Dividend investing- do you get a 3% yield?

[jIMOh]

I have a question for anyone which has a substantial amount of income (more than 25%) coming from dividends.

Can you (do you) get a 3% yield from the dividend portion of portfolio?

I have a solid dividend mutual fund (T Rowe Equity Income) which yields around 2.2%. I have looked at similar funds for other houses (like Windsor) and the yield appears to be around 2-2.5% for most funds which are 100% equity.

If you are getting 3% or more in yield, is it because you got lucky (picking a few stocks), because you have a good fund/etf, or because you combined dividend income with another source.

Aside- it appears most balanced funds yield around 4%-4.5% (T Rowe Spectrum Income is what I use, Wellesley is similar). RPSIX is about a 15-85 fund, Wellesley is about 40-60.

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follow up question (assuming the answer is individual stocks which are contributing most of the dividend income)- how many years did you invest to accumulate the shares/income needed?

My thought right now is to max my 401k before I start a taxable account which is for dividends. I also plan to pay down my mortgage before I aggressively create a dividend portfolio (tax reasons- want to avoid paying taxes on the dividends until mortgage is paid off, then use around 5 years of investing the mortgage payment to create the taxable dividend portfolio). If you think this is bass ackwards, chime in.

 

[LOL!]

You don't want to count bond dividends I guess?

 

[LOL!]

Also curious about your "solid dividend mutual fund" characteristics. The Vanguard Total Stock Market Index fund yields 2% and it ain't nothing special when it comes to dividends.

We have a portfolio of about 32% fixed income, 8% TIAA real estate and 60% stocks. This produces a 3% yield without even trying. We have all the fixed income and the TIAA real estate is tax advantaged accounts. Thus while we have minimized taxable dividends, we still get some from the stock index funds. We didn't have to go start a taxable account for dividends ... they just came along without trying.

Also we have a mortgage with a fixed interest rate of less than 5%. Our GNMA and short-term bond funds in our tax-advantaged accounts pay around 5%. We have always maxed out our 401(k) and 403(b) plans. Always. I think it is a big mistake to try to pay off a mortgage if you haven't maxed out your 401(k) AND your Roth. If can max those tax-advantaged accounts out, then it is a personal choice. Before then, you are reducing your tax-advantaged accounts with no chance to go back and fill them up.

 

[CyclingInvestor]

I am 50, retired 2 years. I keep (almost) 100% in individual stocks, thus I get almost 100% of my income from dividends. My average yield from regular stocks is 2.9%, but REITs bring the average up to about 3.2%. At todays prices, it is not too hard. Even PG yields 2.4%, JNJ 2.7%, KO 2.8%, SYY 3.1%, GE 4.4%.

Most of my $$ is in IRAs, so I actually live on the 72t distributions, which are funded by the dividends. While I spent my entire career accumulating the $$ in my 401ks/IRAs, I started the actual individual stock investments in 1993, and started the heavy lifting in 1997, when I changed jobs after 14 years and rolled the large 401k into an IRA where I could buy individual stocks.

 

[rogersteciak]

Can you (do you) get a 3% yield from the dividend portion of portfolio?

Google Dividend Achievers and Dividend Aristocrats for a list of stocks that have increased their dividends for the past 10 years and 25 years, respectively.

I don't own GE at the moment, for example, but its current dividend yield is 4.4%.

Also consider publicly-traded passthrough entities such as REITs, BDCs, and MLPs, which have to pay out at least 90% of their income to their investors to maintain their tax-advantaged status.

You can find higher-yielding stocks if you shop around. Read The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor for more information on how to analyze the dividend quality of a dividend-paying company.

 

[Zathras]

Retired, all day to day income is dividends. I have some bonds being paid off, but all of that income goes directly into stocks.
Overall dividend rate right now is 3.45%. 95% individual stocks.
Financials are paying big yields right now. However, some of the financials have cut their dividends (others have raised them) and others may still be at risk.
In the current environment 2.5% should be easy to get.

And no, not because I got lucky (although that never hurts). My portfolio is about 15 stocks. All choosen for their reliability and cash flow. Most increase the dividend payments each year. I have had two cut the dividend amount, but have had no negative years in terms of dividend payout total for the portfolio.
Warning, don't chase the dividend yield! If you rely just on high dividend yields you will likely find a fair number of businesses who have dividends at risk of being cut back, or even cut out completely.

 

[FIRE'd@51]

Most of my $$ is in IRAs, so I actually live on the 72t distributions, which are funded by the dividends. While I spent my entire career accumulating the $$ in my 401ks/IRAs, I started the actual individual stock investments in 1993, and started the heavy lifting in 1997, when I changed jobs after 14 years and rolled the large 401k into an IRA where I could buy individual stocks.

So nearly all of your dividend income ends up getting taxed as ordinary income?

