Dividends ARE NOT Free Money
I see this a TON on social media circles and other sources of financial information.
Everyone acts like dividends are free money; however, the value of the dividend does come out of the share price.
I walk through an example in the video and explain how the dividend does reduce the net book value of the shares of stock by the value of the dividend.
Now, don’t get me wrong. This is not to say to not invest in dividend paying companies. Generally, dividend companies are going to be well-established, stable, mature companies that have tons of cash flow and are able to return some of the cash to the shareholders in the form of a dividend.
Dividend investing has two other major appealing attributes, which I talk about in the video. First, the dividends can be reinvested and used to buy more shares, which will compound significantly over time. Also, dividends can be used to build a tax-efficient income stream that can help you avoid having to draw down some of your retirement principal.
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