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Old 01-24-2018, 05:33 AM   #141
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Originally Posted by target2019 View Post


Horse was dead at the gate.
Or is it? LOL

"We evaluate the investment benefits of dividend-paying stocks and identify three major findings. First, high-dividend payers have the least risk yet return over 1.5% more per year than do nondividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks, the stocks of companies usually thought to benefit the most from reinvesting their cash flows. Third, long–short managers exploiting the value premium should focus on nondividend-paying stocks as non-dividend-paying small-cap value stocks return 1% more per month than do non-dividend-paying small-cap growth stocks."

No, I haven't read this whole paper yet, but I find the summary pretty interesting. I've bolded a statement there...

https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.1
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Old 01-24-2018, 07:25 AM   #142
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I bought real estate to replace my W2 income. I am now buying dividend ETFs to replace my rental income.

I think the dividend ETFs have a more stable income flow than non-dividend ETFs. Not as stable as a bond, but maybe a small substitute for a higher allocation in bonds.

If you can reduce your bond exposure by 10%+, and have a dividend ETF instead, how does that relate to a higher overall return?

The dividends may allow you to ride out some downturns better than a bond. At a 3.25%+ return, a dividend ETF is better then most bond funds.
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Old 01-24-2018, 07:34 AM   #143
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Or is it? LOL

"We evaluate the investment benefits of dividend-paying stocks and identify three major findings. First, high-dividend payers have the least risk yet return over 1.5% more per year than do nondividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks, the stocks of companies usually thought to benefit the most from reinvesting their cash flows. Third, long–short managers exploiting the value premium should focus on nondividend-paying stocks as non-dividend-paying small-cap value stocks return 1% more per month than do non-dividend-paying small-cap growth stocks."

No, I haven't read this whole paper yet, but I find the summary pretty interesting. I've bolded a statement there...

https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.1
Let me know what you find when you've read it all. I skimmed it, and I didn't see any comparison to the total market. It looks to me that they (and your bold excerpt) are comparing two sectors, high div and NO div.

I'm not interested in comparing sectors to sectors, my standard is the total market. I don't see a ten year 16% ( 1.015^10 = 1.015^10 ≈ 1.1605408 ) kicker for the high-div funds in the charts I posted. Why not?

Is this just academic, or can an personal investor achieve this? Why isn't it reflected in those DGI-style funds? And when reading, can you see if they selected the stocks based on their history at the start of the study, or like we saw earlier, are they just reporting the history of stocks paying high-divs now , effectively weeding out stocks that fell from grace - something we can only do in hindsight (survivor bias)? The investor would be holding those stocks that fell from grace. That can make a big difference.

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Old 01-24-2018, 07:42 AM   #144
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I bought real estate to replace my W2 income. I am now buying dividend ETFs to replace my rental income.

I think the dividend ETFs have a more stable income flow than non-dividend ETFs. Not as stable as a bond, but maybe a small substitute for a higher allocation in bonds.

If you can reduce your bond exposure by 10%+, and have a dividend ETF instead, how does that relate to a higher overall return?

The dividends may allow you to ride out some downturns better than a bond. At a 3.25%+ return, a dividend ETF is better then most bond funds.
Using high-div stocks as a replacement for bonds is an interesting idea (and very different from the discussion so far). I was thinking about that when utilities were just mentioned.

But the high-div funds I charted acted pretty much like the Total Market, so they don't seem to be a good bond substitute. But maybe a Utility sector would (monopoly, captive audience means steady income?)? I'd say it is worth investigating.

Now I recall from years ago, one of the very well respected authors (Bernstein?) talked about high yield stocks in the portfolio, and his studies indicated that it wasn't helpful - he basically said stocks for growth, bonds for stability. The high-yield didn't really provide any "goldilocks" effect. But that was a long time ago, my memory isn't great. An interesting thought.

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Nice Paper
Old 01-24-2018, 07:54 AM   #145
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Nice Paper

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Originally Posted by dixonge View Post
Or is it? LOL

"We evaluate the investment benefits of dividend-paying stocks and identify three major findings. First, high-dividend payers have the least risk yet return over 1.5% more per year than do nondividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks, the stocks of companies usually thought to benefit the most from reinvesting their cash flows. Third, long–short managers exploiting the value premium should focus on nondividend-paying stocks as non-dividend-paying small-cap value stocks return 1% more per month than do non-dividend-paying small-cap growth stocks."

