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Retired genealogist, need some pointers
Old 01-04-2008, 12:18 PM   #1
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Retired genealogist, need some pointers

Retired simply means I've decided not to accept any more research work and begin to travel to destination of my liking and on my expense.

I understand the 4% rationale and methodology of Firecalc but my question is about how best to produce the 4% income stream. I did read fairly thoroughly before signing up. That's not to say I missed another discussion on this.

The question (which I will repost elsewhere) is about dividend producing stocks or MFs. At first thinking I figured that finding a few stocks which have consistently paid dvidends of 4% or more would provide my income needs of $100k /yr.

But my question is "Are their 10-12 stocks/MFs that have that track record over a 20-30 year period?"
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Old 01-04-2008, 12:39 PM   #2
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Retired simply means I've decided not to accept any more research work and begin to travel to destination of my liking and on my expense.

I understand the 4% rationale and methodology of Firecalc but my question is about how best to produce the 4% income stream. I did read fairly thoroughly before signing up. That's not to say I missed another discussion on this.

The question (which I will repost elsewhere) is about dividend producing stocks or MFs. At first thinking I figured that finding a few stocks which have consistently paid dvidends of 4% or more would provide my income needs of $100k /yr.

But my question is "Are their 10-12 stocks/MFs that have that track record over a 20-30 year period?"
Not dure I understand how your formulated your question, but the FIRECALC SWR of 4% is apples, and stocks paying dividend rates of 4% or greater is oranges.

The FIRECALC 4% SWR idea assumes one will eventually "use up" principal as well as income from a portfolio. The idea is to have a reasonable expectation one's portfolio, being "used up" in this manner by annual withdrawals, will last at least until what one assumes one's life expectancy to be.

On the other hand, looking for stocks paying dividends of 4% or greater to produce an income stream of $100,000 a year (in your case) based on the amount of principal you have to invest (backwards calc says you have $2.5 million?) means you NEVER TOUCH that principal. You get the $100k a year income off that pot of $2.5 mil, then when you die the $2.5 mil is still there.

These are two totally different ideas.

That said, if you are serious about NEVER touching that principal, and you want to solely live off the income (at a rate of 4% yield), I am sure there are 10 or 20 stocks that pay dividends of 4% or greater, and have done so for 20 or 30 years. One can use various investor screens available to search for such stocks.

Whether one can find enough such 4% yielding stocks with 20-30 year track records to build a reasonably diversified or otherwise desireable portfolio, I do not know. For example, you may find lots of bank stocks coming up in such a screen. Would you otherwise want to invest in a lot of bank stocks? Or utility stocks? Or reits?
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Old 01-04-2008, 01:44 PM   #3
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But my question is "Are their 10-12 stocks/MFs that have that track record over a 20-30 year period?"
The simple answer is yes; there are this many and more. Mergent's Dividend Achievers is a well known manual featuring this approach.


Mergent's Dividend Achievers - Mergent

IMO this approach is superior to the portfolio liquidating approach referenced in the post above. It does however require some judgment. You are making a meaningful commitment to individual stocks. While they might have done very well in the past, and most of them will continue to do reasonably well, the past is never a perfect predictor of the future and each stock chosen should be examined for the current condition and outlook for its business.

There are CEFs and ETFs following this general approach, but after expenses there may be none with a 4% yield.

Also, overall I believe it is likely better to maintain some fixed income to equity allocation strategy, which will enable you to improve your portfolio yield over time by applying a modest amount of rebalancing.

Ha
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Old 01-04-2008, 02:14 PM   #4
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Are their 10-12 stocks/MFs
I'm confused. Are you suggesting that you wish to invest in a dozen stocks so that they will generate $100k annually?

I am not a stock picker, but I think that by assuming that a few stocks would be a safe investment (no matter what 12 stocks they were) is assuming much unnecessary risk. Why not just invest in a diversified MF (life Vanguard Total Stock Market Index) and own the entire market rather that only a dozen issues?
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Old 01-04-2008, 05:31 PM   #5
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I'm confused. Are you suggesting that you wish to invest in a dozen stocks so that they will generate $100k annually?

I am not a stock picker, but I think that by assuming that a few stocks would be a safe investment (no matter what 12 stocks they were) is assuming much unnecessary risk. Why not just invest in a diversified MF (life Vanguard Total Stock Market Index) and own the entire market rather that only a dozen issues?
Those dorks at Mergent's started feeding the ducks once they realized dividend's were getting popular - I think I paid 45 bucks back in 03 up from 28 in 93 or so.

