if you are planning to actually spend the dividend amount anyway, then I do not think stock dividends in a taxable account are a big disaster.
So you buy shares in a farm for $100,000. The farm makes a profit (including after accounting for depreciation), and your share is $5,000.
Scenario A1: The farmer pays you $2000 in cash, and reinvests $3000 into expanding the farm. You have now invested $103,000 in this farm.
Scenario B2: The farmer pays you $0 in cash, and reinvests $5000 into expanding the farm. You then sell $2000 in shares for cash, and so have $2000 in cash, and you have invested $103,000 in this farm.
In neither case did you sell any land. And in fact, in each case, your investment in this farm increased by $3000, and you got $2000 in cash.
Scenario A2: The farmer pays you $2000 in cash, and reinvests $3000 into expanding the farm. You use the $2000 to buy more shares, and have now invested $105,000 in this farm.
Scenario B2: The farmer pays you $0 in cash, and reinvests $5000 into expanding the farm. You do nothing, and you have invested $105,000 in this farm.
Again, in each case your investment in this farm increased, this time by $5000, but you got no cash.
This is the nature of dividend irrelevance theory. You "analogy" about selling land when it comes to Scenario B1 was off because you thought of the $2000 in shares you sold as involving getting back some of your original $100,000, but instead it was coming out of earnings, same as if the farmer pays you the $2000 in dividends out of earnings.
As a general observation, there is a known psychological effect called loss aversion, and it can take the form of what is sometimes called an endowment effect, or divestiture aversion, which is what you are describing. Basically, if the farmer just gives you $2000 out of your $5000 in earnings in cash, you are fine with that. But as soon as the farmer retains that $2000 in earnings, now you are deeply reluctant to sell anything to get that $2000 in cash.
The problem with simply indulging psychological effects like divestiture aversion is sometimes it is not so harmful, meaning in certain circumstances it can lead to seriously adverse behavior. So I personally think you should work on trying to reduce or eliminate your divestiture aversion, not simply take it as unchangeable and indulge it.
For the record:I guess I look at this like a farmer, certainly you could sell land to raise cash but the land is how you make your money. Anyone else think like this?
So you buy shares in a farm for $100,000. The farm makes a profit (including after accounting for depreciation), and your share is $5,000.
Scenario A1: The farmer pays you $2000 in cash, and reinvests $3000 into expanding the farm. You have now invested $103,000 in this farm.
Scenario B2: The farmer pays you $0 in cash, and reinvests $5000 into expanding the farm. You then sell $2000 in shares for cash, and so have $2000 in cash, and you have invested $103,000 in this farm.
In neither case did you sell any land. And in fact, in each case, your investment in this farm increased by $3000, and you got $2000 in cash.
Scenario A2: The farmer pays you $2000 in cash, and reinvests $3000 into expanding the farm. You use the $2000 to buy more shares, and have now invested $105,000 in this farm.
Scenario B2: The farmer pays you $0 in cash, and reinvests $5000 into expanding the farm. You do nothing, and you have invested $105,000 in this farm.
Again, in each case your investment in this farm increased, this time by $5000, but you got no cash.
This is the nature of dividend irrelevance theory. You "analogy" about selling land when it comes to Scenario B1 was off because you thought of the $2000 in shares you sold as involving getting back some of your original $100,000, but instead it was coming out of earnings, same as if the farmer pays you the $2000 in dividends out of earnings.
As a general observation, there is a known psychological effect called loss aversion, and it can take the form of what is sometimes called an endowment effect, or divestiture aversion, which is what you are describing. Basically, if the farmer just gives you $2000 out of your $5000 in earnings in cash, you are fine with that. But as soon as the farmer retains that $2000 in earnings, now you are deeply reluctant to sell anything to get that $2000 in cash.
The problem with simply indulging psychological effects like divestiture aversion is sometimes it is not so harmful, meaning in certain circumstances it can lead to seriously adverse behavior. So I personally think you should work on trying to reduce or eliminate your divestiture aversion, not simply take it as unchangeable and indulge it.
Statistics: Posted by NiceUnparticularMan — Fri Aug 29, 2025 9:27 am — Replies 13 — Views 532