Can we do this dividend stock thing one more time?

[Ready]

Quote:

Originally Posted by redduck Everything you are saying is correct (I guess). Except that I think you are answering another question. I understand that money is all the same. However, I am talking about risk. I'm wondering if there is much more risk in owning historically safe companies that have a long history of paying and (increasing) dividends vs. owning safe but low paying bond funds.

We have no way to evaluate your risk here as we don't know what portion of your portfolio is being invested in these stocks and for how long you plan to hold them. You already stated that some of these stocks went down 40% in 2008. If that happened again and you needed to sell them to pay your bills, you would lose far more than you gained from the dividends. If you plan to pass these on to the next generation and believe you will never have to sell them, the perceived risk looks very different. Risk can never be assessed without knowing the time frame involved and the percentage of the total amount being invested, along with the amount needed to cover expenses.

[redduck]

Quote:

Originally Posted by karluk I don't think anyone is going to be able to convince you that you're taking on a lot of risk. You seem willing to admit that large cap value funds are risky and can decline severely in a stock market crash, but somehow you also believe that your holding the same sort of stocks individually makes you immune from the same type of losses. Apparently the theory is that your reading of the stock market is so vastly superior to everybody else's that you will be able to identify the stocks that are headed down and sell them in a timely manner. I would characterize this attitude as unrealistically optimistic, but it's your money and you can certainly invest it anyway that you think will produce the biggest profit for the lowest risk.

Well, no one has even tried (as of yet) to convince me that I am taking on a lot of risk. And, I didn't "admit" anything and I don't think I'm "immune" to anything. And, I don't think my "reading of the stock market is vastly superior to everybody else's." (Where did you get that idea, anyway)? I'm not even looking for the biggest profit with the lowest risk. I'm just wondering if it makes sense to have safe, individual dividend stocks replace a portion of my bond funds.
Geez.

[robls]

I have adopted the dividend re-investment route with my retirement accounts. Dividends are re-invested commission free(through my Fidelity account) in each stock I hold. Have been doing this for the last 10+ years. Sort of like Buy & Hold with double compounding. Dividends buy additional shares, plus any dividend increases that companies give out. Plan on living off the dividend stream in retirement, along with SS and small pension.
Using the EZBacktest software Free Download: EzBackTest I have run many different back tests and allocation models
I took David Fish's spreadsheet The DRiP Investing Resource Center - DRiP Information, Tools, And Forms, sorted the dividend champions by number of years increased dividends. I came up with 53 companies that have increased their dividends 40 years or more.
I used the following 50 companies for the back test: DBD,AWR,DOV,NWN,EMR,GPC,PH,PG,MMM,VVC,CINF,KO,JNJ, LANC,LOW,CL,NDSN,CB,HRL,TR,ABM,CWT,FRT,SJW,SWK,SCL ,TGT,
MO,CBSH,CTWS,FUL,SYY,BKH,NFG,UVV,BDX,BCR,HP,LEG,MS A,PPG,TNC,GWW,GRC,KMB,MSEX,NUE,PEP,VFC,MHFI.
I started the back test January 1,2000 and ran to the present day. Based on $100,000 total investment. Each company was equal weighted in the portfolio. There was no rebalancing. Dividends were re-invested back into each company.
I own many of the companies above, plus additional companies. Currently 51 in total.
The numbers speak for themselves.
Portfolio Value as of 2/14/14: $479,142.72
S&P 500 Value as of 2/14/14: $126,347.22
Standard Deviation: 14.40
Sharpe Ratio: 0.67
Of course, past performance does not guarantee future returns. Along with all the other disclaimers.

[ERD50]

Quote:

Originally Posted by redduck .... And, I don't think my "reading of the stock market is vastly superior to everybody else's." (Where did you get that idea, anyway)? .... Geez.

Well, what does this sound like:

I know that there are mutual funds that concentrate on dividends. I was once in one—DVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): “Why are they still holding all those financial-type companies?” I also remember thinking, “Well, duck, they surely know better than you.” They didn’t.

-ERD50

[Disappointed]

I was looking at NOBL but have not bought any. It is a dividend aristocrats ETF.

[karluk]

Quote:

Originally Posted by ERD50 Well, what does this sound like: I know that there are mutual funds that concentrate on dividends. I was once in one—DVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): “Why are they still holding all those financial-type companies?” I also remember thinking, “Well, duck, they surely know better than you.” They didn’t. -ERD50

Yep, OP has clearly staked a claim to being a better money manager than the professionals who are in charge of large mutual funds. Nobody is going to convince him otherwise, so best of luck to him and I hope he never finds out otherwise.