Can you do it with a few good stocks - Weeeeelllll yes BUT butcha gotta watch your TWD aka terminal wealth dispersion. I have no problem being theoretically impure index wise - I do both index(Target Retirement) and dividends(Norwegian widow). Google up Bernstein's 15 Stock Diversification Myth and see if you are comfortable with TWD, systemic risk and all that theory stuff.

Lefthandedly - I got a lot mileage out of dividend stocks the first decade of ER(the 90's) while my balanced index(60/40ish) grew big and strong. Now a lifecycle fund(aka Target) in my trad IRA is the big dog and my Norwegian widow stocks are my hobby/get me to Margaritaville play money.

Remember this - in ancient times(pre1976, first 500Index) - retired people used dividends and interest and went to their graves smiling - little realizing what grevious sins they were commiting - theorywise.

My invented by Unclemick - Unified theory of Chickenheartedness - says theoretical impurity gives one something to B.S. about on forums:

85% Target Retirement 2015 (trad IRA with a tad in Roth)
15% Norwegian widow stocks(all taxible cranking them divy's out)

15th year of retirement. Party on! So risk wise - are we going to see the the Peyton vs Brady show this Superbowl?

heh heh heh -
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Old 01-04-2008, 06:58 PM   #6
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we going to see the the Peyton vs Brady show this Superbowl?
Not unless one of those guys gets traded real soon to an NFC team.
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Old 01-04-2008, 07:19 PM   #7
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Not unless one of those guys gets traded real soon to an NFC team.
Sorry - gear skip. I guess when they let the NFC show up that's the official Superbowl. Sometime's seems like a ho hum afterthought after the playoff's.

heh heh heh -

Holy Crap - now that I think about it - is anybody gonna show up for the NFC. Redskins, Dallas, the other Manning? My Sister - picks Green Bay - but then she thought the Pats were a good football team.
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Old 01-04-2008, 08:45 PM   #8
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And yet one more thing - you can buy used copies of Mergent's at Amazon. But I like to check top ten stock holdings via Yahoo finance of good old time value funds like Dodge and Cox, Wellington and of course:

Pssst Wellesley.

Wait till somebody(a stock) has a bad day at Black Rock(pun intended) - and with true belief in RTM/no guts no glory you can often get your 4% and diversify across time as well as industry/sector.

The betting line/academic curve I seem to remember from the 90's - pick 8 and get 83% of the S&P 500 volitility.

Of course it's changed - that number always does with time.

Remember Ben Graham - the appendix in the 4th edition of Intelligent Investor - pick the middle way and avoid magic, mystery and manipulation.

agile mobile and hostile - balance div yield and div growth - don't hot rod either extreme.

heh heh heh - a little Norwegian widow pontification.
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Old 01-05-2008, 03:29 PM   #9
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Sorry for delay, lost a hard drive.

Thanks all, the 4% was cause when you begin with a $2.5mil lump and want $100k withdrawal inflated, then FireCalc says 95%. So basically the thinking was that in the first year a 4% dividend achiever would provide me 4% and no loss of initial investment. And with a modest equities growth equal to inflation, the portfolio should produce 4% forever with modest growth equal inflation.

So unclemick has me figured. I need a diversified selection of historically high dividend payers with a mix of steady performers (Norwegian widow) and high payers (Las Vegas widow).
dean foods 61%
american capital 12%
progressive corp 11%
first horizon 11%
bank of america 6%
northstar realty 14%
pfizer 6%
kohlberg capital
citigroup
lazyboy
parkway properties
GE
legacy reserves
primewest energy
washington mutual
K-sea
linn energy
mcg capital
new frontier media
crystal river capital
fairpoint communications


What is the downside to an all dividend yielding portfolio? Especially if I can find (as unclemick suggests) a replica of the top 10 mix from a nice fund like Wellesley and mix it with some speculation type picks.
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Old 01-05-2008, 05:04 PM   #10
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Sorry for delay, lost a hard drive.

Thanks all, the 4% was cause when you begin with a $2.5mil lump and want $100k withdrawal inflated, then FireCalc says 95%. So basically the thinking was that in the first year a 4% dividend achiever would provide me 4% and no loss of initial investment. And with a modest equities growth equal to inflation, the portfolio should produce 4% forever with modest growth equal inflation.

