Why Do People Hate Dividend Investors So Much?

The hate is real, guys

I used to absolutely hate dividend investors.

This might sound like a steaming pile of BS from one of the most shameless dividend lovers out there, the guy that literally retired off his dividends, but it’s absolutely true.

I would hang out in the Seeking Alpha comments section back in 2012 and 2013 and lob rotten tomatoes at the commenters, doing my best to poke holes in what I viewed as their simplistic investing strategies. I wouldn’t even read the article. I’d just head straight for the comments.

These guys are idiots! All they do is look at the dividend yield and that’s as far as their research goes! Don’t they know the best stuff is in the deep value universe and the footnotes are the only part of the financial statements that matter????

I attracted a few like-minded folks and we’d send each other private messages, lamenting the stupidity of our fellow man.

I even went as far as publishing articles critical of a dividend growth approach, which was doubly beneficial — I got to poke the hornet’s nest and those articles were like catnip to dividend lovers. They flooded the comment section to tell me I was an idiot, which wasn’t so bad considering I was paid on a per view basis.

While the anti-dividend bias was least temporarily profitable for my freelance writing business, it wasn’t translating into great investments. My deep value investing style featured a few big winners — I had multi-baggers buying Intertape Polymer during the 2008 crisis and Cloud Peak Energy a few years later — but it mostly involved owning a lot of crap with poor long-term prospects.

Sometimes I’d get one last puff out of these cigar butts, but mostly they were lousy businesses that always seemed to implode about six months after I bought in. Sometimes the result would be even worse than that — like the time I invested in a Chinese fraud, a printing company which looked like a pretty good business. It’s just too bad the financials were completely made up.

That was a zero, and I still keep the entry in my RRSP account as a reminder.

The worst part was I was patient with this losing strategy. It took years before I abandoned it. Hell, even recently as a couple of years ago there was some deep value crap in my portfolio, although thankfully by then it was only a tiny percentage of a collection of good businesses.

I had a lot of capital tied up in private mortgages and real estate back then, and thank God I did, because I was a crummy deep value investor.

Why’d I do it?

I recently spent a bit of time going over my Seeking Alpha comment history, including the DMs I sent to my fellow dividend haters.

And, to be honest, it was some of the cringiest shit I’ve read in my entire life. I can’t believe younger Nelson was such an idiot.

It wasn’t that the content was necessarily bad, either. I was the proverbial blind squirrel that stumbled upon a good acorn or two. Some of the logic was sound. But most of it was bitter, lacked nuance, and came from a misplaced moral high ground. I legitimately thought I was doing the Lord’s work by calling out these idiots, and my writing reflected that level of confidence.

So, why’d I do it? What was my thinking?

Firstly, I hadn’t fully appreciated that simple investment ideas are best. I specialized in deep value plays with complex catalysts. If x, y, and z all went right, I’d make a buttload of money. I absolutely thought a thesis without a little bit of hair on it was stupid. Meanwhile, these guys were high-fiving each other because Coca-Cola’s dividend went up 5%. I hadn’t yet embraced Buffett’s advice about stepping over one-foot bars.

Secondly, I thought the dividend growth community on Seeking Alpha was the world’s biggest circle jerk. I looked past all the benefits of community and saw a bunch of people mindlessly cheering each other on. Why would anyone need that, I thought? If the investment works out and you make money, that’s the the ultimate reward. Why would anyone need a bunch of cheerleaders?

What I missed is how invaluable a network is for keeping you motivated, or for sharing ideas, or to help you out with a million other problems. Besides, who wants to be interrupted in the middle of an orgy?

The next reason is particularly cringey.

Thirdly, I had the opinion dividend stocks were in a bubble. The U.S. market had recovered nicely from the 2009 lows and high-quality blue chip stocks like McDonald’s, Altria, and AT&T were trading at anywhere from 18-22x earnings, and I was convinced those valuations were way. too. high.

Yes, really. It was a different world back then, I guess.

I remember tearing into some poor bastard who wrote a bullish article on Altria because he had the audacity to like the stock at something like a 17x earnings multiple. Didn’t he know cigarettes were going to zero?

I was eventually proven right, too. Well, sort of. These days, Altria trades at just 8x forward earnings and shares have underperformed the S&P 500 over the last 11 years, posting a total return of only about 8% a year if you reinvested dividends, or 7.2% a year if you didn’t. Overall not a great result, but I can guarantee you that was better than 90% of the crap I was looking at in 2013.

Finally, I judged a whole community by its most inexperienced members. I ignored the numerous commenters who retired early or had success with their simple method, and fixated on the guys who were still learning. They were the ones making simple mistakes like chasing yield or buying crummy businesses, and I assumed these guys were a representative of an equally dumb community.

It’s easy to judge a community by its worst members, but it’s also super lazy. We also shouldn’t judge or make fun of new investors; rather, we need to encourage and help them learn the lessons we all figured out, and hopefully in a way where they don’t lose too much money.

What about the hate from everyone else?

