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Old 09-11-2010, 02:25 PM   #41
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^So all your "I would add ..." add up to: "I would buy a total stock market fund and a total international stock market fund, then some small-cap funds ...."
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Old 09-11-2010, 03:19 PM   #42
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The problem with this is that you tie up assets in an investment that has extremely low/zero expected return. Over the last 12 months my bonds (mix of treasury and investment grade) have returned about 8-9%. Even if I took a 5% hit on NAV from rising interest rates I'd still be ahead of cash by 3-4% over the last year. Even something as low risk as Limited Term Tax Exempt Bonds have returned 4.5% -- I'm guessing cash has been maybe a half percent?
But the time horizon is short (3 yrs), so whether you get 1% or 4% isn't going to make that much difference, having a cash bucket prevents have to selling your investments when they're down (ie 3008-2009)
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Old 09-11-2010, 03:23 PM   #43
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^ Having bond investments (they don't have to be in a bucket) allows you to sell your bonds when they're up (ie 2008-2009) and even allows you to buy stock investments when they're down.
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Old 09-11-2010, 08:30 PM   #44
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^ Having bond investments (they don't have to be in a bucket) allows you to sell your bonds when they're up (ie 2008-2009) and even allows you to buy stock investments when they're down.
Exactly. Bonds were up big time during this period and cash sat there like a house plant.
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Old 09-12-2010, 01:00 PM   #45
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I have looked into dividend sponsored retirement. I have started a few threads here and know it is quite possible.

Dividend investing- do you get a 3% yield?

As I looked into it further- the people which get a 4% yield (current) did not buy those companies when they yielded 4%. They bought them when they yielded less (2%) and by reinvesting dividends and accumulating shares and market performance their yields and payout was higher.


If I were to advise someone how to do this, they would need a 5-10 year time horizon... to verify payout was working AND to attempt to buy companies at a good part of their business cycle. I would not want to see someone w*rk, accumulate share value in mutual funds, then sell those mutual funds for stocks which pay dividends, then retire the next month. Too much risk which takes present market performance into account for a retirement decision which needs to last 30-50 years.

If someone had a 10 year timeframe, I would look for dividend payers which totaled about 50-75 stocks. Trying to stay diversified while also trying to have a solid portfolio, and a portfolio which focused on payout.

I would own 10-20 large companies which paid a dividend. Companies like Microsoft, PG, and GE come to mind (I have not looked at these companies stock pages in years, but last I checked, all paid a dividend).

I would get some preferred stocks and REITs to kick in some high yield too- probably 2-10 different holdings.

I would also look for 2-4 large companies which do not pay dividends but are sitting on a high amount of cash. Oracle used to be in this category, but they recently started paying a dividend. Look for large companies which have cash on hand could add some stability if other companies drop their dividend and you still need a payout to maintain income.

I would add about 10 foreign companies which pay dividends as well (noting that tax treatment of foreign dividends might be different).

I would add a few sector plays (like utilities or financials) but turn these stocks over as I think other sectors (like health care or cyclicals) looked better.

I would add about 20-40 small and mid caps which paid dividends and hold a smaller (relative) position in each of these companies.

If I owned 10 large cap, I would want 20 small cap positions (for example) and each of the 20 small cap positions would be maybe 1/4 the size of the position in the large caps.

A follow up thread to the one I posted would be interesting, as I would be curious how late 2008 changed anyone's outlook on the 3% yield, and also curious if any new lessons learned came from recent market activity.
This is a good post and good advice - especially the part about taking time to build the portfolio vs reallocating from general equities into dividend payers.

A good book on this is The Ultimate Dividend Playbook by Morningstar The Ultimate Dividend Playbook

M* has pretty decent free tools for stock analysis, and Valueline has excellent data and tools, but is a bit pricey (50% discount for Fido customers).
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Old 09-12-2010, 02:12 PM   #46
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This is a good post and good advice - especially the part about taking time to build the portfolio vs reallocating from general equities into dividend payers.