So unclemick has me figured. I need a diversified selection of historically high dividend payers with a mix of steady performers (Norwegian widow) and high payers (Las Vegas widow).
dean foods 61%
american capital 12%
progressive corp 11%
first horizon 11%
bank of america 6%
northstar realty 14%
pfizer 6%
kohlberg capital
citigroup
lazyboy
parkway properties
GE
legacy reserves
primewest energy
washington mutual
K-sea
linn energy
mcg capital
new frontier media
crystal river capital
fairpoint communications


What is the downside to an all dividend yielding portfolio? Especially if I can find (as unclemick suggests) a replica of the top 10 mix from a nice fund like Wellesley and mix it with some speculation type picks.
TBPu:

The crucial part of a dividend strategy is that the dividends actually get paid. The reason many of the companies you listed show high dividend yields is because the companies themselves are in trouble and the stock price has been dropping like a stone. For example, Dean Foods only shows a 61% yield because it paid a special $15 dividend this past April. It has no regular dividend policy. The last time it paid a dividend before April was back in 2005. The company is incredibly levered, its bonds recently have been downgraded to junk status, is has very slim profit margin and is facing rising costs. Similarly, First Horizon is very exposed to the housing crash. It has apparently made a large number of loans to home builders and condo developers, as well as a substantial number of second mortgage and HELOC loans. When the foreclosures come, guess who loses first?

Buying companies solely based on the trailing dividend yield, without considering the strength of the company, would be madness. I think that you would be much better off simply buying the Vanguard Target Retirement Income fund (VTINX) which is currently yielding 4.08% and has a total annualized return since its inception in 2003 of 6.5%. Let them worry about providing the cash flow.
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Old 01-05-2008, 05:05 PM   #11
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Sorry for delay, lost a hard drive.

Thanks all, the 4% was cause when you begin with a $2.5mil lump and want $100k withdrawal inflated, then FireCalc says 95%. So basically the thinking was that in the first year a 4% dividend achiever would provide me 4% and no loss of initial investment. And with a modest equities growth equal to inflation, the portfolio should produce 4% forever with modest growth equal inflation.

So unclemick has me figured. I need a diversified selection of historically high dividend payers with a mix of steady performers (Norwegian widow) and high payers (Las Vegas widow).
dean foods 61%
american capital 12%
progressive corp 11%
first horizon 11%
bank of america 6%
northstar realty 14%
pfizer 6%
kohlberg capital
citigroup
lazyboy
parkway properties
GE
legacy reserves
primewest energy
washington mutual
K-sea
linn energy
mcg capital
new frontier media
crystal river capital
fairpoint communications


What is the downside to an all dividend yielding portfolio? Especially if I can find (as unclemick suggests) a replica of the top 10 mix from a nice fund like Wellesley and mix it with some speculation type picks.
One little bit of downside is illustrated by Washington Mutual. Trace the stock price over the last 4 years. Then trace the dividends amount too. Down, down , down. So much for having your capital "still remaining" at the end. So much for having dividend income "keep up with inflation" (let alone even just staying steady enough to count on!)

Points out the necessity absolutely for *diversification*.

Otherwise, in general, a portfolio of dividend payers is not a bad idea. Isn't it Carlson for one who pushes that idea? Also, they now have ETF's based on the idea---DVY is one (don't think it has 4% yield though).
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Old 01-05-2008, 05:19 PM   #12
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Here's a link to one place thinking dividend stock strategy is a good one.

Dividend Paying Stocks
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Old 01-05-2008, 05:23 PM   #13
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Another link---book on dividend stock strategy, and website with further info and links on the subject.

The Dividend Guy's Investment Books - The Dividend Growth Investment Strategy: How to Keep Your Retirement Income Doubling Every Five Years
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Old 01-05-2008, 05:25 PM   #14
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Thanks guys,
Gumby, given my previous track record, VTINX would be smart. I held Wellesly from inception to late 70s, actually losing money and look now.

yeah, RtR, I did see an article today even, it said that many dividend payers are looking at big reductions in 2008 (link was on Yahoo finance). It mentioned Washington Mutual.

