Dividend Retirement Portfolio

[ferco]

Has anyone retired solely on a dividend portfolio and lived off just the dividends. If so how did you structure this. Additionally, would an alternate plan be to have 50% in dividend stocks and 50% in Wellesly Fund and draw down the dividends from both quarterly and live off that and maintain your principal. What are the pros / cons.

 

[GrayHare]

IMO a dividend portfolio is practical for the long term. An advantage of dividend stocks vs. bonds is the stocks will generally keep better pace with inflation. Utilities are a class of such stocks.

 

[REWahoo]

Additionally, would an alternate plan be to have 50% in dividend stocks and 50% in Wellesly Fund and draw down the dividends from both quarterly and live off that and maintain your principal.

An alternative is an AA of 50% Wellesley/50% Wellington for dividend income and capital appreciation. I think it is a reasonable strategy provided you had a large enough portfolio to meet your spending needs.

 

[scrabbler1]

I am living off bond fund dividends but I have additional income from stock fund dividends (reinvested) and I have an IRA out there waiting for me tap into it later.

 

[Chuckanut]

I think there are many ways to structure one's assets to provide the necessary income. Dividend stocks are certainly one of them. So, is investing for growth and selling some of the growth. The famous John Templeton used that approach and made a lot of people wealthy.

I think the important thing is to find something that works for you, stick to doing the basics right, be willing to monitor and adjust if things don't work as planned, don't get panicked into doing something stupid, and be able to sleep at night.

 

[Onward]

A danger in investing strictly for dividends is that it leaves you poorly diversified. Dividend seekers in 2007 loaded up on high-yielding financial-services stocks. The result was, well, not pretty.

 

[clifp]

A danger in investing strictly for dividends is that it leaves you poorly diversified. Dividend seekers in 2007 loaded up on high-yielding financial-services stocks. The result was, well, not pretty.

I agree that it is much harder to have a well diversified portfolio with 100% dividends and the financial stocks is something which bit me hard in 2008/2009. You do need some exposure to growth stocks, missing exposure to Apple, Google, and Amazon over the last decade simply because the don't pay dividends would be costly.

I'd also advise against using Wellesly as diversify for a dividend portfolio. Wellesly only has 57 or so stocks all of which are dividend payers, and include all of the usual suspects, JNJ, XOM, MMM, GE..

If you are going to build your own dividend portfolio than you want a pure bond fund, and either a broad stock index fund like VTI, or a growth fund like VUG. Owning Wellesly simply replicates your dividend stock portfolio with higher fees and adds a bond fund.

 

[Onward]

Interesting paper from Vanguard:

Under the income approach, the investor typically spends only the income generated by the portfolio, which often is not sufficient to meet spending needs. To make up for the shortfall, many investors elect to either increase their allocation to bonds, tilt their bond holdings toward high-yield bonds, or tilt their equity holdings toward higher-dividend-paying stocks—none of which are preferred strategies for maintaining inflation-adjusted spending over long periods.

Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors

 

[clifp]

Interesting paper from Vanguard:



Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors

We've discussed this paper before.

I'll go back to the conclusion.

In conclusion, the total-return approach to spending
is identical to the income approach for investors
whose portfolios generate enough cash flow to
meet their spending needs.

I don't necessarily disagree with the paper (although I'd quibble a bit with some of their numbers). However, for somebody like myself who retired very young 39, the SWR based of fixed asset value when I retired in 99 was too risky (and if fact if I followed 4% or even 3.5% inflation adjusted I'd be well on my way to financial ruin today.)

Instead I constructed an equity income portfolio. This lets me answer the question how much can I spend very simply. "I spend as much as the cash flow the portfolio produces and I hope that the dividend growth keeps up with inflation. (So far so good).

 

[Chuckanut]

I still like a well diversified portfolio using index funds. Experience has taught me that I can never predict what will do well and what won't when it comes to investments. I guess one could tilt it a bit towards dividend paying stocks. But, I have no problem selling some growth. Re-balancing will force that in any case.

