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Old 08-22-2011, 07:06 AM   #41
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why am i so adamant about that

i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.

well now with the downturn what they didnt disclose clearly is that since earnings fell off those dividends were being paid with our own money that was supposed to buy more property . worse was they were borrowing money to meet the dividend payouts.

loads of retirees were counting on that dividend for their income source and were spending that dividend directly and not re-investing it ,they are in a real mess as they have been un-knowingly spending their principal. i thought something was up when the 1099 showed little taxable income.

i figured it was just the depreciation allowance we get offsetting things.

its estimated we may actually be down now about 40% in principal. but the dividends keep coming.

i dont want to go off track here but its just a reason why its bad procedure to try to live off dividends directly.
This explains a lot. Thank you.
So you are taking one example of a REIT, which is not the same thing as a Stock, which was at least poorly managed and possibly guilty of illegal activities. You then use as an example people that were using dividends from this one source.
You then extrapolate this one REIT out to all other companies and funds that behave legally? And to all people even if they have a good diversified portfolio?

I agree with you that what happened is crummy, possibly criminal. But I think just about everyone here would agree that relying on investments in a single company is very risky. Doesn't matter if it is a REIT, stock, bond or something else.
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Old 08-22-2011, 07:10 AM   #42
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im not singling anyone out in this particular thread but in other threads in this section there are folks who said they do count on stock dividends directly for their income . they are loaded up on dividend payers with little cash or fixed income .

in my opinion that works until it doesnt. once we hit a snag like 2008-2009 there is a good chance those dividends will be suspended or cut forcing you to sell stock just at the worst time to make up that shortfall.


if your withdrawals have enough slack or you have other income to absorb those cuts fine but if not you can have a real delema.

its okay to say you arent concerned about where the share price is headed in the accumulation stage because they are getting that dividend but its a far different story when in the decumulation stage and spending those dividends as cash..



why am i so adamant about that

i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.



i dont want to go off track here but its just a reason why its bad procedure to try to live off dividends directly.
You might try reading some the articles being referred to instead of keeping repeating the same things without back up.

"There is a good chance that dividends will be cut". Ah no there is not a good chance that they will be cut significantly, see the post right before from this article.

Quote:
Prior to the recent recession, there were only five years in the S&P 500's history when dividends declined, and the maximum yearly decline was just 3.3%. In the 2000s, financial companies paid increasing dividends out of unsustainable profits, and S&P 500 dividend growth accelerated. When the housing bubble burst, these financial firms' profits and dividends collapsed. Yet it is little known that the entire decline in dividends of U.S. stocks during the recession was due to the fall of the financial sector. The sum of the dividends paid by firms in the other nine sectors of the U.S. equity markets was actually higher in 2009—at the bottom of the worst recession and bear market in the past 75 years—than it was in 2007, when stocks and the economy were at their peak.
A 3.3% variation in income is pretty darn small. The only stock selling I did during the crisis in 2008,2009 was tax loss harvesting, but I more than made up for that by buying (too early in many cases) other stocks.
My income did drop by 10% but that was proportionally as much by the decrease in distributions from Vanguard GNMA and having to reinvest PenFed 6% CD at 3.5% as the admittedly large dividend cuts from financial stocks. As Siegel say most companies continued to raise dividends in 2008 and 2009. I did engage is some belt tightening but that was no different than most retired total return investors folks on the forum and this was a much due to the wealth effect as the drop in income.

Imagine that that you retired in Dec 2006. It is now Jan 2007 you have a portfolio consisting of 200K in 5 year CD ladder with 4% interest, 200K in a bond fund (VBTLX) and 600K in stock portfolio VSTAX or ETFs. You need to spend 40K a year (or use 4% and the Clyatt method). We will ignore inflation for simplicity

What are the precise steps are going you use each year to generate the 40K, while maintaining an 60/40 AA? Since you are about to retire I think developing a withdrawal strategy and back testing would be worthwhile exercise.

Look I am sorry about the untraded REIT but they are considered significantly more risking than blue chips dividends stocks and really aren't relevant.
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Old 08-22-2011, 07:12 AM   #43
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CD's & Treasuries are paying nothing, we shouldn't be spending dividends........I guess we should all go back to work like mathjak107.
havent retired yet... not because we cant but only because we havent finalized our plans yet.

your off base that with that statement, its not what i said at all.

its all about having a working plan and a portfolio that meets your goals and risk tolerance.

im very much invested in dividend paying funds. but im also careful to make sure i leave at least a 15 year time frame before i count on selling them so odds are ill never sell into a downturn. thats death to a portfolio when spending down..

my plan works just fine with 7 years of withdrawls in cash instruments and eventually an immeadiate annuity, another 7 years in fixed income and the rest growing long term in equities..

why 15 years? because 15 years is the shortest time frame where we always had at least some point where equities could be sold at a gain.

my dividends are reinvested and are never used as cash . they are reinvested to keep that stock bucket growing.......

the income stream is not dependant on what stocks and dividends do in the short term. the cash flow is pretty steady and can be sustained up to 15 years out if need be.

thats only my plan, there are loads of plans,methods an ideas out there. you have to find what works best for you.

what doesnt work is what many retirees have done and that is blindly did away with the income buckets and loaded up on dividend paying stocks instead.

its for them im posting what i did above
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Old 08-22-2011, 07:14 AM   #44
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... It's easy to look back in time and say 'if I had avoided the loss in XYZ I would have made 25% that year'. But, we can't know that ahead of time. How do we know that 5 years from now it may be retail that drags us down, or manufacturing, or whatever.



