sa226: You make some good points.
One thing people like about dividends is that they provide more consistent, less volatile returns (which is part of what you were saying). And they allow for reinvestment, which can be a means of further diversification.
At an aggregate level though - and theoretically - investors should be indifferent to dividends (pre-tax), because it comes down to 2 choices: either the company retains its earnings, and reinvests the money; or it pays out a dividend and the investor then has to reinvest the money in another company.
But in practice, it is a little more complicated than that because different companies, of different sizes, in different geographic locations, and in different industries with different products or services, are going to have different return expectations. Also, different dividend strategies can send different messages to investors.
However, if we consider a simple, long-term investor, who's goal is to maximize long-term return, then they should be dividend averse. Because of taxes. Of course, if all of your assets are registered, then taxes don't matter. But when taxes do matter, dividends should always be an inferior strategy to capital gains (all else equal), because they incur a higher tax drag. And the more you can reduce turnover, the greater that tax drag differential will be.
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