Stocks are safer than you may think

[Berkshire_Bull]

The other interesting tidbit in Americas 60 Families was that during the depression, the dividends paid by American firms was actually higher than during the predecessor period during the 1920s boom. I think the two periods were 1925-1929 and 1930-1934. Now I don't have the numbers in front of me, but if anyone wants them I'll try to get them for you. I find it incredibly interesting that during the worst economic period in modern history, ownership in an established business proved to be a solid investment nonetheless. It may not be a bad idea to keep a good amount of money in dividend paying stocks, even into retirement years. It would be difficult to get your 4% outof equities without selling them, which would serve to decrease or eliminate your cushion of safety given a severe market decline, but combining with bonds, at a lower percentage than current thinking would have you take, may prove to be a higher reward with equal risk. Dividends go up, bond payments are static. I am beginning to look at strong companies with healthy dividends almost like a type of convertable prefered stock. Just for example Pfizer will get you an allmost bulletproof 2.85% that should increase in the high single digits into the future, as well as a "kicker" which is capital gains. By buying now, you're locking in (a tax advantaged mind you) 2.85% and with the strong probability for yield increases with dividend increases, you still have your base purchase price locked in as you would with a bond, but your yield will grow over time. Kindof an interesting perspective, right or wrong.

 

[Michael]

I own PFE, but I am not sure that high dividend stocks in general can keep up with inflation. The utilities index, for example, is a dividend disaster.

 

[Nords]

I am beginning to look at strong companies with healthy dividends almost like a type of convertable prefered stock.

Sounds like Dogs of the Dow to me!

 

[Berkshire_Bull]

From what I understand, the Dogs of the Dow has worked at times, while at other times it has underperformed. Tell me Nords, do you, or do you know of anyone on this board that follows that strategy? It's an interesting contrarian approach to investing. The Fool had some things on it a few years ago, including a model portfolio, but they found that their numbers wern't as strong as they had previously thought them to be as they broadened their sample.

 

[JWR1945]

The Dogs of the DOW still works. It always has. At least, it works on paper.

It is vulnerable to frontrunning and it has a high turnover. Fees and commissions drain off your profits.

Earlier reports that claimed that the Dogs of the DOW no longer work were premature. This is typical. A sound approach is declared useless after a very short time period. Add a few years and it regains its position.

Still, there are better ways to invest for value.

Have fun.

John R.

 

[Nords]

From what I understand, the Dogs of the Dow has worked at times, while at other times it has underperformed.  Tell me Nords, do you, or do you know of anyone on this board that follows that strategy?

No, I don't know of anyone following the strategy, although Unclemick has built up quite a dividend portfolio that may match the Dogs.

We have a small part of our retirement portfolio in the Dow Dividend ETF (DVY).

 

[grumpy]

I have araound $200K in dividend paying stocks that I initially acquired through DRIP plans. The current yield on this portfolio is 3.87%. The yield calculated on my cost basis is 4.75%. These stocks are in the following sectors: financials, technology, food, chemicals, insurance, energy, pharma, publishing, real estate, retail, and utilities.

My average annual return since 1995 is 11%.

Grumpy

 

[Berkshire_Bull]

Isn't it neat how your yield increases through dividend increases. Grumpy, if I'm not mistaken, your cost basis is about 60 points above the 10 year t-bills. Are you retired, and are you comfortable with your portfolio? I know I would be comfortable with it, but I'm not retired either! I assume your return includes dividends. Do you reinvest them or take the money? Thanks.

 

[grumpy]

Isn't it neat how your yield increases through dividend increases. Grumpy, if I'm not mistaken, your cost basis is about 60 points above the 10 year t-bills. Are you retired, and are you comfortable with your portfolio? I know I would be comfortable with it, but I'm not retired either! I assume your return includes dividends. Do you reinvest them or take the money? Thanks.

Berkshire Bull:

Yes, I am retired. I am comfortable with my portfolio. The dividend paying stocks I mentioned in this thread are only a fraction of my total portfolio. I am allocated 75% in equities overall. I have a substantial gov't pension that is inflation protected so I can sleep well with a higher stock allocation than others might. The return I quoted does include dividends. Up until retirement I reinvested all dividends (free with Buy & Hold Securities). Now I take them in cash.

I'm not sure I understand your comment about my cost basis being 60 points above 10 year t-bills. Please explain.

Grumpy