[redduck]

Quote:

Originally Posted by ERD50 Well, what does this sound like: I know that there are mutual funds that concentrate on dividends. I was once in one—DVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): “Why are they still holding all those financial-type companies?” I also remember thinking, “Well, duck, they surely know better than you.” They didn’t. -ERD50

Well, in this one instance, they didn't know better than I. Actually, my guess is they did know, but perhaps their fund's charter?(or, whatever)? caused them to hold onto the financial stocks.

[Bestwifeever]

Quote:

Originally Posted by redduck ....I know that there are mutual funds that concentrate on dividends. I was once in one—DVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): “Why are they still holding all those financial-type companies?” I also remember thinking, “Well, duck, they surely know better than you.” They didn’t....

This DVY that is at a 7 plus year high? http://finance.yahoo.com/q?s=DVY

[redduck]

Quote:

Originally Posted by Bestwifeever This DVY that is at a 7 plus year high? DVY: Summary for iShares Select Dividend ETF- Yahoo! Finance

I'm beginning to feel like I'm playing dodge ball here.
OK, DVY is at a 7 year high. I was saying that (actually I wasn't saying that) but I am now, that if the DVY people didn't hold on to all those financial stocks until the companies decreased or eliminated their dividends that DVY would be much higher than it is now (the seven year high would even be higher). Yes/no? Didn't anybody else wonder why DVY was holding onto the financial stocks?

However, I do think we are sort of slipping away from the original point (but, I still find this all interesting).

[Lsbcal]

Quote:

Originally Posted by redduck ...(snip)... So, I have been slowly changing over my bond funds to a group of individual dividend paying stocks. I’m planning on having maybe 40-50% of my bonds funds morph into these individual stocks. ...

I guess the question to ask yourself is could you survive on just the dividends these stocks give off? If yes, then they become more like bonds in that you don't have to worry at all about price. Being older makes our spending decisions sometimes more urgent.

The DJIA was paying high dividends in the 1930's, 4.7% in 1930 alone and that yield went up as the market declined. Didn't stop the market from taking years to recover.

What is the collective dividend yield of the stocks you will be holding?

[Bestwifeever]

I loved dodge ball until that version with lots of balls got popular.

[REWahoo]

Quote:

Originally Posted by redduck However, I do think we are sort of slipping away from the original point (but, I still find this all interesting).

The original point being "are individual dividend paying stocks more risky than bond funds"?

Yes.

[Zathras]

I like dividend stocks.
No, they aren't as safe as bonds individually.
But I bet my portfolio of individual stocks is safer than a portfolio of bonds when inflation risk is included.

Our portfolio dropped about 40% in the big recession! our dividend income dropped by less than 10%.
Every one of the past 5 years our dividend income has grown faster than inflation. And we have more than made up for the loss during the recession.

We find dividend income much more stable than stock prices and much more generous than bonds and of course.
In addition, we pay 0 fees and almost zero trading costs.

Lessons I have learned...
Never chase yield! I did that once and got slapped hard.
Diversification is very important.

To the OP, if you want a fun, active dividend player, take a look at O (Reality Income).
The may not have as long a history as some of the others, but they pay monthly, increase often and are one of the more solid plays in real estate.

[MichaelB]

I see two questions here. One asks if dividend paying equities are riskier than bonds. Over a long period, the risk of inflation is just as great as the risk of capital loss, and the likelihood is that a dividend stream will grow with inflation, so if one is certain to not need the capital, dividend paying funds are not necessarily riskier.

The other asks if individual dividend stocks are riskier than dividend oriented ETFs or funds. No doubt (IMHO) a diversified fund lowers risk of reduced dividend flow and loss of principle.

[NW-Bound]

I just looked and saw that DVY runs neck-to-neck with SPY since the market bottom in March 2009, the latter being a long-time ETF surrogate of the S&P 500. That was price-wise. As DVY's dividend is higher than SPY, its total return might be a bit higher.

Anyway, as long as Redduck does not go overboard with dividend stocks, and stays diversified with something like at least 20 stocks, I do not see that his is a high-risk approach. Redduck may not beat professional managers, but then he might. As I have tried to point out repeatedly, managers of large MFs do not have the agility of small investors. I can dump my 500 or 1000 shares of a stock at one click of my mouse, but a large MF needs time to get out of several hundred million dollars worth of a stock. Of course an individual investor may make dumb mistakes or act hastily too.