No, I haven't read this whole paper yet, but I find the summary pretty interesting. I've bolded a statement there...

https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.1
Thanks this was very informative, though boring and extremely technical. I almost fell asleep reading it and it's 9:00 AM!
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Old 01-24-2018, 08:07 AM   #146
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Let me know what you find when you've read it all. I skimmed it, and I didn't see any comparison to the total market. It looks to me that they (and your bold excerpt) are comparing two sectors, high div and NO div.

-ERD50
I read the paper. You are correct it didn't directly compare dividend payers to a total market strategy. However, it did evaluate the total market across 4 criteria, identifying 2 sub categories that showed lower risk and higher returns then the other 2 sub categories.

By the very fact that when you are buying the total market you are also buying the two under performing categories which would result in a lower over all return wouldn't it? Or am I missing something here?

So as others have said "it just feels safer" is now fully explained in a highly technical paper.
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Old 01-24-2018, 08:09 AM   #147
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If you really want to learn, go back to my $48 + $2 = $50 thought process. There is no meaningful difference between you selling $2 worth of the stock, and the company "selling" you a $2 dividend, which comes out of their stock price. It's not coincidence that they refer to it as "buying the dividend" You buy it and they sell it.

Until you understand this, you will be stuck in a "but, but, but, with a low div portfolio I'm selling" non-helpful, false paradigm.
-ERD50
I think where people get stuck is this:
If you own a TR that were to pay no dividends, every time you need cash you must sell from your total fixed set of shares. In theory you could eventually sell down and end up with 1 share. That share may eventually grow to $50K but if you need $50K, then what?

From my perspective, unless you're at the extreme ends, it's not an either/or decision as many of my growth funds still deliver a nice dividend and many of my dividend funds deliver a decent growth.

The "$48 + $2 = $50" seems to be a different discussion but I do think one needs to realize that just because a fund/stock is TR it doesn't mean it doesn't have the ability to add shares via dividends.
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Old 01-24-2018, 08:19 AM   #148
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I read the paper. You are correct it didn't directly compare dividend payers to a total market strategy. However, it did evaluate the total market across 4 criteria, identifying 2 sub categories that showed lower risk and higher returns then the other 2 sub categories.

By the very fact that when you are buying the total market you are also buying the two under performing categories which would result in a lower over all return wouldn't it? Or am I missing something here? ...

Thanks, I just skimmed, but I thought I saw the same thing, and would expect the results you mention (basic math). But...

Quote:
... So as others have said "it just feels safer" is now fully explained in a highly technical paper.
That still leaves me with two questions.

1) How can I act on this, since the available funds don't appear to be capturing this claimed advantage?

2) Was this a backwards look? To replicate an investor, it must be forward looking, I didn't see that in my skimming.

If I can't act on it, it's just academic. And if it utilized a crystal ball, it's only "interesting".

-ERD50
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Old 01-24-2018, 08:22 AM   #149
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I think where people get stuck is this:
If you own a TR that were to pay no dividends, every time you need cash you must sell from your total fixed set of shares. In theory you could eventually sell down and end up with 1 share. ...
Well, that didn't seem to be a problem in practice, and the charts I did included the big 2008 meltdown.

I'll see if I can explain that with a spreadsheet or something. Maybe someone will beat me to it.

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Old 01-24-2018, 12:01 PM   #150
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I think where people get stuck is this:
If you own a TR that were to pay no dividends, every time you need cash you must sell from your total fixed set of shares. In theory you could eventually sell down and end up with 1 share. ...
Well, that didn't seem to be a problem in practice, and the charts I did included the big 2008 meltdown.

I'll see if I can explain that with a spreadsheet or something. Maybe someone will beat me to it.

-ERD50
OK, I started putting together a spreadsheet, and as soon as I put the formulas together, the answer is obvious. Well, obvious to me - now how to explain it...

