Understanding Dividends (Part 3)

Let’s go back to the theory that capital appreciation and dividend income are two sides of the same coin.

Were this theory found to be true, something would strike me as very wrong because the financial industry significantly emphasizes a difference between these investment objectives.

Even in this case, I did think of one marketable difference in favor of dividends. I could, in effect, make a non-dividend stock into a dividend-paying stock by periodically selling shares for cash. I would have to pay a commission with each stock sale, though. The commissions amount to money lost and I don’t see a clear way around it. I wrote earlier about synthetic equivalents in Finance. Equivalents are truly identical whereas the commissions make this different. I could try to argue “companies incur significant administrative fees when paying dividends to all those shareholders on a periodic basis and these fees cut into their cash on hand, make the company worth less, etc.,” but: 1) as a total percentage of cash on hand, this is probably minuscule; 2) to suggest the decreased cash commands a lower stock price is another theoretical concept and one I doubt could even be tested (too small to detect).

So for someone who does need money periodically to pay the bills, even in the hypothetical case that dividends are nothing more than future capital appreciation realized right away, I do see benefits to that dividend check. Is this worth the significant growth/income difference affirmed by the industry with regard to the suitability standard? I think that is highly debatable but I would be much more enraged about the construct if I could come up with no difference at all.

And because I no longer believe dividend income and capital appreciation to be the same anyway, once again “FAHGETTABOUDIT!” is in order.