These backward looking comparisons seem dangerous to me since they assume we can predict the future as accurately as we can predict the past.
Dividends have an extremely solid history of not being as volatile as the market. Even during the recession, as the article states, most dividends actually kept increasing. Yes, financials took a serious hit, so if you only got your dividends from financials you took serious losses to your dividend rates.

While it is true that the past will not determine the future, it does give you some indications. If you push a button on a remote 10 times and something turns on, odds are good it will happen the 11th. Guaranteed? No, but quite likely.
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Old 08-22-2011, 07:48 AM   #45
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its all about having a working plan and a portfolio that meets your goals and risk tolerance.

im very much invested in dividend paying funds. but im also careful to make sure i leave at least a 15 year time frame before i count on selling them so odds are ill never sell into a downturn. thats death to a portfolio when spending down..

my plan works just fine with 7 years of withdrawls in cash instruments and eventually an immeadiate annuity, another 7 years in fixed income and the rest growing long term in equities..

why 15 years? because 15 years is the shortest time frame where we always had at least some point where equities could be sold at a gain.

my dividends are reinvested and are never used as cash . they are reinvested to keep that stock bucket growing.......

the income stream is not dependant on what stocks and dividends do in the short term. the cash flow is pretty steady and can be sustained up to 15 years out if need be.

thats only my plan, there are loads of plans,methods an ideas out there. you have to find what works best for you.

what doesnt work is what many retirees have done and that is blindly did away with the income buckets and loaded up on dividend paying stocks instead.

its for them im posting what i did above
Any plan including stuffing the money in your mattress and taking it out as needs works if you have a low enough withdrawal rate. A 15 year cash, annuity, and fixed income ladders. Means either you have <2% WR or you have very low expectations for inflation. Have you looked at the impact of high inflation period like 1975 to 1990 where your 50K in income turns in 20K? Dividends, real estate (and I guess gold/commodities) are the only conceivable hedges against inflation now that TIPs have 0% real return. Fixed income and annuities will be absolutely crushed.

But what the heck does HaHa know with 20+ years of retirement without a pension.
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Old 08-22-2011, 07:57 AM   #46
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But what the heck does HaHa know with 20+ years of retirement without a pension.
How to tango?
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Old 08-22-2011, 08:07 AM   #47
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How to tango?

I always pictured HaHa as more of Salsa kinda of guy, since I bet he gave up break dancing when it stopped being trendy.
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Old 08-22-2011, 08:12 AM   #48
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How to tango?
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I always pictured HaHa as more of Salsa kinda of guy, since I bet he gave up break dancing when it stopped being trendy.
My money says HaHa is a "Bolero" master on the dance floor, and probably does a mean "pasodoble" as well. And sips brandy when he's not dancing.
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Old 08-22-2011, 08:16 AM   #49
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This explains a lot. Thank you.
So you are taking one example of a REIT, which is not the same thing as a Stock, which was at least poorly managed and possibly guilty of illegal activities. You then use as an example people that were using dividends from this one source.
You then extrapolate this one REIT out to all other companies and funds that behave legally? And to all people even if they have a good diversified portfolio?

I agree with you that what happened is crummy, possibly criminal. But I think just about everyone here would agree that relying on investments in a single company is very risky. Doesn't matter if it is a REIT, stock, bond or something else.
+1
That's really about it..
If the revenue stream, or a major share of it, is going to come from a single source, that source should never be a single, uninsured REIT, equity, etc.
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Old 08-22-2011, 08:27 AM   #50
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the reit i mentioned was only a very tiny part of what i own. the comments i made above were not really pertaining to the reit. i just mentioned that in passing.

my comments were my feeling about trying to live off of income from stocks of any type directly if they account for the major part of your income. its okay to supplement with those dividends providing the major source of funds isnt from them.

some may be succesful at it but i caution most retirees with no real working plan for attempting to trade those income investments for equities of any type chasing yield.

i see it done daily in so many financial forums by folks who have no clue the damage they can sustain.
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Old 08-22-2011, 08:36 AM   #51
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Mathjak107, what you are saying is

1. Some people say dividends from stocks are like interest payments from bonds, and you disagree

2. Even when you are in the withdrawal phase, dividends should not be withdrawn and must be reinvested.

3. You have first hand experience with a REIT that kept a high dividend by returning capital without proper disclosure


Itís probably fair to say everyone here agrees on the first point. The third is regrettable. Stocks and REITS must comply with reporting requirements and disclosures and the financial statements show whether the business is generating enough earnings and cash to satisfy the dividend or not. This shows the importance of due diligence and portfolio diversification.

