[Owen]

Please explain to me (like I’m a 5 year old), why dividends payoff in mutual funds.

I saw a Youtube video, that to cover the cost of a dividend, the price of the fund is lowered to cover the dividend yield.

If so, what is the advantage of the dividend if your overall value hasn’t changed?

[Steve]

Because you want income that’s taxed at LTCG rates without selling the underlying stock/fund.

With the proper mix of dividend stocks in your portfolio, you can live off dividends like a paycheck.

(It made more sense when it cost a lot to sell stocks, where now it’s basically free.)

[Ely]

Another reason is that companies that consistently pay dividends are deemed to be more reliable and financially stable which reduces the chance of big downturns in a recession.

It’s not a guarantee but the so called “dividend aristocrats” are solid companies that are worth having in your portfolio, even if the stock price is slightly reduced after dividends.

Regardless, the decision to hold or not this type of asset should be based on your goals and strategies.

[Jakub]

The reason you might want dividend stocks in your portfolio is that dividends tend to drop less than the stock price during a recession.

Another way to put it – if you own a stock of a company that pays $10 in dividends, this amount often does not change even during periods of volatility.

This means you have a more reliable source of income and don’t need to sell your stock when the market is down, for example by 30%.

[Shawn]

It’s because mutual funds are required to distribute income for tax purposes.

They earned the income in the fund and they are giving it to you so you can pay taxes on it.

It doesn’t increase your wealth on net.

[Mark]

They don’t. U learned correctly. Dividends are basically a gimmick.

[Author]

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