 

[clifp]

My Dividend portfolio is primarily individual stocks. I am helped out by the S&P, Vanguard total market, and large cap international all yielding over 2%. So a 2.2% equity income is pretty low.
Frankly, finding 3%+ dividends in this market is easy, I read recently if you throw out the 140 or so S&P stocks that don't pay dividends the remaining average about 3.3% (Numbers from memory so don't quote me.)

Just looking at Vanguards pure equity offerings
Equity Income 3.58%
High Dividend Yield 3.65%
Value Index 3.22%


Here is list of dozen blue chip non bank stocks with a ~3% or greater yield that are worth looking at
MMM, JNJ, PFE, DEO, BMS, KFT, SYY, GE, PAYX, ALL, T, BMY

I forget my favorite dividend stocks is actual a REIT (O) Realty Income : the Monthly Dividend Income company. Its annual report is worth reading just for fun.

 

[jIMOh]

I am 50, retired 2 years. I keep (almost) 100% in individual stocks, thus I get almost 100% of my income from dividends. My average yield from regular stocks is 2.9%, but REITs bring the average up to about 3.2%. At todays prices, it is not too hard. Even PG yields 2.4%, JNJ 2.7%, KO 2.8%, SYY 3.1%, GE 4.4%.

Most of my $$ is in IRAs, so I actually live on the 72t distributions, which are funded by the dividends. While I spent my entire career accumulating the $$ in my 401ks/IRAs, I started the actual individual stock investments in 1993, and started the heavy lifting in 1997, when I changed jobs after 14 years and rolled the large 401k into an IRA where I could buy individual stocks.

If REITs are held in a taxable account, do they qualify for 15%/5% dividend tax rates?

 

[jIMOh]

Retired, all day to day income is dividends. I have some bonds being paid off, but all of that income goes directly into stocks.
Overall dividend rate right now is 3.45%. 95% individual stocks.
Financials are paying big yields right now. However, some of the financials have cut their dividends (others have raised them) and others may still be at risk.
In the current environment 2.5% should be easy to get.

And no, not because I got lucky (although that never hurts). My portfolio is about 15 stocks. All choosen for their reliability and cash flow. Most increase the dividend payments each year. I have had two cut the dividend amount, but have had no negative years in terms of dividend payout total for the portfolio.
Warning, don't chase the dividend yield! If you rely just on high dividend yields you will likely find a fair number of businesses who have dividends at risk of being cut back, or even cut out completely.

15 stocks sounds reasonable- have you held the same 15 stocks for an extended amount of time? Are you buying more now, or living off the dividends?

 

[jIMOh]

My Dividend portfolio is primarily individual stocks. I am helped out by the S&P, Vanguard total market, and large cap international all yielding over 2%. So a 2.2% equity income is pretty low.
Frankly, finding 3%+ dividends in this market is easy, I read recently if you throw out the 140 or so S&P stocks that don't pay dividends the remaining average about 3.3% (Numbers from memory so don't quote me.)

Just looking at Vanguards pure equity offerings
Equity Income 3.58%
High Dividend Yield 3.65%
Value Index 3.22%


Here is list of dozen blue chip non bank stocks with a ~3% or greater yield that are worth looking at
MMM, JNJ, PFE, DEO, BMS, KFT, SYY, GE, PAYX, ALL, T, BMY

I forget my favorite dividend stocks is actual a REIT (O) Realty Income : the Monthly Dividend Income company. Its annual report is worth reading just for fun.

thx for fund referrals.

the annual report has my attention. THANK YOU.

is there any index fund which only invests in the 360 dividend paying stocks of the S&P... I have wondered what the dividend yield of the dividend payers was (good post in that regard) and would consider passive investment if such a fund or ETF existed.

FYI- I think these funds are the same
High Dividend Yield 3.65%
Value Index 3.22%

as a search on Vanguard site for "high dividend" immediately jumps to a high dividend index fund (unless the value fund is a different index).

 

[FIRE'd@51]

If REITs are held in a taxable account, do they qualify for 15%/5% dividend tax rates?

No

 

[rogersteciak]

If REITs are held in a taxable account, do they qualify for 15%/5% dividend tax rates?

According to the National Association of REITs, the "dividend" portion of the income is considered ordinary income.

http://www.reit.com/portals/0/files/investinreits/htdocs/reasons/DividendAllocationSummary.xls

http://www.reit.com/portals/0/files/nareit/htdocs/about/2007FAQ.pdf

 

[Zathras]

15 stocks sounds reasonable- have you held the same 15 stocks for an extended amount of time? Are you buying more now, or living off the dividends?

I am buying more as the bonds I have from the sale of a business mature. So technically, much of my portfolio is in bonds. As quick as the bonds get paid off I buy more stocks. The dividends pay for day to day expenses. Not quite 100%, but getting closer every day.
I plan to be living off the dividends 100% as soon as possible (should be pretty soon).
I have sold only one dividend paying stock ever since I started buying them. All the others are, so far, buy and hold long term.

 

[haha]

I have a question for anyone which has a substantial amount of income (more than 25%) coming from dividends.

