Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 03:06 AM   #61
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Re: Dividend Stocks in place of Bonds

did you notice how many of those dow stocks are worth less today than in 2003, just look at merk it was 60 bucks in 2003 and in the 30's today. verizon is lower too. in fact i bet most of them are less today but im not going to look them all up.

if you think you got a good total return from it your deluding yourself.
dont confuse an increase in yield with an increase in dividends. in some cases it comes from a falling stock price
__________________

__________________
mathjak107 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 05:36 AM   #62
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by mathjak107
did you notice how many of those dow stocks are worth less today than in 2003, just look at merk it was 60 bucks in 2003 and in the 30's today. verizon is lower too. in fact i bet most of them are less today but im not going to look them all up.

if you think you got a good total return from it your deluding yourself.
dont confuse an increase in yield with an increase in dividends. in some cases it comes from a falling stock price
DJIA 5/16/2003 8713
DJIA 5/16/2007 13476

Percent increase 54.7% now the Dow is an old average and not as accurate as something like the S&P or Wilshire. On the other I am not including dividends which push the total return up another ~10%.

Where did you get the $30 figure? Merck closed at $52.46 today in May 2003 it was $52.58 about as close to flat as possible. You did get about $5.90 in dividends over the 4 years.

Verizon was 36.46 in May of 2003, it closed at 42.14 today a 15.6% gain. You also collected about $6.30 in dividends or another 17%
Over course of the last 4 years several Dow Dogs, MO, T, CAT, HON, XOM have annual total returns in excess of 12% all while paying meaningful dividends.
All data from Morningstar.

was quite careful not to talk about yield but rather should specific dividend increase of household name companies. I am honestly not even particularly big fan of the Dogs of the Dow... Although I think it is pretty safe way of getting raising income.


Quote:
the average swing for a stock price is between 35-40% a year. i highly doubt any high quality treasury or corporate bond will swing like that. tell the people who retired in 2000 principal dosnt matter as 40% of their nest egg evaporated in the s&p alone.
Yup, I am sure the Enron bond holders felt that way also, probably even those nice little old ladies who bought GM, Ford, or Chrysler long bond 10-20 years. Heck, I recently bought some Sallie Mae inflation "bonds" and I am not happy about the prospect of them being taking private.
Now with respect to Treasury I agree with you nice and safe. The problem of course is getting a real return above 3% much less 4% need for a SWR.
Still, Seigel in his book Stock for the long Run has some scary data about the fate of bond holders during certain period of the US and down right terrifying stories for holder of foreign country bonds. Holders of dividend stocks did ok in German in the 20s while bond holders were wiped. Getting your principal back ten years from now won't seem like such a great deal if Gas and Milk both cost $10/gallon.

I
__________________

__________________
clifp is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 08:44 AM   #63
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by 3 Yrs to Go

Well gee, if you assume that company ABC wastes money and XYZ doesn't then sure. We could just as easily assume that ABC reinvests in projects that earn returns greater than its cost of capital . . . in which case ABC would provide better long run returns then XYZ.

However, if we start with the fair assumption that besides the dividend, all else is equal, then XYZ and ABC will have the same long-run returns.
I thought it was plenty fair. Lots of companies when flush with cash find stupid things to spend it on. If its paid out in a dividend, theres no wad of cash to tempt silliness.

Clif and I could tell you how fabulously effective our old company's forays into surfboard mounted computers and televisions were... methinks they needed to increase the dividend a few years back...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 08:55 AM   #64
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny


Clif and I could tell you how fabulously effective our old company's forays into surfboard mounted computers and televisions were... methinks they needed to increase the dividend a few years back...
Heck, we could start a whole thread of things they shouldn't have dumped any money into. Where to start?

