No. of Recommendations: 4
My simple reasoning: if the share number is reduced every year, no matter how small, in finite time, the number will be reduced to a fraction.Well, technically, yes. But.
Take the model from my previous post
https://www.shrewdm.com/MB?pid=-2&previousPostID=2... :
"
Let's say you have an income need of $10,000/year from the sale of 2% of your shares in year one, for a hypothetical stock that is selling at $100/share (i.e. you start out owning 5,000 shares, priced at $500,000) (For the sake of simplicity, assume all of the following numbers are after tax and after inflation)"
To get below one share, a 2% annual depletion of 5,000 shares would take over 400 years.
More realistically: how long to get below a thousand shares? Above a thousand, one could sell 2% of the share count every year with three digits of precision and not have to divide single shares.
Well, 5,000 shares going to 1,000 is selling 80% of the position. At a straight arithmetic 2% year, using only the initial share count, it would still take forty years.
That's a long retirement. Call it Plan A
But, that's not what we're talking about. We're talking about selling two percent of the
current share count each year.
With that Plan B approach, going from 5,000 to 1,000 shares would take almost eighty years.
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But (as they say on late-night TV ads), that's not all:
Remember that the security in question grows 5% after-tax, after-inflation each year
So, the $100/share stock you started with in forty years would be a $704/share security. At that time, you'll have a thousand shares (Plan A) or over 2,200 shares (Plan B)
Just about every stock* would have split a few times by then. Call it a net 7:1 split (not sure how you'd get there, but anyway), so you'd have either ~7,000 shares (A) or over fifteen thousand shares(B) of a $100 stock. In 2025 dollars.
So, no, you're not going to be worrying too much about a single, fractional share. For one thing, history suggests almost nothing* in this financial world can be reasonably expected to go forty years or more without significant rearrangements being necessary.
But it doesn't make a cogent argument for a dividend.
-- sutton
(*unless the ticker is late-20th/early 21st century BRK. And even those could be converted tax-free into B shares, for the same net effect to the typical retail owner)
