For some reason, a lot of social media investment influencers advocate for investing in dividend paying stocks: stocks that make periodic payments to investors in addition to gaining or losing value over time. This seems to be related to such influencers’ preoccupation with sources of “passive income” such as real estate or turnkey businesses. Before I continue, it should be noted that the idea of passive income is misleading. Return comes from bearing risk, and it is important to be aware of the risk you are bearing, which may or may not be apparent. But returning to dividend stocks, there are two things to keep in mind. First, there is no inherent good to dividends compared to other sources of return. If instead of paying dividends a company holds onto its cash, invests in its operations, performs well, and causes its stock price to rise, the outcome is the same: a gain to the investor. Companies can also use their cash to benefit investors through stock buybacks; companies buy shares of their own stock. This reduces the number of outstanding shares, which usually means that the value of each share goes up. Furthermore, dividends are not guaranteed: just as stocks can rise or fall in value, dividends can be reduced or cut. Second, under current tax law, dividends are taxed in a manner more or less the same as capital gains (proceeds from selling stock that has gained value), with one major difference: an investor must recognize the dividend gains in the tax year they are paid. With a stock that has gained value, investors can make the decision to sell in a given year and “realize” the gains or wait until a different tax year in which their tax situation may be different. But dividends do not offer that option. This is an example of how investment advice may be well intentioned but may fail to consider important information.