The second point is not intuitive. The withdrawal phase means your portfolio provides you with money to live. If you donít need the income and have some other source to meet your needs then I can see why you advocate reinvesting. Most people need the income from their portfolios, however, and dividends are one way to provide that.

Finally, the literature that has been referenced here shows that your experience with REITS is possible but the more likely case is that dividend income rises over time faster than inflation and can be a real benefit to an investor in the withdrawal phase.
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Old 08-22-2011, 10:22 AM   #52
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correct across the board except on one point.

if you need the money to live on than its just the opposite of what you said.
the dividends are re-invested to provide future growth so you have money growing at the max for conversion later in the future into cash and bonds for living on.

the income stream for eating today typically will come from safe money and bonds...

when ever markets are higher you can sell off some equities to keep cash and bond buckets primed and full.

once they are full again let the stock bucket continue to grow again with dividends reinvested for refilling your spending buckets again when needed .

many systems are based on this concept, in fact we are having a discussion on buck systems right now in this section.

while yes you can channel those dividends into the cash bucket all the time i believe they will be most effective just being re-invested and allowed to grow for future use.

as i said current spending then would not be effected by cuts and suspensions.....
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Old 08-22-2011, 10:50 AM   #53
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This is a very good thread with a lot of meat to chew on. I think I will print it out and reread it over coffee later today. Hmm... Is there an easy way to print out a thread on this board?
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Old 08-22-2011, 11:08 AM   #54
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Mathjak107, what you are saying is
...
2. Even when you are in the withdrawal phase, dividends should not be withdrawn and must be reinvested.
That's going beyond where the basic argument leads us. Dividends are equivalent to the same dollar value of market value. You could withdraw dividends as an alternative to selling shares: if your retirement plan calls for selling shares, you could take dividends instead, perhaps as a convenience. To put it another way, reinvesting dividends and then selling the shares you got through reinvestment is obviously the same as just taking the dividends.

I don't think the (purported) stability of dividends in a market decline shows there is any advantage to dividends. Consider the alternative of reinvesting dividends in a mutual fund and then instructing the fund to sell shares and send you a check every month in approximately the amount of the dividend. So long as any money at all remains in your mutual fund account, that check amount will be completely stable, more stable than a dividend, market decline or no.
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Old 08-22-2011, 11:18 AM   #55
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Is there an easy way to print out a thread on this board?
The best method I've seen is change the number of posts displayed per page to 100 before printing:

User CP > Edit Options > scroll to Thread Display Options, from the drop-down menu select Show 100 Posts Per Page, scroll to the bottom of the page > Save Changes
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Old 08-22-2011, 11:25 AM   #56
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havent retired yet... not because we cant but only because we havent finalized our plans yet.

your off base that with that statement, its not what i said at all.

its all about having a working plan and a portfolio that meets your goals and risk tolerance.

im very much invested in dividend paying funds. but im also careful to make sure i leave at least a 15 year time frame before i count on selling them so odds are ill never sell into a downturn. thats death to a portfolio when spending down..

my plan works just fine with 7 years of withdrawls in cash instruments and eventually an immeadiate annuity, another 7 years in fixed income and the rest growing long term in equities..

why 15 years? because 15 years is the shortest time frame where we always had at least some point where equities could be sold at a gain.

my dividends are reinvested and are never used as cash . they are reinvested to keep that stock bucket growing.......

the income stream is not dependant on what stocks and dividends do in the short term. the cash flow is pretty steady and can be sustained up to 15 years out if need be.

thats only my plan, there are loads of plans,methods an ideas out there. you have to find what works best for you.

what doesnt work is what many retirees have done and that is blindly did away with the income buckets and loaded up on dividend paying stocks instead.

its for them im posting what i did above
You missed the wink I guess.

I must lead a sheltered life as I haven't run across anyone who has blindly loaded up on dividend stocks as their only means of income. Most people I know use dividend stocks as one source to supplement their income. But they also own CD's, bonds, have a pension or own an annuity. I don't have a pension or annuity, but may add an annuity to the mix at some point down the road.

Looks to me you are just recommending a balanced approach, which most here would agree on. Whether one uses their dividends or other cash to keep their AA intact doesn't matter much to me.
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Old 08-22-2011, 03:46 PM   #57
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I just noticed a posting on the CNBC website; News Headlines describing the potential drop in equities due to boomers cashing in for retirement. This is an old issue debated quite frequently. However I wonder if the boomers are loading up dividend stocks and what impact this may have on future stock values.
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Old 08-22-2011, 03:54 PM   #58
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However I wonder if the boomers are loading up dividend stocks and what impact this may have on future stock values.
I can tell you exactly what will happen: They will go down, and up, and down, and up, and down, and up...
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Old 08-22-2011, 04:29 PM   #59
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I can tell you exactly what will happen: They will go down, and up, and down, and up, and down, and up...
Three up , three down now I understand
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Old 08-22-2011, 04:30 PM   #60
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Oh - not necessarily in that order...

Glad I could be of assistance...
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