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Just a theoretical question: with dividend, one can hold the same numbers of share forever; with selling a small number of shares equal to 2% of dividend for example, the shares would eventually run out. How to explain this difference?
If company A pays out a 2% dividend, i.e. 2% of its share price, then it will lose 2% of it's value every year, compared to the alternative of an otherwise identical company B retaining all earnings. After 50 years, company A will be worth .98^50= 36.4% as much as company B. (Of course, if company A keeps growing in excess of 2% a year, its total value will be much higher, just not as high as company B. And despite the lower value of company A compared to company B, you will have received a lot of cash from company A, and if you don't pay too much tax and invest this money well, you may be doing just as well as if you owned company B.)
If, on the other hand, you own non-dividend paying company B and you make your own dividend by selling 2% every year, then you will end up owning .98^50 = 36.4% as many shares, with the same amount of cash as what you would have received from company A in dividends. Your value will be the same either way, except for the small difference in how dividends are taxed versus capital gains.
DTB