I guess my initial feeling was maybe 10-12 "blue chips" with proven records and about 5-6 "Dean Foods" selections and yet the more I think about it, my real goal was to select, and neglect. Just go boating.

Are there any legal requirements for a company regarding dividends. For instance can they change their dividend without shareholder approval?

Thanks, I need to rethink.
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Old 01-05-2008, 05:42 PM   #15
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You might also want to check out (try Amazon.com, etc) Gene Walden's book "The 100 Best Dividend Paying Stocks". (Or check it out literally from a library)

Dividend payers is not a bad idea for a retirement portfolio, as long as you thoroughly screen the companies for financial strength and lenght of time they have paid/raised dividends, and you get adequate diversification--I'd say "at least" 15 different companies, and 20-25 would be a lot better.

And if you could lower your bar from 4%, down to 2.5 or 3% average "current" dividend yield required, I think you would end up with a lot better pool of candidates.

Maybe you can try for a portfolio of companies who are likely to *grow* their dividends over time. Thus, while you may start out at perhaps a 2% current yield, 5 years down the road you end up with a 4% yield based on your original investment. And 10 years out, it is 8%, etc.

Diversification-----I know one guy in my area who retired and put about 90% of his dough in one company back in the early 90's, it was a reit yielding 10% or so. I think it was called something about Redwood Trust, or something about redwoods, or red or something. He thought, wow, am I going to be raking in a lot of income.

Needless to say, things went south. He had a pension too, luckily, but I think after that investment turned sour on him, he went back to w*rk.

Don't give up on dividend paying stock portfolio---just be realistic about "current" yields, be thorough in screening, and above all don't sink it all in one or two or three issues---get adequate *diversfication*!!.

And as you do more research, let us know what you are finding.
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Old 01-05-2008, 08:08 PM   #16
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Diversification-----I know one guy in my area who retired and put about 90% of his dough in one company back in the early 90's, it was a reit yielding 10% or so. I think it was called something about Redwood Trust, or something about redwoods, or red or something. He thought, wow, am I going to be raking in a lot of income.

Needless to say, things went south. He had a pension too, luckily, but I think after that investment turned sour on him, he went back to w*rk.
Redwood Trust is a mortgage REIT. These can be good trades, but generally are very tricky long term investments.

Redwood Trust

Here is another thing to think about when using a dividend strategy:

Investors May See Dividends Disappear: Financial News - Yahoo! Finance

As you can see, a dividend strategy is not for an investor who wants to "set it and forget it."

Ha
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Old 01-06-2008, 12:55 AM   #17
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Redwood Trust is a mortgage REIT. These can be good trades, but generally are very tricky long term investments.

Redwood Trust

Ha

I see from the info at Redwood Trust, it must have been the mid to late 90-s (95-98) when the guy I knew blew 90% of his dough on this one stock. It was that timeframe the dividend went from 60 cents to 35 to 17 to 01 cent. It took years to recover. In that same timeframe mid-late 90s, the stock price also took a hit.

IF, however, one had held it for the VERY LONGTERM, it does look like one would have come out alright in the end. It has had a steady record of dividend increases the last 8 or 9 years. And overall, from when it incepted in 1994, the company has returned an investor's initial pot by 16% compounded annually.

So, I would say REIT's can be tricky "shortterm" investments, but over a VERY longterm can prove profitable.

The problem is if one is depending on dividend income stream to live on, then the "shortterm" becomes very important---UNLESS one has adequate diversification to enable one to live with a few issues with bad "shortterms".
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Old 01-06-2008, 03:54 AM   #18
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So, I would say REIT's can be tricky "shortterm" investments, but over a VERY longterm can prove profitable..
OK Robert.

Ha
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Old 01-06-2008, 02:10 PM   #19
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Thanks Rtr, the reads were good and gave me some thinking points to go off and research further.

haha, thanks for the link it makes me realize that now might be the very worst time to try to form an "all" dividend portfolio.
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Old 01-06-2008, 02:21 PM   #20
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Hmmm - may not fit your age/distribution phase/ and bring back old memories but it gives me my jollies:

PSSSST!! - Wellesley! This time don't sell when it's down take the dividends and interest and spend them.

4.31% current yield.

heh heh heh - you get auto rebalance, the value premium, don't have to sell nothing to get your income - divy's and interest like the old days - takes some grit to let Mr Market fluctuate in value - but we're older/more seasoned now - right?
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