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Can we do this dividend stock thing one more time?
Old 02-16-2014, 07:24 PM   #1
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Can we do this dividend stock thing one more time?

Iím old, so Iím supposed to have about 60-70% of my investments in bonds. Two reasons I donít like this idea: 1. it doesnít seem to generate much income; 2. itís not very interesting.

So, I have been slowly changing over my bond funds to a group of individual dividend paying stocks. Iím planning on having maybe 40-50% of my bonds funds morph into these individual stocks.

I know that there are mutual funds that concentrate on dividends. I was once in oneóDVY. I watched it crash and burn. I remember thinking as it was crashing (and burning): ďWhy are they still holding all those financial-type companies?Ē I also remember thinking, ďWell, duck, they surely know better than you.Ē They didnít.

This transition of mine (bonds-to-stocks) has been going on for about two years.
It seems the transaction fees compare favorably to mutual fund fees as there is very little selling of dividend stocks.

Also, it does not take much research (at least the way I do it) to pick individual dividend stocks. But, it is kind of fun and interesting. Itís kind of like Midpack enjoying creating graphs and charts). Well, maybe itís not, but thatís what came to mind.

I select what I consider ďsafe stocks.Ē They need to be safe, because I am substituting them for the safety of bonds (in bond funds).

Why do I consider these stocks safe? I check them out on Value Line (OK, stop that eye-rolling right now!). The stocks that I almost always pick have the highest rating for Safety (rank 1) and the highest rating for Financial Strength (A++). (OK, when I feel frisky I may buy a stock that has a financial strength of A+). I also want a stock that has a dividend yield of 2.8% or higher. That minimum in the past has dropped to 2.5%.

Then, I see how many years in a row they have been raising their dividends.
This is sort of amazing (at least to me) because MCD (McDonalds) has raised their dividend 37 years in a row; PG (Procter & Gamble), 60 years; Exxon (XOM) 31 years--even when the Exxon Valdez had that minor oil leak and destroyed an ocean, XOM kept raising its dividend. Anyhow, there are others that have pretty good track records and seem safe (to me). Oh, yeah, KO (Coke) 51 years. (I own all of the above). There are a bunch that fall into the 8-15 year increased dividends category. I realize that this is ďcherry picking,Ē but, many dividend investors do pick pretty much the same cherries.


I understand there have been many companies that were ďsafeĒ at one time that cut or stopped their dividends or went bankrupt. But, these were probably not companies that dividend investors would be holding when this bad stuff actually took place.

I also understand that this dividend stuff is definitely the ďflavor of the monthĒ and that it will never replace chocolate, but it seems itís still a pretty good way of generating an income stream. Or, it might be a lot of fuzzy and wishful thinking. Seniors often donít see clearly and may end up wandering down paths that they shouldnít wander down. The thing is, I know there must be danger on this path, I just donít see it.

Anybody with clearer vision (and a thought or two)?
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Old 02-16-2014, 07:38 PM   #2
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Well, if you are looking for something more 'interesting' than investing in boring old bonds, chasing dividend paying stocks down the path to wherever could turn out to be as exciting as a heart attack. At your advanced age why are you trying to goose your income? Do you really need to take the added risk to pay the bills?

Duck, I think maybe you need to.
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Old 02-16-2014, 07:51 PM   #3
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I am old, too.

In my portfolio I have a few dividend stocks, a few balanced and equity funds and ETFs, some CDs and some cash. The dividend stocks I have are like me going gambling, which is not a regular pastime. This represents about 10% of my portfolio. They include:

AT&T
MO
SO
EPD (an MLP that pays $$/Unit, not dividends).

I had others, but sold them last year. I have the dividends reinvested (DRIPS).

I enjoy following companies and trying to find winners. That's why I buy certain individual stocks.
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Old 02-16-2014, 08:12 PM   #4
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You're doing exactly what Suze Orman just told her viewers to do - invest in dividend stocks to generate income since bonds are not paying a high enough yield. So if following Suze's advice isn't enough to make you second guess yourself, I'll keep typing...

Dividends are just another way of receiving compensation for the risk involved with holding stocks. Whether stocks pay dividends or simply appreciate in value, the money is all the same. Dividends are taxable, whereas stocks that appreciate in price don't generate taxes until you sell them. And a stock that you buy for $100 to get a $3 dividend doesn't look so attractive to me if the NAV goes down to $70 during a correction.

But if it makes you feel better to see your investments generating activity, dividend stocks will certainly get you there.
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Old 02-16-2014, 08:18 PM   #5
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You're doing exactly what Suze Orman just told her viewers to do - invest in dividend stocks to generate income since bonds are not paying a high enough yield. So if following Suze's advice isn't enough to make you second guess yourself, I'll keep typing...

