I need the dividend so I have extra cash to live on in retirement.” Just sell as much of your portfolio as you need to for that cash requirement.

Investors think that dividend stocks have a higher return because you have the stock plus the dividend. The problem is you don’t have as much stock. Think of dividend stocks like stock splits. With a 2 for 1 stock split you have twice as many shares at half the price. No change in your portfolio value. Consider 5% dividend stocks as a 95 \ 5% stock split. You retain 95% of the stock shares and you get a 5% cash dividend. There is no change in your portfolio value.

Two problems with dividend stocks. You have to pay taxes on the dividends. If the stock doesn’t have a dividend, you only pay capital gains many years later when you sell the stock. The second problem is why is the company paying a dividend? A company pays the dividend because they think this is a way to encourage you to buy the stock.

Growth companies don’t pay dividends because they need the money for expansion plans. Once they start having fewer great ideas for expansion they buy back their own stock. If the company feels the stock is overvalued, it pays dividends to encourage investment instead of buying back stock. Dividend stocks are value stocks. Value stocks underperform the market by about 10 percentage points per year.

Because of the tax treatment of dividend stocks and because they are value stocks, I prefer to own growth stocks in cap weighted ETFs.