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Whenever I read comments in RSEBL Facebook, majority is on dividends. Why some companies do not give dividend? Why certain companies give very low dividends?

We know that dividend provides an income – immediate with a sense of tangibility. But it’s just one of many returns.

When I observe those behaviours of retail investors through social media, I feel they only invest for dividend – nothing else.

Personally, I don’t like dividend income. I would prefer bonus shares over cash dividend. Certainly I don’t invest in stock just for dividend.

Dividends Increase Tax Burden

In Bhutan, dividend income upto Nu.30,000 per year isn’t taxable. Once it crosses Nu.30,000, your dividend income will be taxed 10%.

Similar returns like right shares, bonus shares, and capital profits are not taxable incomes in Bhutan.

In 2023, my total dividend income was below Nu.30,000. But this year, it crosses a non-taxable bracket. Next year I’ll have an extra burden.

Interest on loan is a permissible deduction. But getting a loan to invest in shares? It’s against my investing principles.

This tax burden definitely reduces our potential in re-investing. And long-term investors won’t like it.

You Don’t Get All Your Money

If a company makes Nu.100 net profit, it won’t declare the full amount as a dividend. They will hardly do 10% too.

The major chunk of it will be pooled back as reserves. If you happily exit after dividend, you aren’t taking all your money.

The company will use the same money for future developments, and its benefits don’t come to you.

Dividend Is Not a Free Money

Dividend not only creates a taxable event but also make you believe that shares you hold has improved its value.

But there is no valuation changes. You hold 1 share of BNBL at a market price of Nu.100. If its price becomes Nu.98 after Nu.2 dividend, where is the benefit of dividend?

It’s just a trick. Prior to dividend, market price is higher but gets reduced after the dividend.

Restrict Re-investment Scopes

When a company declares dividend, it’s giving away the profit which can be used to increase the earning potential.

Companies can use for business expansions, introducing new products, reducing debts, and other needs.

In an investor’s perspective, the dividend will increase tax burden, reduce market price and ultimately hampers long-term value.

Reduces Company’s Reserves

It is not compulsory for a company to declare dividends. When they do to keep shareholders happy, it’s a forced withdrawal.

The same fund can be used for R&D purposes which will increase returns by manifolds and improve valuation.

It’s just like withdrawing interest part of savings accounts reducing future earning potentials of the account.

There is no guarantee as well as an intrinsic benefits in dividend. I do not invest in shares just for dividend income.

I know why people like dividend – cashflow. But, if your portfolio can give cashflow on which you can survive, the capital should be higher – I mean multi-millions.

What are your views on dividend income? Do you invest in stock just for dividends?