It has long been ingrained in our psyche that dividend stocks outperform. There our countless books on the subject, including one by yours truly. And while we think using shareholder yield is a brilliant way to invest, there is no doubt that paying taxes on dividends every quarter is sub-optimal. So, here’s my thinking
- Dividend stocks have historically outperformed the broad market.
- Dividend stocks have likely outperformed since they possess a value tilt. But the value tilt is likely unrelated to dividend payout.
- What if you could invest in no, or low yielding stocks that also have a value tilt (with a value composite for example) and achieve the same performance as dividend stocks.
- If true, then a fund that focuses on value stocks with low/no yield would outperform in a TAXABLE account by 0.5% to 1.00% per year. (That’s a lot). It is even more if dividend tax rates are similar to historical periods of individual income levels (so 15% now, but historically as high as 90%!).
Anyone seen any research here? Would love to run some studies but I can’t find anything in the literature.