Dividends versus Homemade Dividends
by | Posted 10.28.2012 | Post Comment (No Comments)

Some investors question whether dividends offer any real value to investors. One of their main arguments against dividends is that on the ex-dividend date, the stock price decreases exactly by the amount of the dividend.

The argument goes on further to mention that it should not matter to investors whether they buy a stock yielding 4%, or sell 4% of their portfolio. I am using four percent after the famous four percent rule for retirement. Using both scenarios, the investor will have the same amount of cash. Selling off a portion of one’s portfolio in order to generate cash is regarded as “homemade dividend”. There are several issues with this flawed reasoning.

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