IFB09: Myths about Dividend Paying Blue Chip Stocks

 

Finding blue chip paying dividend stocks is one of the best ways to grow your wealth over time. These companies that pay a dividend consistently over the years over a great double compounding effect that is hard to beat. We will discuss some of the myths of dividend paying blue chip stocks and why they are in some cases avoided by the investor for flashier, more exciting opportunities.

* The definition of blue chip dividend paying stocks
* Accumulating dividends is better than selling shares for income
* A hot topic is a reinvestment versus dividend payouts
* Some of the best dividend payers are “boring” companies
* Blue chip dividend paying stocks are great wealth building machines

Andrew: Yeah, so I want to talk about blue chip stocks tonight. And specifically, dividend paying stocks. Because on the one hand they are very popular and people like to look to them. you have indexes like the Dow that are made up of blue chip stocks and turn on the tv people always talk about the blue chips stocks.
You have these stereotypes about stocks that pay dividends, specifically blue chip stocks that pay dividends. As a big dividend investor trying to buy stocks at a discount to their intrinsic value these myths that I want to address are something that I think is something that I think can turn people off from dividend investing.
And maybe we can figure out if these ideas are really valid. Then we can understand them and feel more confident. And additionally, know what to look for when it comes to picking the right blue chip dividend paying stocks.
Dave: That sounds like a great topic, it would be interesting for me and to learn a little bit about this subject. I think it would also be interesting for our listeners too. Dividends are obviously a very big, important part of investing. And it’s a great way to earn income and that is what we are all here for. As you have mentioned in the past, investing for income is what we are all about. I know that we have some different topics that we want to talk about.
In particular, the myths surrounding dividend paying blue chip stocks. So why don’t we talk about the first one.
 
Selling shares is better for income than dividends?
 
Andrew: so there’s this idea that number one you can buy a stock and if it grows let’s say 20% in one year, this idea is even though this stock didn’t pay a dividend it grew 20% compared to it a typical blue chip that pays a dividend and is yielding 3% or less.
So the investor says “look here, I have my non-dividend paying stock that has gained 20% and now I am going to sell for the 20% gain and now I have income. This is something that people who justified not buying a dividend-paying company.
They will use this argument as one of the first arguments that I don’t need dividends because I can sell shares for income. And I really think it is super basic the whole point of growing dividends we talked in the previous episode of creating that DRIP machine the drip coffee machine that accumulates shares over time.
When your selling shares early in order to receive some sort of income. What you are doing is cutting away at your real ownership is. So, yes even though you did earn 20% the first year, if you now have 9 shares of stock instead of 10, you’re losing that ownership. So, where it can really hurt if the market goes down instead of up.
If I compare that to a dividend blue chip paying stock like IBM with a yield 1 to 3% you might think as an investor even though I got a 20% gain even without getting paid a dividend. If I sell the 20% I gained.
Compared that to a smaller yield of the blue chip stock. You might originally think that you got a better deal.