And then, a retiree needs something to do with all his free time too. What else would Redduck spend his time on? Measuring speaker open-air responses in the backyard by frequency sweeping? Get into cooking and try different French dishes?

I hold many individual stocks, and as I do not trade daily, still have plenty of time to spend on above diversions because it's not the season for RV'ing, nor the time to ride my motorcycle into forest trails. Heh heh heh...

[Lsbcal]

Vanguard High Dividend Yield Index (VHDYX) currently yields 3.06% (379 stocks, 13% financial). Here is a comparison with Total Stk Mkt (VTSMX) and Total Bond Mkt (VBTLX).



Didn't seem to provide much cushion in the 2008 meltdown. My opinion is that buying stocks is buying volatility. No way to get one and avoid the other.

[redduck]

Quote:

Originally Posted by Lsbcal I guess the question to ask yourself is could you survive on just the dividends these stocks give off? If yes, then they become more like bonds in that you don't have to worry at all about price. Being older makes our spending decisions sometimes more urgent. The DJIA was paying high dividends in the 1930's, 4.7% in 1930 alone and that yield went up as the market declined. Didn't stop the market from taking years to recover. What is the collective dividend yield of the stocks you will be holding?

OK, according to Morningstar my dividend yield TTM (whatever that means) is 3.22

No, I couldn't survive on what these stocks give off--but, that was never the plan. Actually, I'm also too conservative to only just hold dividend stocks. But, I also have Social Security, the RMD kicks into place this year, I work about 8 hours a week, I have no debt. I have at least three years of cash/short term bond funds if I need it. I don't see me having to sell anything (in next few years, anyway), unless I want to.

And, no, I don't really need worry about the price. But, of course, that could change depending on all kinds of circumstances out my control.

And, I checked: I've been involved in this Dividend Income thing for about a bit more than 3 years.

[redduck]

Quote:

Originally Posted by Zathras I like dividend stocks. No, they aren't as safe as bonds individually. But I bet my portfolio of individual stocks is safer than a portfolio of bonds when inflation risk is included. Our portfolio dropped about 40% in the big recession! our dividend income dropped by less than 10%. Every one of the past 5 years our dividend income has grown faster than inflation. And we have more than made up for the loss during the recession. We find dividend income much more stable than stock prices and much more generous than bonds and of course. In addition, we pay 0 fees and almost zero trading costs. Lessons I have learned... Never chase yield! I did that once and got slapped hard. Diversification is very important. To the OP, if you want a fun, active dividend player, take a look at O (Reality Income). The may not have as long a history as some of the others, but they pay monthly, increase often and are one of the more solid plays in real estate.

Yes, I learned the chasing yield lesson early on. I actually thought what I was buying was pretty safe, but the high yield should have tipped me off.

I do own O. I recently bought it, but only after Value Line upgraded its safety rating. I still consider it one of my riskier holdings.

[semi55]

there's a lot of research out there showing that increasing your stock holdings, sort of a reverse glide path of stocks, as you age, is the best system, provided you still cover your short term needs with stable, non stock, holdings.

As to dividend stocks, check the betas of the stocks you invest in. As stated elsewhere in the thread, dividend stock is still stock. The underlying value of the stock will move with the market (just like long term bond prices move with interest rates). If you look for dividend payers that have low beta, you'll see them follow the market to a lesser degree.

[redduck]

Quote:

Originally Posted by Ready We have no way to evaluate your risk here as we don't know what portion of your portfolio is being invested in these stocks and for how long you plan to hold them. You already stated that some of these stocks went down 40% in 2008. If that happened again and you needed to sell them to pay your bills, you would lose far more than you gained from the dividends. If you plan to pass these on to the next generation and believe you will never have to sell them, the perceived risk looks very different. Risk can never be assessed without knowing the time frame involved and the percentage of the total amount being invested, along with the amount needed to cover expenses.

Well, I think this is kind of a buy and hold thing. (On Seeking Alpha they call it "Buy and Monitor"). But, I find there is very little selling involved. Interesting enough (at least to me) it is considered good strategy to sell a stock when it advances so much that the dividend yield drops because of the rise in the stock's price. Then, the idea is to buy a stock or two that currently has a higher dividend yield than the one you just sold.

Anyway, I do wonder if this whole style of investing will blow up and eventually become a nightmare. But, of course, I don't know what might cause that nightmare to happen. However, if it does happen, I'll regret not being 60-70% in bonds.