Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CD vs Dividends on Stocks
Old 01-20-2016, 09:56 AM   #1
Recycles dryer sheets
 
Join Date: Feb 2009
Location: Cville
Posts: 399
CD vs Dividends on Stocks

I'm curious on what your thoughts are on putting extra $$ into a CD or dividend stocks. I know, it would depend on what asset allocation you are looking for, a stock would not qualify as a fixed income from a traditional view. However, if I can get 3.5% on a top tier stock or 1.5 on a CD.

Exxon - 3.69%
Verizon - 2.5%
GE - 3.2%
AT&T - 5.6%

I'm sure there are many candidates for the list, but if I can get 3.5% or so in a variety of companies (above is average 3.7%) how about I forget what the equity price does and claim my 3.7% dividend

Anyone buying dividend stocks for fixed income ?
__________________

__________________
RetireBy90 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-20-2016, 10:07 AM   #2
Recycles dryer sheets
 
Join Date: May 2011
Posts: 272
I am getting 3.62% tax free on a state municipal income fund.
__________________

__________________
sanfanciscotreat is offline   Reply With Quote
Old 01-20-2016, 10:11 AM   #3
Recycles dryer sheets
 
Join Date: Feb 2009
Location: Cville
Posts: 399
good point. Lots of risk for .08% even without figuring in taxes
__________________
RetireBy90 is offline   Reply With Quote
Old 01-20-2016, 10:14 AM   #4
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,753
Your examples are fairly good showing dividends pay more than many CD's.

If you absolutely didn't need the principal for 5 years, then for income its a good idea, but as you can see the net return in 2016 would be about -10% so far.

For a short term thing of 2-3 years, I would use CD's, yes the rates are low, but you get back all your cash at the end of term.
__________________
Sunset is offline   Reply With Quote
Old 01-20-2016, 10:15 AM   #5
Full time employment: Posting here.
 
Join Date: Apr 2014
Location: Houston
Posts: 639
Quote:
Originally Posted by RetireBy90 View Post
Anyone buying dividend stocks for fixed income ?
That's exactly what I have done with a large amount of my cash / bond assets. A couple caveats though. It's much more interesting to me as a strategy in times like today where (a) some stock prices are reasonably low (b) dividends are pretty similar (or better) verses bond returns AND most importantly (c) you don't need the principle anytime soon. That allows you to sit on the stock until it's price appreciates, and in the meantime, collect dividends.

Of course this is higher risk than sticking with bonds. Never know if a stock will totally collapse or if the company will cut dividends. Those risks are much higher than with bonds. So I stuck with very strong blue chip companies, mostly dividend aristocrats. I also kept a couple years of expenses in bonds just in case......

Good luck with whatever you chose.
__________________
Whisper66 is offline   Reply With Quote
Old 01-20-2016, 10:20 AM   #6
Recycles dryer sheets
 
Join Date: Jan 2008
Location: chicago suburbs
Posts: 256
Quote:
Originally Posted by RetireBy90 View Post
I'm curious on what your thoughts are on putting extra $$ into a CD or dividend stocks. I know, it would depend on what asset allocation you are looking for, a stock would not qualify as a fixed income from a traditional view. However, if I can get 3.5% on a top tier stock or 1.5 on a CD.

Exxon - 3.69%
Verizon - 2.5%
GE - 3.2%
AT&T - 5.6%

I'm sure there are many candidates for the list, but if I can get 3.5% or so in a variety of companies (above is average 3.7%) how about I forget what the equity price does and claim my 3.7% dividend

Anyone buying dividend stocks for fixed income ?
Nice list but isn't Verizon dividend 5.1%.
__________________
capjak is offline   Reply With Quote
Old 01-20-2016, 10:23 AM   #7
Recycles dryer sheets
 
Join Date: Feb 2009
Location: Cville
Posts: 399
Quote:
Originally Posted by Whisper66 View Post
That's exactly what I have done with a large amount of my cash / bond assets. A couple caveats though. It's much more interesting to me as a strategy in times like today where (a) some stock prices are reasonably low (b) dividends are pretty similar (or better) verses bond returns AND most importantly (c) you don't need the principle anytime soon. That allows you to sit on the stock until it's price appreciates, and in the meantime, collect dividends.

