Dividend paying stocks

[JP.mpls]

I've read several thread comments about investing in stocks that provide consistent dividends. The commenters often mention withdrawing the dividend payouts as an annual income stream.

These comments usually involve listing some of the best dividend paying stocks.

I prefer to avoid purchasing individual stocks. Are there mutual funds that focus on dividend paying stocks? Does Vanguard possibly offer something like this?


- As long as I'm bringing this topic up, is this a good idea?
- What are the pros and cons of buying stock in companies that provide consistent annual dividends?
- Could this be used as an alternative to some of my bond holdings?


Thanks,


JP

 

[aja8888]

I've read several thread comments about investing in stocks that provide consistent dividends. The commenters often mention withdrawing the dividend payouts as an annual income stream.

These comments usually involve listing some of the best dividend paying stocks.

I prefer to avoid purchasing individual stocks. Are there mutual funds that focus on dividend paying stocks? Does Vanguard possibly offer something like this?


- As long as I'm bringing this topic up, is this a good idea?
- What are the pros and cons of buying stock in companies that provide consistent annual dividends?
- Could this be used as an alternative to some of my bond holdings?


Thanks,


JP

Here's a dividend ETF that is very popular (VIG):

https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=0920

There are lots of topics here on your other open ended questions so I would suggest using the search function to locate those threads rather than try to regurgitate the information.

 

[Mr._Graybeard]

Dividend-paying stocks tend to be cheap relative to their earnings/book value, so if you like to buy stuff at a discount, they're worth considering. As a retiree, I prefer dividend paying value stocks over the high flyers because they tend to be less volatile. Nearly all of my equity holdings are in mature, value-based stock or asset-allocation funds that produce dividends.

The Schwab exchange-traded fund Schwab US Dividend Equity (SCHD) has been a good performer over the last several years. Yield is 2.63%; expenses are 0.07%.

Stock equity funds are in no way a substitute for a bond allocation. However, you could opt for an asset-allocation fund that's a mix of stocks and bonds. Vanguard's Wellington and Wellesley are good examples. The equity holdings in both are weighted toward the value side of the stock spectrum. Either is a very good core holding for a retirement portfolio, kind of a "set it and forget it" investment.

 

[GrayHare]

The share price of dividend stocks generally holds up better during a market downturn, but rises more slowly during upturns. Due to taxation differences between dividends and capital gains, unless your income is low enough to pay minimal income taxes, dividend stocks are often less tax efficient than growth stocks.

 

[LOL!]

Studies show conclusively that this is not a good strategy, but does satisfy some mental issues for many investors. See also https://en.wikipedia.org/wiki/Dividend_puzzle

Just about any mutual fund or ETF will pay dividends, so they cannot be avoided anyways.

In a taxable account, dividends cost you in extra taxes, so should be avoided.

 

[Senator]

My dividend ETFs are DVY and HDV. Look for no commission trades and low expenses.

 

[davismills]

I've had luck with the ETF "NOBL"
http://www.proshares.com/funds/nobl.html

 

[Dash man]

In a taxable account, dividends cost you in extra taxes, so should be avoided.

Long term holdings of dividend stocks are much more tax efficient than in a tIRA or 401k where you pay ordinary income tax rates when withdrawn. Depending on total income, you may pay zero tax on dividends in a taxable account or 15% max if over a certain amount. Only the highest tax bracket pays 20% on long term dividends.

 

[Car-Guy]

In 2017 all my equity trades were in dividend paying stocks. I played the game of buying a "chunk" of stock a day or so before it's ExDiv date and I would sell on or after ExDiv date. (just a form of swing trading) Yes, the stock corrects for the dividend amount on the ExDiv date, but it "usually" recovered pretty quickly, in 2017. (not always though) Consider the tax implications of doing this between a T-IRA, Roth IRA, cash account, etc.

 

[jim584672]

Looked up some dividend ETFs.