To make this apples-apples, we of course have to assume that we have two funds, the same in every other way, except one pays divs, the other does not. Let's start with $1M and $40,000 divs or sales, and keep inflation at zero for simplicity. The fund manager set the IPO at $100/sh, so we bought 10,000 shares.

The div fund reliably kicks off 4% / $40,000 a year in divs (once a year, again for simplicity) which come from its $40,000 of income, and it maintains its per share value year after year. As your $1M portfolio approaches the ex-div date it is worth $1,040,000. After paying out a 4% div to everyone, the value of the portfolio drops back to $1M. And we assume this continues in perpetuity.

OK so far?

Now if we give the same attributes to a zero-div fund, it also approaches $1,040,000 after a year, which come from its identical $40,000 of income. But there is no div, so no ex-div date, so it retains its value. So we sell $40,000 worth, and since it is now $104 per share, we sell fewer than 400 shares (384.615384615385 shares per my calcs).

So if you extend this out, yes indeed, you get to the point of owning a single share (236 years later...)! But (drum roll...) that share is worth $1M!

Another way to think if it, if you didn't sell, your portfolio would increase by $40,000 every year, because that income is retained in the fund and reflected in the NAV.

All this is just restating what was said before, but sometimes a fresh angle is what it takes for the light to come on.

In essence, it seems that any claims about the div-payers being superior is based on circular logic that they are better (they provide steady income, they don't go down as much, etc, etc)! The divs don't make a difference, but some assumption of superior performance will of course, show them to be superior. And if they are superior, then we should see it in the charts. Where's the beef?

-ERD50
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Old 01-24-2018, 02:02 PM   #151
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^nice job, ERD50^

See what you can do when you put your mind to something? Buckle down, do the work.

If you had this approach when you were younger, you'd be known as "ERD47."
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Old 01-24-2018, 04:13 PM   #152
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Originally Posted by ERD50 View Post

The div fund reliably kicks off 4% / $40,000 a year in divs (once a year, again for simplicity) which come from its $40,000 of income, and it maintains its per share value year after year. As your $1M portfolio approaches the ex-div date it is worth $1,040,000. After paying out a 4% div to everyone, the value of the portfolio drops back to $1M. And we assume this continues in perpetuity.

OK so far?

Now if we give the same attributes to a zero-div fund, it also approaches $1,040,000 after a year, which come from its identical $40,000 of income. But there is no div, so no ex-div date, so it retains its value. So we sell $40,000 worth, and since it is now $104 per share, we sell fewer than 400 shares (384.615384615385 shares per my calcs).

So if you extend this out, yes indeed, you get to the point of owning a single share (236 years later...)! But (drum roll...) that share is worth $1M!


-ERD50
Yes! And no beef here.
Of course in actual practice, a non-div payer and a div payer do grow in value over time but your example here is clear and straightforward!
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Old 01-24-2018, 04:55 PM   #153
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Yes! And no beef here.
Of course in actual practice, a non-div payer and a div payer do grow in value over time but your example here is clear and straightforward!
Glad it helped.

"Where's the beef" isn't an argument/complaint type "beef". It's from an old-old-old commercial for hamburgers (Wendy's? - yes), looking for the tiny patty of beef on competitor's burgers. IOW, where is the substance? Where are the supposed gains from div-payers?

https://en.wikipedia.org/wiki/Where%27s_the_beef%3F

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"Where's the beef?" is a catchphrase in the United States and Canada introduced in 1984. The phrase originated as a slogan for the fast food chain Wendy's. Since then it has become an all-purpose phrase questioning the substance of an idea, event or product.[1]


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Old 01-24-2018, 05:25 PM   #154
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OK, I started putting together a spreadsheet, and as soon as I put the formulas together, the answer is obvious. Well, obvious to me - now how to explain it...

To make this apples-apples, we of course have to assume that we have two funds, the same in every other way, except one pays divs, the other does not. Let's start with $1M and $40,000 divs or sales, and keep inflation at zero for simplicity. The fund manager set the IPO at $100/sh, so we bought 10,000 shares.

The div fund reliably kicks off 4% / $40,000 a year in divs (once a year, again for simplicity) which come from its $40,000 of income, and it maintains its per share value year after year. As your $1M portfolio approaches the ex-div date it is worth $1,040,000. After paying out a 4% div to everyone, the value of the portfolio drops back to $1M. And we assume this continues in perpetuity.