__________________
saluki9 is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 10:37 AM   #65
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
Clif and I could tell you how fabulously effective our old company's forays into surfboard mounted computers
... And I'd like to thank you both for killing that project!
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 12:30 PM   #66
Recycles dryer sheets
 
Join Date: May 2006
Posts: 230
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by mathjak107
did you notice how many of those dow stocks are worth less today than in 2003, just look at merk it was 60 bucks in 2003 and in the 30's today. verizon is lower too. in fact i bet most of them are less today but im not going to look them all up.
Following up on clifp's post about VZ and MRK, the answer to 'how many of the 30 Dow stocks are lower today than in May of 2003 (when counting the dividends paid)' is TWO out of thirty. The one with the worst loss over that time period shows a total loss of about 5% over four years and the second worst had a total loss of less than 1%.
__________________
terminator is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 06:15 PM   #67
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Re: Dividend Stocks in place of Bonds

ooops your correct about merk hit the wrong date but its still about the same as 2003, in the 50's .. overall the point still remains the same, i would never want to be in the position as a retiree to be forced to liquidate stocks in a down market in a pinch or emergency or even to rebalance . i choose never to use any form of stock as a proxy for my bonds and cash.


__________________
mathjak107 is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 06:51 PM   #68
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Dividend Stocks in place of Bonds

I agree...thats why I take and spend the dividends and have no need or plan to liquidate the equities at all...in an up or down market.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-18-2007, 07:36 PM   #69
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
I agree...thats why I take and spend the dividends and have no need or plan to liquidate the equities at all...in an up or down market.
Yup same here. At the risk of being a called a dirty market timer, I tend to buy more bonds when the income from them is substanially higher than "good" dividend stocks.
__________________
clifp is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 03:19 AM   #70
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by terminator
Following up on clifp's post about VZ and MRK, the answer to 'how many of the 30 Dow stocks are lower today than in May of 2003 (when counting the dividends paid)' is TWO out of thirty. The one with the worst loss over that time period shows a total loss of about 5% over four years and the second worst had a total loss of less than 1%.
key word here is "when counting dividends paid" that was another point i was trying to make. that the dividends can be no free lunch as many like to think of it as bank or bond interest. in order to pull some of them out of the negative you must add that money back into the equation. in fact i dont think the s&p has broken a new high since 2000 without figuring dividends back into the figures

im not quite sure where im going with this ha ha but i think the point is that had many of them re-covered from all the money paid out making them whole again then you wouldnt have to count the free lunch money to do so as the payments would have been non events as some like to think.

did i say that right?
__________________
mathjak107 is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 09:57 AM   #71
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by mathjak107
im not quite sure where im going with this
Quote:
did i say that right?
Yeah, I think you did.

I suppose that looking at markets and seeing that the bulk of the historic returns were from dividends isnt a swaying factor? Or bernsteins whole analysis on value vs growth stocks is just poofery?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 10:21 AM   #72
Recycles dryer sheets
 
Join Date: May 2006
Posts: 230
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by mathjak107
key word here is "when counting dividends paid" that was another point i was trying to make.
There were only a couple more that needed the dividends added back in to be ahead since 2003. The other 25 or 26 were higher on share price alone.

Quote:
that the dividends can be no free lunch as many like to think of it as bank or bond interest.
Short term I agree with you. Dividends paid reduce shareholders' equity so there is no free lunch.

But long term, it's the difference between: (a) a 100 year loan with no payments and accruing interest with a huge balloon at the end, and (b) a fifteen year mortgage with monthly payments being made. At the end of the day, if the interest rate is the same and the monies collected are re-invested at the same return, everything is equal. But I think we all realize that (b) is a lot better than (a) if you are the lender.

If you trust the company, then retention of dividends is better from a tax perspective. But management's interests clearly aren't 100% aligned with shareholder interests (or else we wouldn't have some of these ridiculous eight-figure salaries and some of the empire-building that occurs). And when our interests aren't 100% aligned, I don't trust management 100% so I'd rather have some of the profits in my hand.

