Dividends are left-pocket right-pocket. Dividends can help you psychologically, but in a way, it’s like forced selling once per year or per quarter.

Edit: if it helps you to invest, by all means, do it. But since dividends are mostly psychological, there is no point in limiting your stock picks to companies with a high dividend.

On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividends + capital gains), and do so with lower volatility. Reasons include having a business that is profitable and stable enough to sustain such payouts and a management culture that appropriately balances shareholder interest (by paying dividend) against the long-term viability of the business (and can therefore continue its dividend payments over multiple decades).

Just a nitpick:

> a management culture that appropriately balances shareholder interest (by paying dividend)

In theory a company should invest in whatever has the most favorable risk-return profile. If it pays dividends, that means dividends are judged by management to be the best risk-return profile among all other alternatives. A company can pay zero dividends and still protect shareholders interests.

That’s not quite accurate. A company is ultimately controlled by it’s owners who may prefer dividends. One possible example is maintaining the current ownership structure while providing an income. Think someone owning 51% and wishing to maintain control.

> A company is ultimately controlled by it’s owners who may prefer dividends.

If the reason they "prefer" dividends is not because they evaluated the alternatives and decided that the risk-return profile was favorable (for the company, not for themselves in particular)), then they are acting against the interests of the minority shareholders. That may carry legal consequences or not, depending on your jurisdiction. In my country (Brazil), there are laws protecting the interests of minority shareholders. If you have 51% of a company that is listed on the stock exchange, you have significant but not unlimited power.

Also, maybe the company sees it as a risk that, in reducing the dividend, it may suffer in the short term due to the outflux of shareholders who see it as a dividend play. In that case, the risk-return profile of paying zero dividends is not favorable.

In practice protection for majority shareholders does not extend to a preference of dividends over investments in any jurisdiction. All investments carry risks, dividends don’t so the only legal justification required is to select a low risk threshold. Such protections are designed to avoid selling off assets at below market rates to majority shareholders and other such clearly suboptimal choices.

Counter example: Apple. Low dividend, but all other check boxes apply.

Sure, but let me make two points:

1. I did not say anything about how high the dividend is, only that it has been sustained and has not decreased for a long period of time (multiple decades). Some companies on the list currently pay relatively low dividends as well.

2. It is a heuristic, so it will definitely miss a few great companies and some companies on the list will go on to do poorly (not that any method of stock picking will be any different).

>On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividends + capital gains), and do so with lower volatility.

Source?

it's not psychological at all. Dividends give you returns that can be reinvested in whatever you want, so it helps with diversification. Now, in the US companies have muddled the field so good dividends don't mean much, but it is still useful to remember this.

So does an equivalent increase in the share price of the underlying

Not really. Share buyback may be an advantage, but it doesn't necessarily reflect on the price of the stock. In other words, a company can buy its own stock and price can fall anyway (see for example GE). This cannot happen with money deposited on your account.

You’re conflating daily price action and the balance sheet. From a pure financial perspective, the stock price is reduced by exactly the amount of the dividend and nothing is reduced if a company doesn’t pay a dividend.

Everything else is the typical movement of any stock, that of course can be detached from reality. The thing is: people are way too focused on the dividend part as if this was the only valid way to investing.

Traditional investing focused on dividends for a good reason: you can live on dividends without paying long term capital gains (taxes on dividends are usually lower). At a time when most investors were common folks trying to make a long term investment decision, this was a good thing. Moreover, companies that pay dividends are by definition more mature, which can be a good sign for some investors that want more predictability in their portfolios. The reality is that dividend-based investment has its advantages, which were forgotten by the current generation of investors.

You can sell shares of a no-dividend company and reinvest the money in something else.

Do not do this. Dividends are not a good way to pick stocks. Dividends and buybacks are fungible, except that buybacks are more tax efficient. All equities should have the same risk-adjusted expected total return (i.e. including dividends, if markets are efficient), so you should not be picking stocks based on their dividend yield alone. If you want income from your equity portfolio, just periodically sell shares.

From the perspective of an investor this is spot on but on a societal scale it would be better if capital gains were taxed more than dividends. Dividends have to be paid from the income a company generates, meanwhile the stock price can be influenced by almost anything and it doesn't actually require the company to generate more value.

Ya, I think which way the rules should be here is a complicated question, but it certainly shouldn't be the case that we have two arbitrarily different taxation schemes.

If you make less than 38600, you pay ZERO dollars in taxes on the first $75k of qualified dividend income

Your sentence contradicts itself. How can you make less than $38,600 when you're making $75,000?

Also note that long-term capital gains are also taxed at the same rate as qualified dividends, but can be deferred into the future. Your argument doesn't seem to advocate for the thing you think it does.