I have over 80% from this source.

Can you (do you) get a 3% yield from the dividend portion of portfolio?

3% is a piece of cake.

Ha

 

[ohfrugalone]

I bought 200 shares of a utility stock in 1991, for about $6,000, through a drip. All dividends have been re-invested. If I want to just count the income as a % of the initial investment cost (and I do), I am making just over 15% a year, this year.

 

[unclemick]

Soooo - we gonna rename this thread the Norwegian widow's revenge?



heh heh heh - Target 2015, 3.24% SEC yield thus I gots more than one theory covered in a single fund - tongue in cheek wise.

heh heh heh - no no no I'm not going to entertain you with tales of my dividend stock ladders or fleeing Katrina with two file cabinets of my DRIP stock records.

 

[clifp]

thx for fund referrals.

the annual report has my attention. THANK YOU.


FYI- I think these funds are the same
High Dividend Yield 3.65%
Value Index 3.22%

When I took over my Mom's finances it was the first stock I bought for her and she enjoyed the report also.

Nope different funds

Value Index VIVAX
High Dividend Yield VHDYX

I don't own any of the three

 

[Nords]

I have a question for anyone which has a substantial amount of income (more than 25%) coming from dividends.

We're about 40% through the Dow Jones Select Dividend Index ETF (DVY), the S&P600 Small-cap Value ETF (IJS), Powershares International Dividend Achievers ETF (PID), and a couple individual stocks. Never really looked at it from that perspective before and it's just a rough estimate. Could be higher.

Can you (do you) get a 3% yield from the dividend portion of portfolio?

You made me look. I was pleasantly surprised to see that DVY, the ETF that we bought with dividend expectations (instead of just as a screening tool), is yielding 4.5%. Of course this year that's more as a function of a shrinking denominator than as an expanding numerator, but I'll happily reinvest dividends at that yield.

If you are getting 3% or more in yield, is it because you got lucky (picking a few stocks), because you have a good fund/etf, or because you combined dividend income with another source.

We screened for it and picked what seemed at the time to be a good ETF. Of course it's cheaper now than it was four years ago, but it's heavily financials.

follow up question (assuming the answer is individual stocks which are contributing most of the dividend income)- how many years did you invest to accumulate the shares/income needed?

We've been buying/reinvesting shares for just over four years.

My thought right now is to max my 401k before I start a taxable account which is for dividends. I also plan to pay down my mortgage before I aggressively create a dividend portfolio (tax reasons- want to avoid paying taxes on the dividends until mortgage is paid off, then use around 5 years of investing the mortgage payment to create the taxable dividend portfolio). If you think this is bass ackwards, chime in.

The conventional wisdom on 401(k) maxing is to do it to the extent of the employer's match, although the tax deferral may give you a boost if the expense ratio isn't too sucky.

The mortgage paydown is a combination of "sleep at night", whether it's a low low interest rate, and your volatility tolerance. But without getting into that debate again, you seem to have an asset allocation and a plan to implement it-- which has far more of an impact on a portfolio than trying to resolve the "pay off the mortgage or invest" fuss.

 

[soupcxan]

Vanguard has two 100% equity mutual funds that I have owned that are currently yielding +3.5%. Equity Income Fund (VEIPX) and High Dividend Yield Index (VHDYX). There's also an ETF based on the latter (VYM).

 

[ats5g]

There's always SDY, DTD, DLN, and DTN.

 

[CitricAcid]

As others have said, banks have ridiculous yield rates right now, some of which I feel will be maintained (JPM, WFC, BAC). But, to avoid those as is understandable, how about some of the sin tobacco stocks? Philip Morris (PM) is yielding 3.34% and US smokeless tobacco (UST) is yielding 4.92% UST Also has a good history of dividend increases. For a bond closed-end fund, check out EDD for emerging markets debt.

 

[flatrock]

I have been thinking about this from a different angle. Im considering maxing out my roth IRA as well as my wife's with a combination of Vanguard Dividend Growth fund and Blackrock Dividend achiever's . The plan is generating a tax free dividend stream at retirement. Anything above the 10K for the Roths would go in a taxable account with individual stock picks.

 

[Marquette]

I have been thinking about this from a different angle. Im considering maxing out my roth IRA as well as my wife's with a combination of Vanguard Dividend Growth fund and Blackrock Dividend achiever's . The plan is generating a tax free dividend stream at retirement. Anything above the 10K for the Roths would go in a taxable account with individual stock picks.

What's your time horizon? If it's far enough in the future, you could always load up on a broader basket of equities now and then switch your allocation to dividends in the future.

 

[Ronnieboy]

What is wrong with this plan?:

Own VKI (Van Kempen Advantage Municipal Income Trust II) get paid supposedly tax free $0.06/share/monthly (6.5%). Own enough shares to get your monthly income needed to retire (i.e. 66,700 shares for $4k/mo again tax free).

And live off that?