Paying dividends causes the stock price to drop by the amount of the dividend, so why is so much emphasis placed on these as “income generating” investments?

I got a pitch for a fund the other day that talked about how much the income from dividend payments can positively impact returns on a fund heavily invested in dividend-paying stocks.

I had two responses to that: – Dividend ex-dates are known binary events so EMH says that the dividend (and future dividends) are already priced into the stock. – The stock price drops by the amount of the dividend payment after the ex-date, so paying a dividend does not actually change the value of a portfolio except for turning some of the equity into cash.

When I asked these the adviser went on about how dividends were signals of financial strength (ok, sure, but is it still the 1930's when there were no other signals to look at?) so I dropped it and left.

But it kept bugging me, so what do you all think? What's the big deal with dividends?

Submitted July 12, 2017 at 06:42AM by philipwithpostral


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