The Irrelevance of Dividends

The video explains why dividends are irrelevant in determining the stocks with good future returns. Dividends are an important component of total returns, but not relevant in selecting stocks. Empirical evidence and academic research show that low-cost index funds are the right approach for most people with a reliable long-term outcome. The theory of dividend policy, growth and valuation of shares by Merton Miller and Franco Modigliani supports the fact that dividends are irrelevant. The theory says that investors should be indifferent between a $1 dividend and $1 received by selling shares. The performance difference between dividend stocks and the market is explained by their excess exposure to value, profitability, and investment factors. The idea that a dividend policy positively affects the management of a company has no basis. The whole market would need to think that the company wouldn’t do well, while the investor believes otherwise. The market pricing determines the stock’s value.