Five year total returns

Dividend ETFs
NOBL 74.18% (since inception Oct '13)
HDV 79.02%
VIG 91.06%
SDY 101.16%
DVY 101.32%
VYM 101.85%
SCHD 108.16%

Low cost total market ETFs
VTI 107.37%
SCHB 107.48%
SPTM 107.56%
ITOT 108.20%

 

[LOL!]

Looked up some dividend ETFs.

Five year total returns

Dividend ETFs
[Losers]

Low cost total market ETFs
[Winners]

So Reality matches Studies in this case. Thanks.

 

[Danmar]

My Canadian div grower portfolio has outperformed the total Canadian market by about 4% per year for 20 years.

Agree that for high earners it’s not very tax efficient. It was a few years ago, but then the politicians raised rates on divs. Problem is of course, I have such high imbedded gains don’t want to switch.

 

[MarieIG]

I have some dividend payers in my father's (inherited) account. After refusing to look at them for years other than statements for tax purposes (only child, was completely devastated when DF died) I am finally trying to force myself to diversify by having the dividends put in as cash, and using them to purchase the Vanguard total stock market exchange traded fund.

 

[USGrant1962]

Here's a dividend ETF that is very popular (VIG):

https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=0920

There are lots of topics here on your other open ended questions so I would suggest using the search function to locate those threads rather than try to regurgitate the information.

If you are in Vanguard already the mutual fund version is Vanguard Dividend Growth (VDIGX). The whole dividend grower concept is popular and seems to have reasonably good results.

These VG funds are not particularly high yield, but they only invest in companies that have been increasing divs for a long time.

 

[ERD50]

Studies show conclusively that this is not a good strategy, but does satisfy some mental issues for many investors. See also https://en.wikipedia.org/wiki/Dividend_puzzle

Just about any mutual fund or ETF will pay dividends, so they cannot be avoided anyways.

In a taxable account, dividends cost you in extra taxes, so should be avoided.

Excellent, concise info in that link. Thanks!

-ERD50

 

[imokurok]

Studies show conclusively that this is not a good strategy, but does satisfy some mental issues for many investors. See also https://en.wikipedia.org/wiki/Dividend_puzzle

Just about any mutual fund or ETF will pay dividends, so they cannot be avoided anyways.

In a taxable account, dividends cost you in extra taxes, so should be avoided.

I guess I have mental issues. Happy to collect the dividends whether the markets go up or down.

 

[timemoveson]

I guess I have mental issues. Happy to collect the dividends whether the markets go up or down.

Me too. Several 100's of thousands of dollars worth, per year, in fact. For doing absolutely nothing.

 

[sengsational]

My dad set up my mom's portfolio with a handful of mostly dividend paying stocks. Now that he's gone, she asked me what I would do. I suggested she sell the one that wasn't the same as the others (more volatile, a growth stock). Now she has a 5 year cash buffer. But the rest, are still in the utilities. If it were really me at her age, I might go with a dividend ETF, but owning these few companies, as stable as they are, is just fine for her, I think. Personally, I've got too many years to take the haircut, so I don't limit myself to dividend paying stuff.

 

[Brat]

That and if they are qualified dividends they are taxed at long term capital gains rates. Watch out for the 2018 tax law as LTCG rates do not match marginal rates.

 

[ERD50]

I guess I have mental issues. Happy to collect the dividends whether the markets go up or down.

Me too. Several 100's of thousands of dollars worth, per year, in fact. For doing absolutely nothing.

I'm fascinated by some people's thought processes.

While the statements above may be true, they are stated in a vacuum. There's no comparison to readily available alternatives. It strikes me as nothing more than confirmation bias. Who is served by that?

-ERD50

 

[Hamlet]

Studies show conclusively that this is not a good strategy, but does satisfy some mental issues for many investors. See also https://en.wikipedia.org/wiki/Dividend_puzzle

Just about any mutual fund or ETF will pay dividends, so they cannot be avoided anyways.

In a taxable account, dividends cost you in extra taxes, so should be avoided.