About a year ago, I stopped pretending I was a value investor who happened to like dividends and fully embraced my dividend love. I came out of the proverbial closet and embraced a dividend lifestyle. I changed my Twitter name to Canadian Dividend Investing, cut back on the number of value stocks I researched, and started the path to eliminate the junk that happened to pay dividends from the portfolio.

Luckily, I mostly owned solid dividend growth stocks at that point, so this process of cleaning out the junk wasn’t a huge deal.

What happened after that was interesting. The first was a number of value investors unfollowed which, to be honest, wasn’t unexpected. It still stung a little bit but that’s okay. I understand. Even mutual breakups are a little bit painful.

The more unexpected part was being labeled with some sort of dividend lover designation, and not in a positive way either. I felt a little bit like the guy in the old joke who achieved some great things but also happened to make love to one sheep. No matter what I did, I was still the sheep fucker.

Then the comments came. People who I had never interacted with before came out of the woodwork to call me an idiot who embraced an investing style that would never work. I’d get backhanded compliments like “oh, good point… for a dividend guy.” Or I’d get roped into these God-awful dividend versus buyback or dividend versus total return debates, which were always the biggest wastes of time, two groups with complete different worldviews talking past each other.

Suddenly, the shoe was on the other foot. I was the dividend lover and the Nelsons of the world hated me.

Dividend haters moved off the Seeking Alpha comment section and onto the ol’ Tweeter app, and they were everywhere. A small sampling:

I could post hundreds more of these, but y’all get the picture.

This got me thinking. Like Nelson of 2013, these people have legitimate reasons to dislike dividend investors. I might not agree with these reasons and they might not look great with the perspective of hindsight, but I’ll give them enough credit to say that, yes, there are legitimate reasons to embrace a non-dividend approach.

Consider the following reasons why some folks might choose to ignore dividends when the invest, or, even specifically go out of their way to invest in stocks that don’t pay a dividend:

  • If one invests primarily in a corporate account in Canada, dividends are taxed quite poorly

  • Someone who invests behalf of other people is judged on total performance compared to the market, not on income received

  • You might live in a country where dividends aren't taxed very well

  • Someone might have a high current income and want to avoid paying taxes on dividends

  • Someone might be more interested in deferring taxes until they hit retirement age, when they think their taxes will be cheaper

  • To retire on dividends might require a higher savings rate than other methods, which seems hopeless to someone in their 20s or 30s

  • Someone might sell a real estate, growth stock, value investing, or financial planning product online, and view dividend investors as competition

  • Boring dividend-focused stocks have underperformed lately as investors pay up for growth. Thus, dividends are viewed as a losing strategy

These are all valid reasons for disliking dividends (and, by extension dividend investors), although I’d suspect many people fall under the last two points.

Here’s what I didn’t realize all those years ago and what many of the dividend haters on Twitter today have missed. Dividend investors analyzed the same pros and cons list as non-dividend investors and, for whatever reason, come to a different conclusion. That doesn’t make them idiots, or morons, or lacking basic business and accounting sense. All it means is they looked at the same list of tradeoffs as everyone else and declared that the pro-dividend tradeoffs were better for them than the anti-dividend tradeoffs.

If y’all want to embrace any number of non-dividend investing styles, by all means. Knock yourself out, and I truly wish everyone success. I want to see more early retirees and financially successful folks, not less. But I draw a line the minute someone believes putting down someone else’s style somehow makes their style better.

That sort of behaviour is almost forgivable if you do it in your own feed. It’s your feed. Do whatever you want. But don’t track down a bunch of dividend investors and decide you need to “educate” them. It was bad behaviour when I did it and it’s equally bad today.

What I wrote this week

It was a bit of a slower week for your author these past few days, as I spent more time reading rather than writing. I also spent some time putting together some content that you’ll see in a few weeks but isn’t quite ready for prime time yet. So stay tuned for that.

Next week might be the same. I have a friend coming for a visit. It’s going to be great. Can’t wait.

I was still busy on the paid part of this newsletter. First, on Tuesday, I took a closer look at a stock that offers:

  • A complete business pivot where it sold off poor cyclical parts of the company

  • Leaving it with stable, utility-esque assets

  • Solid growth potential, both organically and via acquisitions

  • A balance sheet much better than peers

  • Paying out a 7%+ dividend (that was just raised!)

  • Trading for an attractive valuation of less than 10x earnings

On Friday I did our usual weekly roundup, where I tracked all the dividend increases (and the lone decrease) in the Canadian markets, as well as deeper analysis on a number of REITs. I also updated paid subscribers on a few moves I made in my portfolio, including what I bought after selling an investor favourite.

Paid subscribers don’t just get two posts (2,000+ words each) per week. They also get:

  • Visibility into my own personal portfolio, including the thought process behind any buy or sell decision

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  • Dividend safety scores for every Canadian dividend stock of consequence. Perfect for protecting against dividend cuts. Put together by Nelson personally, not some algorithm

  • Access to the entire archives, which include research on all sorts of profitable dividend ideas

  • Two model portfolios, chalk full of great potential investments

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