Companies with no dividends and no plans to ever pay a dividend rely 100% on Mr. Market to value a partial liquidation of their investment. Companies paying dividends are not reliant on a potentially irrational Mr. Market to value a partial liquidation for them as they can choose to just take the dividends if prices are low or to sell some shares in prices are high.
__________________
terminator is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 10:25 AM   #73
Recycles dryer sheets
 
Join Date: May 2006
Posts: 230
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
I suppose that looking at markets and seeing that the bulk of the historic returns were from dividends isnt a swaying factor?
Historically, the payout ratios were quite a bit higher. I've read that 50-75 years ago the majority of earnings were being paid out as dividends (I think the "average" payout ratio was 65% or so). So, back then the payout ratio defined/necessitated that the majority of the return was in the dividend by the nature of the way things were being done.
__________________
terminator is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 10:29 AM   #74
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Dividend Stocks in place of Bonds

Which leads us back to the crux (and thanks for the segue).

If holding back the dividends results in higher share prices, then we should be seeing a substantially higher curve on share prices now that dividend payouts are smaller.

Yet, excepting that nutty 1995-2000 period, returns for the market indexes dont appear to be changing in correlation to the overall reduction in dividend payouts. There has been a little pickup since the 70's, but its a far more muted change than you'd expect if you believed that a dollar not paid out in dividends equaled a dollar increase in stock price.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 10:38 AM   #75
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by terminator
Companies with no dividends and no plans to ever pay a dividend rely 100% on Mr. Market to value a partial liquidation of their investment. Companies paying dividends are not reliant on a potentially irrational Mr. Market to value a partial liquidation for them as they can choose to just take the dividends if prices are low or to sell some shares in prices are high.
I miss the days when a "normal" stock had a 4+% dividend. Now companies and the financial "sophisticates" seem to think that paying a dividend is just like throwing money away. The hot item now is share buybacks. This does have the effect of increasing earnings per share and should cause the stock price to rise. The capital gains are supposedly tax deferred until the sale. Unfortunately, the price appreciation is not as certain and the buyback itself has the possibility of double dealing. Another nasty element is that a lot of buyback announcements are made but never executed. No dividend. No buyback. Where did the extra cash go?

My outlook on retirement planning would be significantly different if I could "assume" a 4% portfolio cash dividend.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 10:58 AM   #76
Recycles dryer sheets
 
Join Date: May 2006
Posts: 230
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by 2B
The hot item now is share buybacks. This does have the effect of increasing earnings per share and should cause the stock price to rise. The capital gains are supposedly tax deferred until the sale.
I like a mix of dividends, buybacks and re-investment. There are a lot of good companies now doing all three.

Quote:
Unfortunately, the price appreciation is not as certain and the buyback itself has the possibility of double dealing. Another nasty element is that a lot of buyback announcements are made but never executed. No dividend. No buyback. Where did the extra cash go?
I think that part of the problem is that the cash is held as cash or buys an underperforming asset. If the company puts $5 of earnings in the bank and lets it sit there, there market practically ignores it. Anyway, I analyze a lot of individual stocks and it seems that the cash gets ignored a lot since it isn't generating revenue (per se). I'm surprised how often companies in the same industry with identical earnings are valued similarly even when one has little debt and a lot of cash and the other is a borrower with no cash reserves.

On a related note, I'm almost surprised there isn't a contrary fund that shorts the stocks of companies that announce buyback plans but never buyback shares. They do it for the kick of publicity, but usually it's an indicator of a cash poor company. I'm also always surprised at some of the lousy companies that borrow money to buyback shares. Not saying it can't ever be worthwhile, but when you have to add to debt to buyback shares it's probably a bad idea.

Quote:
My outlook on retirement planning would be significantly different if I could "assume" a 4% portfolio cash dividend.
I'm pretty conservative and diversified and I have a current stock dividend yield of about 2.5% and an income stream closer to 3% when you consider the cash/bonds. Not 4% but something close and it's pretty diversified and safe.
__________________
terminator is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 11:52 AM   #77
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
I thought it was plenty fair. Lots of companies when flush with cash find stupid things to spend it on. If its paid out in a dividend, theres no wad of cash to tempt silliness.
Hardly fair . . . and I also think you know better.