What studies? I’ve seen lots of studies claiming both sides. Most of their conclusions say more about the people running the studies than your expected return going forward IMO.

The dividend puzzle has a pretty straightforward answer to me, though. IMO, most of the people running big companies are reasonably likely to re-invest money poorly. They start stock buybacks when their valuations are terrible and end them when they are screaming buys. They pay too much for acquisitions, etc, etc.

There are plenty of exceptions of course. I’m happy to own Berkshire because I’m confident that Buffett won’t fritter away money just because he’s got extra cash. Growth companies should have something better to invest in than paying a dividend.

However, for most big, mature companies I would rather have them pay a dividend than try to get creative by acquiring companies or entering new businesses. I’ve not been impressed with Corporate America’s track record in those areas.

 

[Cobra9777]

Our equity side is 80% VTI and VXUS (total market ETFs). The other 20% is high-dividend ETFs, VYM and 2 others. We also have 11% of the AA in VNQ (REIT) and one rental property. I see this as a balanced approach that produces more cashflow vs VTI/VXUS alone without sacrificing much performance in the long-term. I would never go all-in with a dividend strategy. But for us it's just a convenient way to close the cashflow gap not covered by our two pensions.

 

[timemoveson]

I'm fascinated by some people's thought processes.

While the statements above may be true, they are stated in a vacuum. There's no comparison to readily available alternatives. It strikes me as nothing more than confirmation bias. Who is served by that?

-ERD50

Hear you, can't agree. Not a vacuum at all. The clear bias on this forum and elsewhere is with other approaches that seem to be well understood and taken as gospel.

I'm happy to present an opinion and people can take what they want from it, or not. I think people are served by diversity of thought and challenges to convention rather than by rigid doctrinaire thinking. There is rarely if ever one absolute right path and personal circumstances have to be the main guide.

 

[ERD50]

Taking it out of order...

Originally Posted by ERD50
I'm fascinated by some people's thought processes.

While the statements above may be true, they are stated in a vacuum. There's no comparison to readily available alternatives. It strikes me as nothing more than confirmation bias. Who is served by that?

-ERD50

... I'm happy to present an opinion and people can take what they want from it, or not. I think people are served by diversity of thought and challenges to convention rather than by rigid doctrinaire thinking. There is rarely if ever one absolute right path and personal circumstances have to be the main guide.

I 100% agree with you on that. I'll just add that it is helpful when people present the thought process behind their opinion. It's usually pretty hard to get anything useful from the opinion alone.

Hear you, can't agree. Not a vacuum at all. The clear bias on this forum and elsewhere is with other approaches that seem to be well understood and taken as gospel. ...

I'm not sure what "clear bias" you are talking about, so I guess it's not clear? And to explain, yes, to me your comment was in vacuum. You said:

Me too. Several 100's of thousands of dollars worth, per year, in fact. For doing absolutely nothing.

Without putting that in %, or providing the portfolio amount so we can put it in %, it's pretty meaningless, and it can be done without restricting yourself to dividend payers. In practical terms, OK, a portfolio made up of higher than average dividend rate stocks would kick off more income (w/o selling anything) than a broad-based index of stocks. But that only means one might decide to sell off some of the stock fund from time to time (like once per year) to make up the difference. That also provides a good time to re-balance an AA if desired.

In practical terms, making a sale once a year isn't a meaningful amount of effort, so to me, your "doing absolutely nothing" comment strikes me as more "dogma" and "bias" - just what you accuse the forum of in general?

There's nothing "wrong" with you deciding you want to focus on dividend payers, and I'm certainly not going to try to convince you otherwise. But I am usually tempted to respond when someone makes a post that seems to indicate "their way" has clear advantages, when the data doesn't back it up. That's not "doctrine" at all, that's letting the numbers speak.

-ERD50

 

[joylesshusband]

Depending on total income, you may pay zero tax on dividends in a taxable account or 15% max if over a certain amount. Only the highest tax bracket pays 20% on long term dividends.

Entirely incorrect, plus there are no "long term dividends".