A good book on this is The Ultimate Dividend Playbook by Morningstar The Ultimate Dividend Playbook

M* has pretty decent free tools for stock analysis, and Valueline has excellent data and tools, but is a bit pricey (50% discount for Fido customers).
Couple of comments. First, seems like a lot of work (not to mention trading costs). Second, I don't get the math implied by the following:

Quote:
As I looked into it further- the people which get a 4% yield (current) did not buy those companies when they yielded 4%. They bought them when they yielded less (2%) and by reinvesting dividends and accumulating shares and market performance their yields and payout was higher.
Reinvestment is an independent decision to invest proceeds. That is purely a choice of investment.

Dividend yield is dividend yield. Market performance is growth. Mixing them up is ... hmm .... total return.
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Old 09-12-2010, 03:46 PM   #47
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Couple of comments. First, seems like a lot of work (not to mention trading costs). Second, I don't get the math implied by the following:
First while it may seem like a lot of work it really isn't. And if you are just doing buy and hold with dividends automatically reinvested you can keep trading costs minimal. Only if a stock or fund stops paying a dividend would you need to sell and rebalance.

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Reinvestment is an independent decision to invest proceeds. That is purely a choice of investment.

Dividend yield is dividend yield. Market performance is growth. Mixing them up is ... hmm .... total return.
When bought its price to dividend were yielding 2% now its price to dividend is 4%. That or either he is referring to a virtual dividend yield of 4% which is from the amount originally invested compared to the current yield.
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Old 09-12-2010, 04:24 PM   #48
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When bought its price to dividend were yielding 2% now its price to dividend is 4%.
I suppose that is possible. Dividend would have to grow faster than the share price. I just have an aversion to dividends due to the taxes -- all my equity is in taxable accounts.
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Old 09-12-2010, 04:34 PM   #49
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I suppose that is possible. Dividend would have to grow faster than the share price. I just have an aversion to dividends due to the taxes -- all my equity is in taxable accounts.
Or the share price needs to fall. I was getting 2% dividends on some and when everything started crashing I went to about a 16% dividend on a couple now I am sitting around a 4% after they recovered. The majority of my dividend earners are in a roth ira so I don't worry about taxes on the dividends.
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Old 09-13-2010, 08:40 AM   #50
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In line with this discussion - Phillip Morris International (PM) today announced a 10% increase in its quarterly dividend to $.64 per share. This is a yield of 4.7% on Friday's closing price. I have owned Altria (MO) for many years - I bought in at $20 when there was a huge legal judgment against the company (later drastically reduced by the Supreme Court). It now trades at $23 after spinning off both Kraft (KFT) and PM in 2007 and 2008. MO's current yield is 5.5%
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Old 09-13-2010, 12:08 PM   #51
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This discussion is as old as my tenure on this forum, and likely older. I have never seen anyone change his or her mind about being dividend investor vs. a buy and hold total return index fund investor. I do think that there have been people who inherited single stocks, or who had a divorce settlement including stocks who were sold the asset allocation total return style, and now that I think of it a certain Northern California stream fisherman/tournament golfer also changed to this method as he clearly saw that it would give him more time on the stream or links than doing individual stock research would.

Much of what is said on either side of the debate is perhaps not really on point anyway, so why would anyone change his mind? (This time I said 'his mind" as I don't remember that any women have posted that this is their main or only way of investing. It may be, now that I think of it, that a big majority of men who are exclusive dividend investors are single, excepting Brewer and Gus Levy who are Wall Streeters and individual stock investors though perhaps with a more wide ranging description than just dividends. Likely a married guy would not relish facing his wife with a failure that could not so easily be offloaded onto from his shoulders onto "the market".

I buy both dividend growers and individual stock speculations that do not pay dividends, though lately to the extent that I do own equity almost all is dividend paying, though not necessarily what would be called a high dividend. I would definitely never choose a stock only based on a dividend, as nothing is easier to eliminate or reduce. It is necessary to understand from whence comes the cash to pay this dividend, and what are the chances that these cash flows will remain robust.

