The "free dividends fallacy" is a belief that seemingly runs rampant in this sub. It's high time we took a closer look at whether investing in high dividend paying stocks makes sense.

When I was a kid we would get snack time at school, usually pretzels and juice or something. Sometimes we would get graham crackers. I remember the other kids smashing theirs sometimes, making a huge pile of graham cracker chunks and dust. It sure looked bigger, and they were really proud of making extra graham cracker, and teased all the other kids for having less. I remember thinking "wtf, you started with one, and you still have one, it's just in bigger pieces now!"

A company giving a dividend is just breaking off pieces of itself to distribute back to investors. There is still the same amount of "company" but it's in different form now. You just bought more shares of a smaller pie. There's no difference whatsoever between getting a cash dividend and buying more shares, vs leaving the cash in the company and letting the company continue to grow from there.

It's so frustrating to read posts like yours with people thinking they are getting a free lunch from dividends. It's the same damn thing whether you take the cash now, or leave it in the company and take it later. Literally the only difference is timing the cash payout, and by leaving it in the company, you get a favorable tax rate. That's it.

/r/investing Thread Parent