If the assumption is that most companies waste shareholder capital then it doesn't make much sense for anyone to invest in equities and is absolutely absurd to invest in an index. The whole point of owning equities is that companies reinvest in projects that produce suitable returns. Most do, some don't. But if you really assume most don't, then all dividend paying companies do is recycle your after tax dollars into a taxable cash flow stream while consuming your principal. Better off putting it in a bank with a higher yield and principal protection.

Besides, paying a dividend is no guarantee, or even a protection against, bad corporate investments. Most companies are not free cash flow positive, which means that they borrow to pay the dividend. Not sure how that enhances discipline.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 12:00 PM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by clifp
. . .on the other hand individual corporate bonds, suffer almost the same fate as stockholder if the company goes bankrupt. In fact bond holder often have even worse company risks.

Huh?? Average recovery for unsecured bonds in bankruptcy is about 60 cents on the dollar. Average recovery for equity is just about 0.

Average 10-year default rate for investment grade corporates is something in the low single digit percentages. Average percentage of individual corporate equities that decline by 40% or more over a 10-year period . . . substantially higher.

Quote:
Originally Posted by clifp
For example in a situation like we see with Sallie Mae, a good thing for stockholders like a takeover, is a bad thing for bond holders.
Sure, but absent a bankruptcy your Sallie Mae bond will deliver exactly what was promised if you hold to maturity.

Besides, I would no sooner invest in a handful of bonds then I would invest in a handful of equities.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 12:18 PM   #79
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
Which leads us back to the crux (and thanks for the segue).

If holding back the dividends results in higher share prices, then we should be seeing a substantially higher curve on share prices now that dividend payouts are smaller.

Yet, excepting that nutty 1995-2000 period, returns for the market indexes dont appear to be changing in correlation to the overall reduction in dividend payouts. There has been a little pickup since the 70's, but its a far more muted change than you'd expect if you believed that a dollar not paid out in dividends equaled a dollar increase in stock price.
That's simply not true. Seriously everyone. If people are going to make claims (like "real" inflation is 7%, or total returns were higher when companies paid out more of their earnings in dividends, for example) please at least check some facts to support your assertion.

From 1935 to 2006 the S&P has produced total return average annual returns of 10.9%, including reinvested dividends. Average dividend yield over that period was 4.1%

From 1980 to 2006 the S&P has produced total average annual returns of 13.1%, including reinvested dividends. Average dividend yield over that period was 2.79%.

Other 10-year periods chosen for their average dividend yield, but basically at random:

Avg. Total Return (incl div) Avg. Div Yield
1936-1945 8.2% 5.5%
1959-1968 9.8% 3.1%
1973-1982 6.5% 4.7%
1997-2006 8.3% 1.5%

Hell, one might conclude that higher dividend yields actually produce lower total returns (which actually makes sense if you believe companies generally earn greater than WACC returns on their investments).
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 03:50 PM   #80
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Dividend Stocks in place of Bonds

Quote:
Originally Posted by Cute Fuzzy Bunny
There has been a little pickup since the 70's, but its a far more muted change than you'd expect if you believed that a dollar not paid out in dividends equaled a dollar increase in stock price.
Shoot its not often I have to quote myself because people missed it the first time.

Oh wait a minute...most of the time people start typing their replies after reading 3 words of my posts. Nevermind...

There are a lot of factors contributing to the pickup since the early 70's. So far I havent heard anyone claim that the reduction in dividend payouts was one of them.

And yes, I do think that flush with cash, companies often do incredibly stupid things with it, which often has no shareholder value.
__________________

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bonds vs Dividend stocks wallygator69 FIRE and Money 1 01-27-2006 02:33 PM
Swedroe comments on buying individual stocks. Nords FIRE and Money 27 10-12-2005 10:20 PM
Question on Dividend Stocks or Funds modhatter FIRE and Money 43 10-03-2005 10:11 AM
Dividend Stocks? SteveR FIRE and Money 32 08-27-2005 11:17 AM
The Scoop on High Yield Bonds Ted FIRE and Money 9 12-04-2003 01:03 PM

 

 
All times are GMT -6. The time now is 04:50 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.