Of course this is higher risk than sticking with bonds. Never know if a stock will totally collapse or if the company will cut dividends. Those risks are much higher than with bonds. So I stuck with very strong blue chip companies, mostly dividend aristocrats. I also kept a couple years of expenses in bonds just in case......

Good luck with whatever you chose.
Thanks for the feedback. Currently my plan is to buy a 5 year CD every 6 months for living expenses or unexpected items first 7 years of FIRE. Worked better when I was getting 3.5%. So now 6 years into it I have original CDs maturing and scrambling to figure what to do with them. I think I'll keep 8-10 of them in best CD rate I can find, kind of like emergency fund and I've started DCA into Exxon as the first of my dividend stocks.
__________________
RetireBy90 is offline   Reply With Quote
Old 01-20-2016, 10:25 AM   #8
Recycles dryer sheets
 
Join Date: Feb 2009
Location: Cville
Posts: 399
Quote:
Originally Posted by capjak View Post
Nice list but isn't Verizon dividend 5.1%.
my bad, I was doing lookup in yahoo finance, and copy/paste into post. Discount Double Check
__________________
RetireBy90 is offline   Reply With Quote
Old 01-20-2016, 10:26 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Nothing wrong with buying dividend stocks, but no, div stocks are absolutely not a replacement for bonds/CDS.

Saying "I can buy AT&T for the yield and forget about the price" completely ignores the non-zero possibility that AT&T can cut it's dividend and also that both its price and its dividend can go to zero.

So buy stocks if you want stocks, but the way you've framed the question sounds an awful lot like incurring additional risk to reach for yield. That's a classic investment mistake that has led plenty of portfolios to ruin.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 01-20-2016, 10:32 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,415
interest is on top of principal when paid . dividends are a return of principal when paid .

they are not the same thing nor do they act the same way .

if you spend your interest you still have the same amount of principal left prior to the interest .

if you spend the dividend you have less invested then you did before payment .

we just discussed this in another thread .

Total Return Strategy vs. Income and Dividend Strategy for a Nestegg
__________________
mathjak107 is offline   Reply With Quote
CD vs Dividends on Stocks
Old 01-20-2016, 11:02 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,384
CD vs Dividends on Stocks

90, you have me worried a bit about your "pain tolerance" anytime CDs are compared to stocks. How would you feel if GE goes from a 3.2% yield to a 6.4% yield? And no I don't mean the company raised the dividend either. . One must be fully aware of their personal tolerance for "loss aversion". As Mathjack said, they are not the same thing at all.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-20-2016, 11:05 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,415
the problem is when dividends are cut or suspended . now to pay the same bills you have to sell shares that are down big time to make up income shortfalls .

that is why we use interest bearing instruments , dividend stocks and growth stocks to make up a portfolio ..
__________________
mathjak107 is offline   Reply With Quote
Old 01-20-2016, 11:18 AM   #13
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
Quote:
Originally Posted by Gone4Good View Post
Nothing wrong with buying dividend stocks, but no, div stocks are absolutely not a replacement for bonds/CDS.

Saying "I can buy AT&T for the yield and forget about the price" completely ignores the non-zero possibility that AT&T can cut it's dividend and also that both its price and its dividend can go to zero.

So buy stocks if you want stocks, but the way you've framed the question sounds an awful lot like incurring additional risk to reach for yield. That's a classic investment mistake that has led plenty of portfolios to ruin.
+1

Most people need some "safe" money in their portfolios. Despite the low yield, CDs and fixed income fill that role, dividend paying stocks so not.

