Are Dividends Worth It? Why Your Investing DNA Decides, Not the Comment Section

Every time I post about dividends, the same three comments show up. You're paying taxes for no reason. Just buy growth and sell four percent a year. Dividends are just your own money handed back to you.

Here's the uncomfortable part: for a lot of you, those commenters are right.

I've been investing for about thirty years, and I'm not writing this from a beach with a portfolio that pays every bill. I'm writing it from the middle of the climb. My house isn't paid off. I have a real estate portfolio with real costs. I'm building a physical product brand, and physical products eat cash fast — every dollar going into inventory is a dollar not buying SCHD. That's a choice I'm making with my eyes open.

So when I say the dividend critics have a point, I'm not being polite. I'm saying the question itself is broken. "Are dividends worth it" isn't a yes-or-no question. It's a whose money are we talking about question.

What "investing DNA" actually means

Think of it like a fingerprint. Nobody has the same one.

Your investing DNA is your age, your income, your expenses, your goals — and the one almost everybody skips: how much risk you're already carrying in the rest of your life.

That last one drives nearly everything for me. I'm an entrepreneur. My income isn't a steady paycheck, it swings. I'm building brands that could pop or could flop. I already carry a mountain of risk on the business side. So inside my portfolio, I want something boring. Something that pays me no matter which direction the market moves. For me, dividends are the counterweight to the risk I take everywhere else.

Now picture a twenty-five-year-old with a stable salary and forty years of runway. Same market, same funds, completely different DNA. Their portfolio has no business risk to counterweight. Their biggest asset is time.

Which is exactly why the critics are about to be right.

Criticism #1: The tax drag is real

"Mikey, you're getting taxed on those dividends for nothing."

They're right — for a lot of people. Here's the deal in plain English. When a dividend hits your account in a regular taxable brokerage account, you can owe tax on it that year, even if you reinvest every penny and never spend a dollar. You didn't sell anything. You didn't cash out. The tax bill shows up anyway.

For a young investor grinding to build wealth, that's a drag on the engine. Every year you're handing a slice to taxes instead of letting it compound. Stretch that across three decades and it's real money.

Then the smarter commenters take it one step further: put it in a tax-advantaged account. An IRA. A Roth. And you know what? They're right about that too. If you're going to hold something that throws off a lot of taxable cash, a tax-sheltered account is often the better home for it. I'm not going to pretend otherwise.

But here's what that argument misses. It's an argument about which account you put dividends in. It is not an argument that dividends are dumb.

It's a location problem, not a strategy problem. Right stuff, wrong shelf.

Criticism #2: "Just buy growth and sell 4% a year"

This one's smarter, and it's the one I respect most.

The logic: instead of holding things that pay you, you hold pure growth, let it compound untouched, and when you need income you sell a slice — say four percent a year — and live off that. Because you control when you sell, you control when you get taxed. And historically, growth has outrun dividend payers over long stretches.

For a young person with decades ahead, this is probably the better play. I'll say it plainly.

So why don't I just do that? Two reasons.

Reason one: selling shares to eat only works when the market cooperates

In a good year, sure. Trim four percent, easy, barely notice it. But picture a year like 2022. Your portfolio is deep in the red, and now you have to sell shares — at the bottom — just to pay your mortgage. You're eating your seed corn in the middle of a famine.

A dividend, on the other hand, usually keeps arriving whether the market is green or red. Companies with a real dividend culture fight like hell to protect it. That's not a guarantee — dividends get cut, and I'll come back to that — but the payment isn't mechanically tied to you liquidating shares at the worst possible price.

Reason two: my business income can go soft at the same time the market does

Go back to my DNA. I run businesses. The last thing I want in a downturn — when my operating income might also be soft — is to be forced to sell investments just to survive.

Getting paid without selling isn't only a tax question for me. It's about not being pushed into a bad decision at the worst possible moment. That's a risk-management argument, not a math argument, and it's the part the "just sell 4%" crowd almost never accounts for, because most of them have a W-2 that doesn't move.

For the twenty-five-year-old? Sell the four percent. For me? I want the checks.

The three buckets are how I settle the argument

So if the critics are right for young investors, and I'm right for me, who actually wins? Both of us. That's not a cop-out — it's the whole system.

I organize everything into three buckets, each with exactly one job.

Bucket one is the wealth builder. If you're young, this is most of your money. No debate.

Bucket two is the slow, boring compounder — quality companies that have raised their payouts year after year. It's not a giant yield today. That's the point. This is the counterweight I keep talking about.

Bucket three is where the headline monthly payers live. Bigger cash flow, less upside. And notice something: this is exactly the bucket the tax critics are describing. High income, taxed as you go. Which is why, if you hold this bucket, you think hard about what account it lives in. The critics aren't wrong about bucket three. They're just wrong that bucket three is the whole portfolio.

The magic isn't picking the perfect bucket. It's setting the mix based on your DNA. Young and stable? Heavy bucket one. Carrying business risk and craving cash flow, like me? More weight in two and three.

Same three buckets. Different recipe. That's the strategy that survives every "you're doing it wrong" comment, because it was never one-size-fits-all to begin with.

ETFs are the foundation. Individual stocks are the renovation.

Picture building a house. The ETFs in those three buckets are your foundation and your frame. Individual stocks — for me that's names like MAIN, MPLX and DAL — are the renovations. Nice to have. But you build the structure first.