Dividends are just another way of receiving compensation for the risk involved with holding stocks. Whether stocks pay dividends or simply appreciate in value, the money is all the same. Dividends are taxable, whereas stocks that appreciate in price don't generate taxes until you sell them. And a stock that you buy for $100 to get a $3 dividend doesn't look so attractive to me if the NAV goes down to $70 during a correction.

But if it makes you feel better to see your investments generating activity, dividend stocks will certainly get you there.
Besides CDs and cash, enlighten us as to which investments don't have the potential to generate "activity" in the market?
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Old 02-16-2014, 08:21 PM   #6
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Besides CDs and cash, enlighten us as to which investments don't have the potential to generate "activity" in the market?
By "activity", I mean seeing lots of line items each month on our brokerage statement. My Vanguard index funds pay one small dividend at the end of each year, and otherwise lie dormant in my account. The NAV value goes up and down with all the market swings, but they generate no line item activity in my account other than the one annual dividend, unless I buy or sell them. So the perception is that they are not generating income, since we are not seeing monthly dividend figures on the statement every month.
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Old 02-16-2014, 08:40 PM   #7
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...<snip> At your advanced age why are you trying to goose your income? Do you really need to take the added risk to pay the bills?

Duck, I think maybe you need to.
+++++++++++

No, I don't really need to take the additional risk because NW-Bound has guaranteed me that I can live to be 93 before I run out of money.

But, the issue for me is: is there really much of an additional risk with these particular companies?

The other thing is: if I don't follow through with this dividend thing, I'll still be stuck with a $299 subscription to Value Line and a $69 subscription to Morningstar's Dividend Investor. See the problem?
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Old 02-16-2014, 08:48 PM   #8
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I'm basically doing the same thing with a portion of my portfolio. I think that as you get closer to retirement, an increasing percentage of your portfolio should be in dividend growth stocks.

http://www.spindices.com/documents/r...sting-2013.pdf
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Old 02-16-2014, 08:51 PM   #9
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Originally Posted by Ready View Post
Dividends are just another way of receiving compensation for the risk involved with holding stocks. Whether stocks pay dividends or simply appreciate in value, the money is all the same. Dividends are taxable, whereas stocks that appreciate in price don't generate taxes until you sell them. And a stock that you buy for $100 to get a $3 dividend doesn't look so attractive to me if the NAV goes down to $70 during a correction.
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.
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Old 02-16-2014, 08:52 PM   #10
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Originally Posted by redduck View Post
+++++++++++

No, I don't really need to take the additional risk because NW-Bound has guaranteed me that I can live to be 93 before I run out of money.

But, the issue for me is: is there really much of an additional risk with these particular companies?

The other thing is: if I don't follow through with this dividend thing, I'll still be stuck with a $299 subscription to Value Line and a $69 subscription to Morningstar's Dividend Investor. See the problem?
Yikes! Check out your local library and see if you can use VL and MS. I can access VL online through my library account. This could generate some tax free savings or income if you choose to see it that way.
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Old 02-17-2014, 06:45 AM   #11
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Gosh, If you had bought Vanguard Large Cap Value ETF on Dec 31, 2012 for its price of $58.8, you would have been paid $1.68 a share or 2.87% during 2013. You would own all the stocks you mention, and many more, be diversified, and have seen your investment grow to $76.39 a share during 2013.
All this with no work, no research, and only four dividend payments to post during the year.
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Old 02-17-2014, 06:57 AM   #12
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Yikes! Check out your local library and see if you can use VL and MS. I can access VL online through my library account. This could generate some tax free savings or income if you choose to see it that way.
I tried both the local and not- so- local library--can't get them on-line. However, I do feel I receive value from both these publications, so at least for the time being, I'm a subscriber. (I guess this is one example of why I'm still working--but only two 1/2 days a week).
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Old 02-17-2014, 07:31 AM   #13
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Gosh, If you had bought Vanguard Large Cap Value ETF on Dec 31, 2012 for its price of $58.8, you would have been paid $1.68 a share or 2.87% during 2013. You would own all the stocks you mention, and many more, be diversified, and have seen your investment grow to $76.39 a share during 2013.
All this with no work, no research, and only four dividend payments to post during the year.
OK, I see that VAN. Large Cap went down 36% in 2008 and (which was quite good given that year). But, I am already diversified enough (with large cap stocks as my largest holding is pssst Wellesley).

Anyhow, one of the points is that I have already been in an ETF that held way too many financial stocks and ended up being crushed. Another point is that I enjoy the research (using the term very loosely).