Essentially, this is a perilous time for a retiree to make investment choices, whatever style is being followed. And a perilous time to not make choices, which is also a choice.

Ha
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Old 09-13-2010, 12:33 PM   #52
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This discussion is as old as my tenure on this forum, and likely older. I have never seen anyone change his or her mind about being dividend investor vs. a buy and hold total return index fund investor.


Ha
I was thinking the same thing as I was reading some old threads on the subject this week-end. Personally, I think that I am naturally attracted to dividend investing but the 2008 crisis definitely proved that it wasn't as foolproof as I once thought. Watching my dividends getting cut was probably more painful than watching the share price plunge.
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Old 09-13-2010, 02:16 PM   #53
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I was thinking the same thing as I was reading some old threads on the subject this week-end. Personally, I think that I am naturally attracted to dividend investing but the 2008 crisis definitely proved that it wasn't as foolproof as I once thought. Watching my dividends getting cut was probably more painful than watching the share price plunge.

yes, the cuts come quickly in a downturn and then management drags its feet before restoring the cuts -- I used to be one of those corporate guys that recommended delaying dividend increases to hoard cash. For every MO there is a GE.
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Old 09-13-2010, 08:06 PM   #54
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I was thinking the same thing as I was reading some old threads on the subject this week-end. Personally, I think that I am naturally attracted to dividend investing but the 2008 crisis definitely proved that it wasn't as foolproof as I once thought. Watching my dividends getting cut was probably more painful than watching the share price plunge.
I completely agree.

I went back and re-read some of the post (including mine). I stopped short of calling dividend fool proof, but I was close. The dividend cuts were certainly more painful than price plunges. For instance I fully expect Wells Fargo (WFC) to get back the $30/share I paid for it in Jan 08, sometime in the next year (it was $33 back in May)

However, the $.34/quarter dividend is another story. Even if the WFC doubles its dividend to $.10 this quarter and raises a nickel every year I am 6 years away from seeing the income restored.

HaHa points are also important. As I posted recently, the term "personal finance" has two elements. On the finance side, the data for total returns vs dividend invest is pretty ambiguous although probably on balance leans toward the total return approach as providing superior returns. (I am still not convinced that on risk adjusted basis that total returns is superior...)

However, on the personal side. It provides me with a better peace of mind knowing that baring another collapse I'll have X thousand of dollars coming in dividends. I also get the psychic pleasure of getting small "pay raises" dozens of times a year as companies raise dividends. Like risk assement this is a personal decison.

On practical note, I think is is much easier to implement a total returns if you are almost exclusively a mutual fund investor. If you have 5 or 6 (does anybody on the forum have less than that number?) funds, the decision to on how to pay for next year expenses is relatively straightforward. I am going to sell so much of the 2 stock funds and one bond or whatever. There is still of course a timing issue.

In my case with 40 stocks, CEFs etc trying to figure out which stock to sell is far more complicated. If was I total return investor I'd constantly be face with do I sell 100 shares of Apple or 250 shares of Berkshire or 1000 shares of Pfizer to fund next years expenses. Relying on dividends plus interest to be my primary source of income simplifies my life, although obviously a handful of index funds would be much simpler still.
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Old 09-13-2010, 10:32 PM   #55
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I completely agree.

I went back and re-read some of the post (including mine). I stopped short of calling dividend fool proof, but I was close. The dividend cuts were certainly more painful than price plunges. For instance I fully expect Wells Fargo (WFC) to get back the $30/share I paid for it in Jan 08, sometime in the next year (it was $33 back in May)

However, the $.34/quarter dividend is another story. Even if the WFC doubles its dividend to $.10 this quarter and raises a nickel every year I am 6 years away from seeing the income restored.
Bank stocks were dividend machines for a very long time, In fact, a well known dividend investing book (the name now forgotten by me) suggested that banks were the premier growth/dividend stocks.

Still, the past can never be counted on to continue into the future, and prudence might suggest that whenever risk assets are levered anywhere from 10 to 25 or even more times, this structure is not really built on bedrock.