Quote:
Originally Posted by mathjak107 View Post
dividends are a return of principal when paid .
Dividends are not a return of principal. They are a distribution from the business operations.
__________________
MichaelB is offline   Reply With Quote
Old 01-20-2016, 12:34 PM   #14
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,753
Quote:
Originally Posted by Gone4Good View Post
Nothing wrong with buying dividend stocks, but no, div stocks are absolutely not a replacement for bonds/CDS.

Saying "I can buy AT&T for the yield and forget about the price" completely ignores the non-zero possibility that AT&T can cut it's dividend and also that both its price and its dividend can go to zero. .....
All true.
Of course bonds can go to zero as well when a company goes bankrupt, which is the common reason the stocks go to zero.
__________________
Sunset is offline   Reply With Quote
Old 01-20-2016, 03:13 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,617
Quote:
Originally Posted by MichaelB View Post
Dividends are not a return of principal. They are a distribution from the business operations.
Just to be clear: Sometimes dividends are paid for by selling assets or even borrowing. Sometimes unprofitable businesses pay them. I guess they are "distributions form business operations" if we count "liquidation of assets" as "business operations".
When a corporation does sell off parts of itself just to pay dividends, it does feel a lot like a return of principal.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 01-20-2016, 03:16 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,498
Quote:
Originally Posted by Gone4Good View Post
Nothing wrong with buying dividend stocks, but no, div stocks are absolutely not a replacement for bonds/CDS......
+1 Vanguard Dividend Appreciation Index Fund Admiral (VDIAX) is a highly regarded large cap dividend yield portfolio but $10k invested a year ago is only worth $9,300 today and that $9,300 includes over $200 of dividends reinvested. Meanwhile, your tortoise CD would be worth $10,150 (less any early redemption penalty).

Good yielding stocks and CDs are totally different animals.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 01-20-2016, 03:33 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,415
Quote:
Originally Posted by MichaelB View Post
+1

Most people need some "safe" money in their portfolios. Despite the low yield, CDs and fixed income fill that role, dividend paying stocks so not.

Dividends are not a return of principal. They are a distribution from the business operations.
it is a distribution off your share price is what it amounts to .

even non profitable company's pay dividends and have done so right in to the grave . your invested dollars are less then you had the night before
__________________
mathjak107 is offline   Reply With Quote
Old 01-20-2016, 03:39 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by Sunset View Post
All true.
Of course bonds can go to zero as well when a company goes bankrupt, which is the common reason the stocks go to zero.
True, corporates can, but the OP was talking about CDs which shouldn't unless FDIC goes belly up. If that happens, holding stocks won't help.

Also, even corporates in bankruptcy don't normally go to zero. They can, but they don't usually. And even if the company I hold bonds in is on a glide-path to the great beyond, there are plenty of bondholders who may get paid out at 100 cents on the dollar as their bonds mature and the company struggles to stay solvent. If you own the stock, though, you're pretty much hoping for pennies on the $ at that point.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 01-20-2016, 05:15 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,337
A few more weeks like the last three, and all stocks, including dividend stocks, should have a higher long term return expectation. Note the use of the word 'long' in the last sentence.

That said, I agree that stocks are not the same as CD's and one should buy stocks to invest in the stock market, not because CD rates are low.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is online now   Reply With Quote
Old 01-20-2016, 05:15 PM   #20
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,710
http://www.dripinvesting.org/Tools/Tools.asp

Consider the candidates, first. There are definitely enough contenders who have not cut the div in many years, and some are on sale right now.
__________________

__________________
target2019 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Similar Stocks The simple and easy way to find similar ETFs, stocks and funds eroscott FIRE and Money 6 05-21-2015 09:51 AM
individual stocks vs index funds,stocks poor choice mathjak107 FIRE and Money 31 09-12-2006 01:12 AM
If you like dividends... Gonzo FIRE and Money 5 02-24-2005 10:22 AM
Dividends, Taxes and SWR Sir_Lurksalot FIRE and Money 49 10-07-2004 04:03 AM

 

 
All times are GMT -6. The time now is 02:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.