ago
  You're buying an asset, this can always be sold to cover your initial investment. You're also gaining $20 cash that can be put into other investments, so they gains are compounding. Like every thing else in the stock market you're also hoping that the stock value and dividends increase over time. So in reality you get a return much earlier, but even after that you still own a cash generating asset in perpetuity. If it was purely the cash flow you wanted you would buy a bond, but once the bond period is over that's it, you own nothing except the cash taken out. If you want to accumulate wealth but not necessarily cash flow high growth stocks are probably a better option.

gruez 5y ago

Is there a reason to prefer dividend paying stocks when they're less efficient than long term capital gains (ie. buybacks)?

simonh 5y ago
The dividend income is cash flow so which isn’t tied to the future value of the stock. You don’t need to worry so much about timing when you need to sell the stock to get back the best profit. Sure it’s not the best long term and in aggregate, but if you need an income then it’s a reasonable choice.
- ivalm 5y ago
  But you can just sell stock continuously, as it is more tax efficient. Eg 2% dividend is just 2% of portfolio sold every year.
ac29 5y ago
Dividends are taxed the same as capital gains in the US. There can be value to deferring taxes, but $1 worth of capital gains via say a buyback is worth the same as $1 paid out in dividends, net of taxes.
- dentalperson 5y ago
  A buyback does not trigger a taxable event, unlike a dividend. So the tax deferred value of buybacks is compounded over the years, which can be significant.
flukus 5y ago
The main reason for me is that it's intuitive/comprehensible (company shares profits with stock owners) and it aligns with my goals (create passive income) in a visible and flexible way. Other options are more abstract and require more specialized finance knowledge. It might be suboptimal, but when you're planning your financial future understanding what's happening is important and I suspect is one of the reasons more people don't invest. My country also has different rules on how dividends are taxed.

dehrmann 5y ago

I agree that you're better off with stocks. I know the first thing about running a website, condo, and vending machine, and it's that it's work. I'm not looking for a part-time job. I disagree about looking for stocks that pay a decent dividend. They're overpriced because boomers are all over that (which actually means the yields aren't great), and dividends are taxed as regular income (32% for our $200k doctors), not 20% like long-term capital gains. Dividends also more or less come out of the stock price (tends to be a bit less), so the draw do dividends is that the feel better than selling shares. The main takeaway from the article was just "live within your means and invest what's left."

bruxis 5y ago
I generally agree on not choosing dividend stocks (a solid ETF can include a reasonable dividend payout, which feels more like a bonus), but just a note that the tax rate on qualified dividends is the same as long term capital gains (0%, 15%, 20%). Not all dividends can be qualified (payouts from REITs for example are a common exception), but most typical blue chip stocks that pay dividends will become qualified after holding the underlying asset for enough time.

throw0101a 5y ago

> I feel like the easiest way to accomplish this is just investing into stable dividend stocks. Yes, you're generally better off with equities. Though going for total return is better. It's not that dividends are bad (they're an important part of returns), but (a) you're limiting your diversification options by only focusing on dividend-paying companies, and (b) there's little correlation between dividend-paying companies and companies that give you good financial results. > Dividend investors will tell you that theory does not extend to reality, and that dividend stocks do indeed do better than the market. I am not denying that dividend growth stocks have beat the market on average. But the dividends are not the reason why. Dividend stocks, particularly dividend growth stocks, have excess exposure to the value, profitability, and investment factors. That is what explains performance differences, which means the outperformance still doesn’t justify trying to pick individual stocks. * https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/ https://www.pwlcapital.com/the-irrelevance-of-dividends-stil... * https://en.wikipedia.org/wiki/Fama–French_three-factor_model https://en.wikipedia.org/wiki/Fama–French_three-factor_model

benhurmarcel 5y ago

Right, but with stocks you need a capital of $1m+ to get a significant income, which basically takes an entire career to accumulate.

Closi 5y ago
Depends how much you are putting away each month - If you save $1k per month it will take you about 22 years (with compounding, assuming you take nothing out). There isn't no "get rich quick" in personal finance though.

jspash 5y ago

Correct me if I'm wrong, but investing $6600 for a $20/month return is going to take 25 years to break even. How is that worth it? (I'm totally naive about investing. This isn't a dig at you. Genuinely curious)

christocracy 5y ago
It also benefits from capital appreciation. As for breaking even, the security is highly liquid and can be sold at any time to recover one’s capital.
flukus 5y ago
You're buying an asset, this can always be sold to cover your initial investment. You're also gaining $20 cash that can be put into other investments, so they gains are compounding. Like every thing else in the stock market you're also hoping that the stock value and dividends increase over time. So in reality you get a return much earlier, but even after that you still own a cash generating asset in perpetuity. If it was purely the cash flow you wanted you would buy a bond, but once the bond period is over that's it, you own nothing except the cash taken out. If you want to accumulate wealth but not necessarily cash flow high growth stocks are probably a better option.