Dividends vs. retained earnings – what is best from a shareholders perspective? In this article, I discuss dividends vs. retained earnings and where the capital compounds best: in your hands or in the company’s hands. Distributions and subsequent reinvestments are an inefficient way of compounding! Given certain assumptions, retaining the earnings is better than distributing…
Compounding dividends and DRIP investing are popular. That is understandable because dividends have significantly contributed to long-term gains in the stock market. It’s essential that you reinvest dividends to get the returns of the market, but many investors mistakenly focus solely on dividend stocks because of this. But a company has many opportunities to allocate…
The marginal rate of return is the most crucial factor to compound efficiently. In the long run, your pension is more dependent on the marginal rate of return than the original investment. If you are into dividend investing, you should study the marginal rate of return on your investments. We argue that dividend investing is…
If you’re a dividend investor, did you know that you can sell shares to get the same “income”? A lot of investors swear to invest only in dividend stocks to get “income”. While I agree a dividend can serve as a useful heuristic in investing, a more rational approach would be to look at each…
How do taxes affect your compounding interest? To shelter your savings from taxation while building your nest egg is extremely important and you better understand taxes and compounding. I believe this is pretty obvious for most investors, but I suspect it’s still neglected because the headwind takes about ten years to really make a difference….