OK so far?

Now if we give the same attributes to a zero-div fund, it also approaches $1,040,000 after a year, which come from its identical $40,000 of income. But there is no div, so no ex-div date, so it retains its value. So we sell $40,000 worth, and since it is now $104 per share, we sell fewer than 400 shares (384.615384615385 shares per my calcs).

So if you extend this out, yes indeed, you get to the point of owning a single share (236 years later...)! But (drum roll...) that share is worth $1M!

Another way to think if it, if you didn't sell, your portfolio would increase by $40,000 every year, because that income is retained in the fund and reflected in the NAV.

All this is just restating what was said before, but sometimes a fresh angle is what it takes for the light to come on.

In essence, it seems that any claims about the div-payers being superior is based on circular logic that they are better (they provide steady income, they don't go down as much, etc, etc)! The divs don't make a difference, but some assumption of superior performance will of course, show them to be superior. And if they are superior, then we should see it in the charts. Where's the beef?

-ERD50
Since you already have the spread sheet. Adjust a 35% market drop in year 1 then run it out, pulling the same 40,000 each year. After 10 years plop multiply the balance remaining by 1.55, and let us know where you end up. at year 20.
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Old 01-24-2018, 05:55 PM   #155
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I've discovered the solution to the debate is simple. My allocation of 1/3 to CD's. 1/3 to Bond funds, 1/3 to Dividend ETF's and another 1/3 to Total Stock Market provides me with more than I'll ever need.
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Old 01-24-2018, 06:01 PM   #156
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I've discovered the solution to the debate is simple. My allocation of 1/3 to CD's. 1/3 to Bond funds, 1/3 to Dividend ETF's and another 1/3 to Total Stock Market provides me with more than I'll ever need.
.....by about 33%? Nice.
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Old 01-24-2018, 06:18 PM   #157
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Since you already have the spread sheet. Adjust a 35% market drop in year 1 then run it out, pulling the same 40,000 each year. After 10 years plop multiply the balance remaining by 1.55, and let us know where you end up. at year 20.
With my spreadsheet, they will both end up at exactly the same place. $104 minus $4 in dividends, or $104 minus $4 in sales is the same thing. Pesky Arithmetic!

But if you want to see how a market downturn affected these while taking 4% withdrawals in the real-life 2008 debacle, go back to my posts #49 and #51. Not much difference in the div-funds vs Total Market.

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Old 01-24-2018, 06:55 PM   #158
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I've discovered the solution to the debate is simple. My allocation of 1/3 to CD's. 1/3 to Bond funds, 1/3 to Dividend ETF's and another 1/3 to Total Stock Market provides me with more than I'll ever need.

Reminds me of my diet in the teenage years: 40% of the daily ration during breakfast, 30% for lunch, and the other 60% - at dinner...
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Old 01-25-2018, 11:46 AM   #159
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I read the paper. You are correct it didn't directly compare dividend payers to a total market strategy. However, it did evaluate the total market across 4 criteria, identifying 2 sub categories that showed lower risk and higher returns then the other 2 sub categories.

By the very fact that when you are buying the total market you are also buying the two under performing categories which would result in a lower over all return wouldn't it? Or am I missing something here?

So as others have said "it just feels safer" is now fully explained in a highly technical paper.
^^^^^^^ This

This subject has been beaten to death over at bogleheads as well.

And as they also concluded, for many dividend stocks meet an emotional need.
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Old 01-25-2018, 01:31 PM   #160
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^^^ ^^^ ^^^

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Maybe this will help (or not):

It's not an apples-to-apples comparison, it's more of an apples-to-mashed potatoes comparison. Dividend stocks are more like comfort food--soothing. Basically, that's the feeling. You can count on them to be fairly predictable, yet less profitable for most dividend investors (me included).

I don't think that you will find any clear measurable advantage to the dividend payers. I haven't. However, I have found a place in my portfolio for them.
It was a circuitous journey to get back to this place. Didn't even need no stinkin' spreadsheet (though it was helpful).
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