Cash Flow From Dividends Or Share Sales?

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(Last Updated On: 20. December 2022)

Recently, I got a question from one of my readers that I think is ideological one. The question was: What do you think about the statement that it makes no difference to receive dividends or to sell shares? Ultimately, it would lead to the same result.

Well, this question is ideological insofar as I have called it, because it is based on the so-called dividend fallacy. It is a theory proposed by Miller and Modigliani in their 1961 paper “Dividend Policy, Growth, and the Valuation of Shares”, for which they got the Nobel Prize.

Let’s take look at a simple example with a farmer to get closer to the answer. A farmer can bring in a harvest from let’s say a 100-hectare field every year and he would sell his produce. Or he can sell his produce but also sell an acre of his land every year. The cash flow may be the same that year in this scenario, or maybe two, three, five years.

However, it is only a matter of time before the yield from the remaining field is no longer sufficient to support the family. And at some point, the entire field is sold.

But not only a farmer, but also a real-estate investor will not generate his cash flow by constantly selling apartments. Instead, he would do this through the revenues from his rental apartments. If he calculates it wisely, he can even buy new rental apartments with this rental income. He can also use the rent payments to improve the quality of the apartments. After all, the apartments do not wear out as a result of paying rent. He can therefore reinvest the rent income in order to increase the quality of living and thus generate even higher rental income from new rentals.

Furthermore: Every successful entrepreneur, regardless of the industry, does not earn his income by constantly selling shares of his company. He can partially use the cash flow from his company for his livelihood. This is called an entrepreneur’s salary and it can even be deducted as a business expense, reducing profits. He can reinvest a part of the cash flow to increase the company’s value. Or he can expand. With the cash flow, he can work more efficiently. He can use the cash flow to buy new companies. He will always be the owner of his company and if he does it wisely, the company’s value will increase every year.

The cash flow is, therefore, a means for the farmer, for the real-estate investor or for the entrepreneur to buy more farmland, more apartments or even new companies to grow or to increase the value of the business.


What I’m trying to say is that selling shares is the opposite of what I envision for portfolio building. That’s why I’m building up a depot so the cash flow would support me financially without ever having the need to reduce this depot.

This goal is my personal goal and of course, not everyone has to agree with me. I want to make that very clear: everyone should have their own goals!

The ways to reach these goals are diverse. And in the search for the personally suitable goal and the personally suitable path, everyone has to make decisions for themselves and on their own responsibility.

Everyone who is successful with the own strategy and its own way enjoys my fullest sympathy, and I wish everyone every success.


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