You can build real wealth on the three buckets alone and never touch a single individual stock. Most people who get wrecked in this game got wrecked in the renovation phase, on a house that never had a frame.

Investing in public: the JEPI money is still sitting there

It's one thing to talk about buckets. It's another to actually manage them. So here's a live one.

I sold about ten thousand dollars of JEPI. Nothing wrong with JEPI — I just want that money working somewhere with a little more punch in my high-income bucket. I'm deciding between adding to JEPQ or QQQI.

And as of this writing, I still haven't done it. The money is sitting there. I talked about it on camera and then I sat on my hands, which is the honest version of what actually happens with most investing decisions.

Here's the tension I'm chewing on. Both funds play in the same Nasdaq sandbox and both generate income by selling call options. But they're built differently underneath. QQQI writes options on the index itself, and a large share of its distributions have been classified as return of capital — which sounds alarming and mostly isn't. Return of capital isn't taxed when you receive it; it lowers your cost basis, so the bill shows up later when you sell. JEPQ generates its income through equity-linked notes, and those distributions are taxed as ordinary income rather than as qualified dividends.

So "JEPQ is simpler" is true in terms of mechanics, and the tax picture actually cuts the other direction. Simpler to understand, less friendly at tax time. That's the kind of tradeoff that doesn't fit in a comment reply, which is sort of the whole point of this post. If you want the longer version of how I think about that fund, I broke it down in QQQI vs QQQ.

When I decide, you'll see it here. The win or the mistake, out loud. That's the deal.

And full honesty on the mess: I'm holding too many tickers right now. DIVO, MPW, O, SCCO, and more. At some point I want to consolidate and clean it up. I'm in no rush. But I'd rather show you the messy real version than a fake clean one.

Where I actually am on the climb

My dividends currently bring in around a thousand dollars a month. My goal is ten thousand a month — enough to cover the roof over my head, which I think of as financial peace rather than retirement. I'm a builder. I'm never going to stop working.

I'm nowhere near that number, and I'm not pretending otherwise. I'm not living off dividends yet because I'm deliberately pouring cash into businesses and real estate instead. That's a DNA decision too. If you want the unglamorous math on what it actually takes to get to a thousand a month, I wrote that one up separately: the $1,000/month dividend myth. And if you're wondering why I keep going back to income that shows up without me, most "passive income" isn't actually passive.

So who's actually right?

Are dividends smart? Wrong question. The right question is: what does your DNA need this money to do?

If you're young, with a steady income and decades of runway, the growth crowd is probably right. Lean into the engine. If you're like me — building things, risk in every direction, wanting checks that arrive whether the market is up or down — dividends earn their seat.

The people in my comments aren't wrong. They're just answering for their DNA and assuming it's yours.

Don't build a stranger's portfolio. Build the one that lets you sleep at night. That's the only strategy that actually works, because it's the only one you'll actually stick with.

Want to figure out your own? I put together a free Investing DNA Worksheet that walks you through the five inputs — age, income, expenses, goals, and the risk you're already carrying — and helps you land on your own bucket mix instead of copying mine.

Frequently asked questions

Are dividends worth it, or should I just buy growth?

It depends on your situation, not on the math alone. Growth has historically outperformed over long stretches, so for a young investor with a stable income and a long runway, a growth-heavy portfolio is usually the stronger choice. Dividends earn their place when you need cash flow that doesn't require selling shares, or when you're already carrying significant risk elsewhere in your life, like business or self-employment income.

Are dividends taxed even if I reinvest them?

In a regular taxable brokerage account, yes. Dividends can create a tax bill in the year they're paid even if you automatically reinvest every dollar and never withdraw anything. That's the core of the tax criticism, and it's a legitimate one. Holding high-income investments inside a tax-advantaged account like an IRA is one common way investors address it. Tax rules vary by situation, so talk to a tax professional about yours.

What is the 4% rule and why do people use it against dividends?

The idea is that instead of holding investments that pay you, you hold pure growth, let it compound untouched, and sell roughly four percent of the portfolio each year for income. Because you choose when to sell, you control when you trigger taxes. The weakness is sequence risk: if you're forced to sell during a downturn, you're liquidating shares at depressed prices to fund living expenses.

What are the 3 buckets in this portfolio approach?

Bucket 1 is Growth, whose only job is building wealth. Bucket 2 is Dividend Growth, which pays you now and raises the payment over time. Bucket 3 is High Income, which maximizes monthly cash flow at the cost of upside. The buckets stay the same for everyone; what changes is how much weight each one gets, based on your age, income stability, expenses, goals, and existing risk.

Can dividends be cut?

Yes. Dividends and fund distributions are never guaranteed and can be reduced or eliminated at any time. A high distribution rate is also not the same thing as income or total return — some distributions include return of capital, which lowers your cost basis rather than representing earnings.

Disclaimer: The content in this article is for educational and entertainment purposes only and reflects my personal opinions and where my own investing mindset is today, which may change at any time. I am not a financial advisor, broker, or tax professional, and nothing here is financial, investment, or tax advice or a recommendation to buy or sell any security. Investing involves risk, including the possible loss of principal. Dividends and fund distributions are not guaranteed and can be reduced or eliminated at any time. Distribution rates are not the same as income or total return, and some distributions may include return of capital. Always do your own research and consult a licensed professional before making any investment decision.