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Dividends versus capitalization
Compare two scenarios. In the first, a company pays out 5% in dividends; you pay tax and reinvest the remainder. In the second, the company retains the profit, the share price increases by that same 5%, and you pay nothing until you sell.
Mathematically, the second scenario is always more efficient due to the time value of money. Tax deferred for 10 or 20 years is an interest-free loan from the government that continues to work for you, generating profit.
Tax deferral is more efficient than any dividend strategy.
#strategy #capital