 

[Ed_The_Gypsy]

Instead I constructed an equity income portfolio. This lets me answer the question how much can I spend very simply. "I spend as much as the cash flow the portfolio produces and I hope that the dividend growth keeps up with inflation. (So far so good).

My plan as well.

I still like a well diversified portfolio using index funds. Experience has taught me that I can never predict what will do well and what won't when it comes to investments. I guess one could tilt it a bit towards dividend paying stocks. But, I have no problem selling some growth. Re-balancing will force that in any case.

I am tilting towards dividend-paying stocks as well. I start with index funds, though, which are my largest holdings. There are a few energy stocks (my industry) that I have made a small commitment to.

I'd also advise against using Wellesly as diversify for a dividend portfolio. Wellesly only has 57 or so stocks all of which are dividend payers, and include all of the usual suspects, JNJ, XOM, MMM, GE..

I have misgivings about anything with bonds in it these days, myself, but I am in a quandary about what to about it--if anything.

I do not trust GE at all, but JNJ and XOM? XOM is pretty good for consistent growth and dividends. You could do a LOT worse. Having said that, I have concerns about their recent huge position in natural gas production (largest producer in North America today, I believe). The producers are not going to do well, IMHO. It is the pipelines and the mid-stream processors that will make the money, and I have a couple of those.

If growth is to be found in small cap and value stocks, then I am in growth stocks.

I do not think one has to go all growth or all income. The hazards of each extreme are obvious. There are companies that distribute earnings AND grow.

 

[clifp]

My plan as well.

I
I do not trust GE at all, but JNJ and XOM? XOM is pretty good for consistent growth and dividends. You could do a LOT worse. Having said that, I have concerns about their recent huge position in natural gas production (largest producer in North America today, I believe). The producers are not going to do well, IMHO. It is the pipelines and the mid-stream processors that will make the money, and I have a couple of those.

Well this should be in the stock picking forum but...since you are in the energy field and stock picker any comments about my energy stocks

KMP/KMI
BPL
MMP
SPH
APU
NS
SE
I also short put options to buy CVX but it is likely to expire.

I am bit overweight with energy at 18% so I am not looking to buy more but perhaps sell one next year.

 

[Ed_The_Gypsy]

I have SE myself. Bought it cheap a few years ago. I will keep it (until one of their H2S pipelines ruptures).

KMP/KMI I have heard good things about, but I do not understand why they have so many faces. I try to say away from things I do not understand.

The others have nice yields and steady earnings distribution records for the past decade, but I do not know anything else about them. NS and SPH share prices sure have been volatile!

I have CVX as a surrogate for XOM. Time will tell if this was a good idea or not. From all accounts, CVX is a nutty place to work.

I have been buying companies that I have personal knowledge about. Me, I would buy XOM on weakness--if it ever has weakness. I have a personal prejudice against RDS arising from my personal experience over 20 years on and off with the company. Totally irrational for an investor, but I would never buy it. I do not even buy their gasoline. Daft, I know, but there it is.

I like energy for the long run. I also like health care, again for the long run. I am slightly overweighted in both. I do not see the demand for either declining in my lifetime. I never liked financials, but Canadian banks are another matter. I seem to remember that several are in one of my ETFs.

 

[CyclingInvestor]

Has anyone retired solely on a dividend portfolio and lived off just the dividends. If so how did you structure this

I retired 5+ years ago at 48. I live solely on the dividends of a 100% individual equity portfolio, almost completely in IRAs, accessed with 72t withdrawals. I currently withdraw a bit over 3%/year, which just about matches the dividends generated.

At any moment I own 5-20 stocks (currently 12 : ABT, ADP, AFL, EMR, ITW, JNJ, KO, MDT, MMM, MSFT, PG, SYY) and track about 30. I own the 'cheapest' (IMO) ones - whenever one of the stocks I own becomes over-valued compared to any I track but do not own, I sell it and buy the new better value. I have been doing this since 1993 - a first with a relatively small amount of $$, then big time in 1997 when a 14-year 401k rolled into an IRA.

Dividend growth has been pretty good - about +50% in the 5 years since retirement, offering a considerable cushion if any 1 or 2 stocks have trouble.