Levered financial businesses seem to be another example of investments that are great until they aren't anymore.

Ha
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Take a real example like P&G
Old 12-26-2010, 04:39 PM   #56
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Take a real example like P&G

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I suppose that is possible. Dividend would have to grow faster than the share price. I just have an aversion to dividends due to the taxes -- all my equity is in taxable accounts.
In addition the "yield on original cost" reference earlier you also have dividend growth. If you bought PG in 2000 it paid around $1/qtr in div; now it pays almost 2x that @ $1.87. So div payout is up 87%.
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Old 12-27-2010, 03:55 PM   #57
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Still in accumulation mode for the next few years...

I find myself flip flopping between taking a dividend approach verses swr approach. *I've been a follower of morningstar's dividend newsletter, which, BTW, offers sound dividend investments advise. *That said I struggle with incorporating the dividend equities into a total portfolio based on MPT.

Here's the core problem:*
Most solid dividend stock are domestic-large cap. *Yes, you can find non-domestic, non large cap dividend payees. But on the whole, dividend stocks are highly correlated.


If one believes in slicing and dicing a portfolio to maximize gains and minimize risk, there is precious little room for the standard dividend names. Once you fill the non-large cap portfolio buckets (bonds, *small cap value, emerging market, etc) there's just not enough room to make the dividends meaningful.

*** *
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Old 12-27-2010, 05:25 PM   #58
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Most solid dividend stock are domestic-large cap.
Perhaps, but there are plenty of others.
For example, what about Unilever? Currently yielding 3.8% and you won't find a much more stable company.
I have at least a half-dozen good, solid dividend payers from other countries in my portfolio (UL among them). You just have to look for them.
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Old 12-27-2010, 06:40 PM   #59
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Still in accumulation mode for the next few years...

I find myself flip flopping between taking a dividend approach verses swr approach. *I've been a follower of morningstar's dividend newsletter, which, BTW, offers sound dividend investments advise. *That said I struggle with incorporating the dividend equities into a total portfolio based on MPT.

Here's the core problem:*
Most solid dividend stock are domestic-large cap. *Yes, you can find non-domestic, non large cap dividend payees. But on the whole, dividend stocks are highly correlated.


If one believes in slicing and dicing a portfolio to maximize gains and minimize risk, there is precious little room for the standard dividend names. Once you fill the non-large cap portfolio buckets (bonds, *small cap value, emerging market, etc) there's just not enough room to make the dividends meaningful.

*** *
I am also a fan of the M* dividend newsletter, after a few dumb investments early on, I think Josh has really redeemed himself. Overall I am impressed that a 200K portfolio that started in 2005 and 2006 is up 20% with superior performance and lower volatility than the S&P especially during 2008 (losing 24% vs 37% for the S&P).

I have about 40% of my portfolio in dividend stocks 15% in bonds, 30% in index funds and healthy chunk of Berkshire and couple other random stocks.

A significant chunk of the M* Dividend newsletter are master limited partnerships in the energy sector, they don't seem highly correlated with domestic large caps, and in fact seemed to behave more like bonds in this last year. Same story with REITs. He also has a couple of foreign dividend stocks Diageo and UK utility National Grid. Still you are right there are a lot of dividend payers are large cap companies in slow growth business.

However, I don't see a real problem if your individual dividend issues are big cap, increase your AA of small and mid cap ETF, or reduced or eliminate your S&P funds. Even following Josh advice pretty regularly my overall porftfolio is pretty balanced other than overweight in the energy sectors (and formerly finance ) and less foreign stocks than seems to be popular.

Finally, I should add that to me the benefits of a dividend approach vs total return are much larger during retirement than during the accumulation phase. In the accumulation phase I am living off of my paycheck. So there isn't a obvious place to spend the dividends you get. In retirement, first of all I have more time to research individual stocks (it is my new job) and secondly the dividend are my paycheck!.
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Old 12-29-2010, 08:26 AM   #60
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Thanks for the insight.
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