3436: Making Your Own Stock Dividends by Chris Reining on Income Creation - Optimal Finance Daily - Financial Independence and Money Advice

Summary4 min read

Episode Overview

Podcast: Optimal Finance Daily
Host: Diania Merriam
Episode: #3436 — "Making Your Own Stock Dividends" by Chris Reining
Air Date: January 26, 2026

This episode explores the idea of "making your own stock dividends," challenging the typical preference for income-generating stocks (especially among retirees) and advocating for growth-oriented investing and a DIY approach to retirement income. Diania Merriam reads and reflects on Chris Reining’s article, delivering actionable insights on optimizing investment strategies for long-term wealth and flexibility.

Key Discussion Points & Insights

1. Chris Reining’s Investment Dilemma and Realization

Transition from Growth to Income:
Chris shares how he questioned his investment strategy after quitting his job to live off stocks, yet only generated $3,798 annually in dividends. Like many, he contemplated switching from a growth-focused portfolio to an income-oriented one to "simplify" finances in retirement.
The Allure of Dividends:
He highlights why retirees are drawn to income portfolios:

"They invest their nest egg in things that generate enough income to fund their retirement. Typically stocks like AT&T or Coca-Cola or whatever pays a fat dividend." [01:40]
Growth vs. Dividends:
Ultimately, Chris prefers that businesses reinvest earnings to fuel future growth, believing this strategy surpasses short-term income:

"I want management to smartly reinvest 100% of earnings into growing the business and improving the earnings and widening the moat. Rather than paying me a dividend." [03:02]

2. The "Lemonade Stand" Analogy

Explanation of Earnings Allocation:
Using a simple example, Chris models a lemonade stand to compare the effects of reinvesting vs. paying dividends:
- In Scenario 1, a portion of earnings is paid out as dividends; in Scenario 2, all earnings are reinvested and “homemade dividends” are generated by selling a small portion of ownership each year.
- Over ten years, selling parts of your stake can actually yield higher total returns.
Key Outcomes:

“Making your own dividends was better. We got more cash to spend. Plus our ownership stake is worth more, even though we own less.” [05:34]
- Scenario 1: $14,907 total value (dividends + remaining stake)
- Scenario 2: $15,303 total value (from “homemade” dividends and reinvested growth)
Implication for Real Businesses:
The analogy scales up to major corporations and the S&P 500, where growth prospects and return rates are even higher than the hypothetical lemonade stand.

3. Behavioral and Psychological Factors

Why Income Portfolios Appeal:
Chris suggests much of the appeal is psychological:

"When you get a dividend you never feel bad about spending it because you never touch your principal." [06:11]

However, creating your own dividends by selling stock requires intentional decisions and can feel more fraught—especially amid market volatility.
Flexibility Trade-offs:
A dividend-focused approach provides predictable income, but less control and strategic flexibility. In contrast, selling shares for cash flow demands more active management, but offers tax and timing advantages.

4. Host Commentary: Diania Merriam’s Perspective

Summary of Chris’s Argument:
Diania praises Chris’s focus on long-term returns, emphasizing that reinvesting for growth and occasionally selling shares often trumps a high-dividend strategy.
Tax Efficiency and Control:

"When you receive a dividend, you have no control over the size or timing of the payment, and 100% of the money received is considered income." [08:14]

Merriam notes that by choosing when to sell shares, retirees gain more control over yearly income, helping manage taxes and respond to changing needs.
Drawdown Flexibility:

"It’s highly beneficial to have a lot more control over how much income is coming from your investment portfolio year to year… A portfolio built on dividend income doesn’t allow this kind of strategic planning year to year." [08:28]

Notable Quotes & Memorable Moments

On Growth vs. Dividends:

“The reason I invest in a business is pretty simple. I think the business can grow. And if the business grows, the stock price should move in unison.”
— Chris Reining [02:32]
On Making Your Own Dividends:

“Making your own dividends was better. We got more cash to spend. Plus our ownership stake is worth more, even though we own less.”
— Chris Reining [05:34]
On Psychology of Dividends:

“My guess is that it’s mostly psychological that when you get a dividend you never feel bad about spending it because you never touch your principal.”
— Chris Reining [06:11]
On Income Strategy Trade-offs:

“When you receive a dividend, you have no control over the size or timing of the payment, and 100% of the money received is considered income.”
— Diania Merriam [08:14]

Timestamps for Important Segments

01:03 — Beginning of Chris Reining’s essay narration
02:32 — Argument for growth-focused investing
03:40 — Introduction of the lemonade stand analogy
05:34 — Comparison of total returns between dividend and “homemade dividend” strategies
06:11 — Psychological rationale for dividend investing
08:14 — Diania Merriam’s commentary on control, taxes, and flexibility in retirement income strategies

Summary & Takeaways

Chris Reining illustrates the benefits of reinvesting earnings for wealth creation, advocating for a “sell shares as needed” strategy to fund retirement rather than relying exclusively on dividend income.
Diania Merriam reinforces that growth-oriented, flexible investment strategies can offer higher overall returns and better control over taxes and cash flow in retirement.
The episode challenges investors—especially those aiming for early retirement—to critically evaluate their own strategies and consider what truly optimizes long-term financial independence.

For those seeking financial freedom:
Don’t automatically default to dividend stocks for retirement income. Consider the possible advantages—both financial and psychological—of growth investing plus strategic withdrawals.

