The Meb Faber Show - Better Investing Dividend Myths That Distort Markets (w/ Sam Hartzmark) | #628
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Apr 24, 2026 
Sam Hartzmark, a Boston College finance professor known for research on dividends and payout policy, debunks common dividend misconceptions. He unpacks the “free dividends fallacy,” how dividend-focused strategies can inflate prices, and the tradeoffs between dividends and buybacks. Brief detours cover dividend-juicing funds, tax-efficient design, and why investors emotionally prefer visible payouts.
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Free Dividends Fallacy Distorts Investor Perception
- Many investors hold the free dividends fallacy believing dividends are 'free money' that don't reduce stock price.
- Sam Hartzmark shows prices typically drop by the dividend amount, so total return, not visible cash, determines wealth.
Dividend Demand Waves Inflate Prices Temporarily
- Waves of demand for dividends (especially when interest rates are low) inflate prices of dividend-paying stocks.
- Hartzmark finds buying into these waves often leads to subsequent underperformance as demand subsides.
Funds Juicing Dividends Create Predictable Reversals
- Mutual funds can 'juice' dividend yield by trading around ex-dividend dates to capture payouts repeatedly.
- Hartzmark's research found ~15% of active funds increased yields this way, gaining flows but hurting after-tax performance.