But, the main issue for me still remains: am I not seeing something regarding the safety of the stocks mentioned in the original post vs. owning bond funds?
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Old 02-17-2014, 07:32 AM   #14
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Value Line is a good source, I use at my library but I don't know if it is online. Did you check to see if they have it for reading at the library? They may not have it online like they usually don't have periodicals like magazines or newspapers.

Another source is the dividend champions list at dripinvesting The DRiP Investing Resource Center - DRiP Information, Tools, And Forms, it is free.

Also the dividend and income forums at seeking alpha , Latest Opinion & Analysis - Seeking Alpha
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Old 02-17-2014, 07:42 AM   #15
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OK, I see that VAN. Large Cap went down 36% in 2008 and (which was quite good given that year). But, I am already diversified enough (with large cap stocks as my largest holding is pssst Wellesley).

Anyhow, one of the points is that I have already been in an ETF that held way too many financial stocks and ended up being crushed. Another point is that I enjoy the research (using the term very loosely).

But, the main issue for me still remains: am I not seeing something regarding the safety of the stocks mentioned in the original post vs. owning bond funds?
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.
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Old 02-17-2014, 08:01 AM   #16
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+1 on the last post....


Plus, why are you researching the stocks... the whole point of a dividend portfolio is to buy and hold... you would not be trading these stocks...

Also, all of the 'problems' you state about owning funds or ETFs... where are they now I seem to be up from where I was in 2007.... maybe not when you take inflation into account, but in raw numbers I have more now than then....
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Old 02-17-2014, 08:06 AM   #17
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My New Year resolution was not to get sucked into any more "dividends are magic" threads on the internet. Damn, I did it again. Sorry.
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Old 02-17-2014, 08:12 AM   #18
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But, the main issue for me still remains: am I not seeing something regarding the safety of the stocks mentioned in the original post vs. owning bond funds?
It seems to me that the "safety" of the individual stocks (either their share price or the future payment of dividends) is not a "set it and forget it" situation, regardless of their past history. The prospects for a single company, an industry, or a sector can change rapidly with a change in CEO, a lawsuit, a new piece of legislation, rapid technological developments, etc. Dividend growth stocks can be seen as the product of survivor bias, the few still standing from a beginning field of thousands of companies. And, they probably won't stay there forever. So, if a person enjoys reading the financial press on a frequent basis or poring over a company's financial statements (how else to know if the dividend is being supported by ill-advised liquidation of portions of the company?), then I guess this could be a good and fun hobby. One could set up a notional portfolio, or one with a few shares, and get the same "fun" without risking any important assets.

Buying a widely diversified basket of stocks significantly decreases the risk posed by laws, tech change, etc. You'll likely already own the company that is the "winner" as a result of the change, or at least have so many stocks that they will cover the losses. Even selecting a "high dividend" fund exposes people to increased risk posed by favored sectors (as you saw with the financial stocks in 2008).

If I really wanted to depend on dividends from selected companies, and to be sure the companies weren't making ill-advised decisions just to maintain the dividend growth record, and to dump a stock when the prospects for the continued dividend growth dimmed, then I'd probably pay the money for a managed fund where my fees paid somebody to watch all these things constantly. They could do a better job of attending conference calls and reading reports than I could. But I don't think this is the best way to invest.
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Old 02-17-2014, 08:13 AM   #19
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Value Line is a good source, I use at my library but I don't know if it is online. Did you check to see if they have it for reading at the library? They may not have it online like they usually don't have periodicals like magazines or newspapers.

Another source is the dividend champions list at dripinvesting The DRiP Investing Resource Center - DRiP Information, Tools, And Forms, it is free.

Also the dividend and income forums at seeking alpha , Latest Opinion & Analysis - Seeking Alpha
Thanks, rbmrtn, and yes, the library does have Value Line, but there's usually/always some old guy (even older than I) reading it. Besides, I enjoy taking my time reading Value Line (internet version), drinking coffee and wearing sweats.

I am familiar with the two sites you listed and I think they are good resources. Got to be careful with Seeking Alpha (I spend a bunch of time there) but, there is too much Dividend Growth cheering going on at the site. It's all way to enthusiastic and emotional, but still a good source.
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Old 02-17-2014, 08:18 AM   #20
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I don't think there is any magic to be found. 'Safer' stocks, on average, are going to provide somewhat lower total returns. In general, the market is willing to give up some return in exchange for 'safety'.

I don't think there is anything 'wrong' with your approach (assuming reasonable diversification), I just would not expect anything other than what I wrote above. If you want safety, reduced volatility, you have to pay for it.

I'd also consider how much overlap you have with your pssst Wellesley.

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