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Transcript9 lines

[00:00]
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[01:03]
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This is optimal Finance Daily Making your own stock dividends By Kris Reining of ChrisReining.com I started questioning my entire investment strategy. I had built a stock portfolio for growth and was sure it was a horrible mistake. I had already quit my day job to live off stocks, but was only getting $3,798 in dividends. That's the reason retirees love income portfolios. They invest their nest egg in things that generate enough income to fund their retirement. Typically stocks like AT and T or Coca Cola or whatever pays a fat dividend. So I considered switching my portfolio from growth to income. It certainly would make life simpler getting those quarterly paychecks, but it also be an expensive undertaking. I'd need to pay the capital gains tax. And then a funny thing happened. The more I thought about it, the more I realized something important. I don't want dividends. The reason I invest in a business is pretty simple. I think the business can grow. And if the business grows, the stock price should move in unison. How exactly do businesses grow? Well, they can acquire another company like Amazon buying Whole Foods, create a new product line like the Apple ipod, iPhone, iPad, watch or expand their territory Netflix from the US to 190 countries. These bets on growth don't always pan out. For instance, Amazon's fire phone was a $170 million flop. But management only needs to be right more often than wrong for the winning bets to overshadow the losing ones. And that's why I don't want dividends. I want management to smartly reinvest 100% of earnings into growing the business and improving the earnings and widening the moat. Rather than paying me A dividend. Granted, sometimes earnings can't be efficiently deployed. Hence stock buybacks and dividends. Maybe an example would help. Okay. Pretend you and I own a lemonade stand that's worth $10,000. The stand earns 10% per year, or $1,000. We can earn the same 10% on any earnings we reinvest. There are also some kids in our neighborhood who would love to buy into our stand. Why work at the stand when the stand can work for you? These kids are willing to pay 125% what the stand is worth. You know, projected future earnings. So the market value of our 50% ownership stake is $6,250. I'm thinking the stand should pay each of us 25% of earnings. The remaining 75% will reinvest into growing. Sound good? So in the first year, the stand earns $1,000. We each get a dividend of $125. The stand keeps and reinvests $750. In 10 years time, the stand will be worth $20,610. And we'll each be getting a $258 dividend. But here's the what if we had decided to reinvest 100% of the earnings, we'll lose our $125 dividend. But remember, we can sell part of our ownership stake to those kids. And if we each sell just 2%, it creates the same initial $125 quote, unquote, dividend dividend. Are you still with me? After 10 years, the stand will be worth $25,973. But since we've been selling 2% of our stand every year, we now own just 40.85%.
[04:52]
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That's bad, right?
[04:54]
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Well, in the first scenario, we each collected $2,026 in dividends, and our 50% ownership stake is valued at $12,881. That totals $14,907. In that second scenario, we sold 2% of our ownership stake each year and collected $2,059 in quote unquote dividends. And our stake is valued at $13,244. That totals $15,303. So making your own dividends was better. We got more cash to spend. Plus our ownership stake is worth more, even though we own less. I hope that exercise wasn't too painful, but I think it's helpful to show what can happen when 100% of earnings are reinvested into a business. And really, our lemonade stand isn't that much different than a business in the S&P 500. Here, the argument grows stronger because the S&P 500 earns way more than 10% per year and and sells at prices higher than 125%. All this doesn't change the fact that retirees love income portfolios. My guess is that it's mostly psychological that when you get a dividend you never feel bad about spending it because you never touch your principal. And then you insist that every stock you own pay a dividend because a stock that doesn't pay a dividend means less money to spend. On the other hand, selling shares to make your own dividend means means making decisions what stock do I sell? What if the market is down? When should I sell? What if the stock goes up? It's very easy to make a regrettable decision. So dividends. But I'm not trying to convince anyone who's building an income portfolio to abandon their strategy. I'm just telling you why dividends are a small part of my investing and why. You just listened to the post titled Making your own stock dividends by Chris Reining of ChrisReining.com Carvana is so easy.
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[08:42]
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Management made Simple I thought Kris made a very compelling argument here about why he doesn't want to fund his retirement with stock dividends. I've heard many other reasons to not do it, but his specific reason was simply regarding the return. By investing in companies that reinvest in growing the business versus paying a dividend, you're more likely to get a better long term return through selling shares. He makes a great point here in that it might seem like a good deal, but sacrificing growth for income now might affect your income over the long run. From what I've seen, many buy and hold investors don't prefer dividend focused investments because it's more beneficial to control income for tax purposes when you're drawing down on a portfolio. When you receive a dividend, you have no control over the size or timing of the payment, and 100% of the money received is considered income. Retirees are re evaluating their drawdown strategy year to year based on what the market's doing, any changes in their circumstances or spending, and if they stumble upon other sources of unexpected income. So it's highly beneficial to have a lot more control over how much income is coming from your investment portfolio year to year. Some years you may sell off more, some years less, or you may decide not to sell at all and cover your income needs from other sources. A portfolio built on dividend income doesn't allow this kind of strategic planning year to year, so in addition to a suboptimal return, you could be pushing yourself into higher tax brackets unintentionally. And that's a wrap for another Monday show. Have a great rest of your day and start to your week and I'll be back tomorrow where your optimal life awaits.