Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
DIvidends
Old 10-19-2006, 11:11 AM   #1
Dryer sheet aficionado
 
Join Date: Jun 2006
Posts: 32
DIvidends

Hello

I have been reading these boards for some time now and am perplexed by the relatively few times dividends are mentioned.

I happen to live in the UK and here it is quite possible to find decent mutual funds and investment trusts, and even an ETF which have a dividend yield of 4%. In the UK you receive dividends free of any extra tax unless you earn over about $80,000. So a million dollar dividend fund would deliver $40,000 - with no extra tax to pay.

My question is why is there so much talk of 'selling' investments. Why not just live off the dividend income. I have done a preliminary analysis of the last 70 years in the UK and, over a 30 year period, total (but not, obviously, every year) dividend increases have always matched inflation and often exceeded it. There has never been a need to sell capital, as far as i can see.

Am i missing something? Or do you guys just not have so many high yielding shares
__________________

__________________
ashtondav 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: DIvidends
Old 10-19-2006, 11:18 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Re: DIvidends

Quote:
Originally Posted by ashtondav
Hello

I have been reading these boards for some time now and am perplexed by the relatively few times dividends are mentioned.

I happen to live in the UK and here it is quite possible to find decent mutual funds and investment trusts, and even an ETF which have a dividend yield of 4%. In the UK you receive dividends free of any extra tax unless you earn over about $80,000. So a million dollar dividend fund would deliver $40,000 - with no extra tax to pay.

My question is why is there so much talk of 'selling' investments. Why not just live off the dividend income. I have done a preliminary analysis of the last 70 years in the UK and, over a 30 year period, total (but not, obviously, every year) dividend increases have always matched inflation and often exceeded it. There has never been a need to sell capital, as far as i can see.

Am i missing something? Or do you guys just not have so many high yielding shares
Tax structure is different than UK here............

I have no problems finding yield..........but am more interested in growth at this time...........

Moderator edit: quote fix
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 11:23 AM   #3
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: DIvidends

Quote:
Originally Posted by ashtondav
Am i missing something? Or do you guys just not have so many high yielding shares
Other than the facts that dividend yields tend to be lower here and to not always rise with the rate of inflation, your strategy should work fine!

I'd be terrified to dig into principal, though...
__________________
*
*

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: DIvidends
Old 10-19-2006, 11:24 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,666
Re: DIvidends

I myself like and use dividend investing.

Personally I like using large cap stable companies that have a good record of dividend growth. While there are quite a few, those stocks alone aren't very well diversified. So I don't want to put all my eggs in that basket.

Generally you can get better returns in other areas of the market. While the returns generally aren't there in many dividend stocks, it is a nice steady stream of income.
It is all a matter of your personal preferences and tax situation.
__________________
"We do not inherit the earth from our ancestors, we borrow it from our children.
(Ancient Indian Proverb)"
Zathras is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 11:41 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 1,375
Re: DIvidends

When I pick a fund for an asset class, one of the factors I consider is dividends. And I sure love my REITs, which pay some of the best dividend (equivalents) in the US.

ashtondav, wanna share the names of your high-dividend funds/etfs with us? I'm still working on increasing the dividend/value tilt in my foreign funds.
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
astromeria is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 01:42 PM   #6
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: DIvidends

In a taxable account, I would also look to harvest dividends and hang on to shares..makes sense..right now I reinvest dividends with the idea of taking more as income as I get to FIRE.
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 03:42 PM   #7
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Re: DIvidends

I agree that dividends, and their growth, are an essential part of the FIRE equation. Living "well" seems to require an income stream that increases faster than inflation as meausured by the CPI. Real estate taxes, health care, country club dues, etc. all have been increasing faster than the CPI.

In addition, in taxable accounts, qualified dividends are treated the same way as long-term capital gains. This has encouraged companies to pay out more of their earnings in dividends. Since the 2003 tax cuts, the S&P 500 dividend has grown at better than 8% per year (better than 5% after inflation).

From 1960-2005, the S&P 500 dividend has grown nearly 1.3% over the rate of inflation. Only in the 70's did dividend growth not keep pace with inflation. Here is a table of the growth (after inflation) of the S&P 500 dividend.

Real Dividend Growth
1960 - 1970 1.9%
1970 - 1980 -1.0%
1980 - 1990 2.4%
1990 - 2000 0.3%
2000 - 2005 2.3%

The current yield on the S&P 500 is about 1.8%, so you would need about 56 times your annual expenses to employ this strategy just using an S&P 500 index fund, as opposed to 25 times with a 4% SWR. However, the larger the fraction of the SWR that comes from growing dividends, the more secure one should be.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 04:33 PM   #8
Recycles dryer sheets
 
Join Date: Oct 2005
Posts: 166
Re: DIvidends

Am I missing something here? As far as I am aware dividends are taxed in the UK. You state "no extra tax to pay", do you agree that the tax on dividends is 10% for lower rate tax payers? I believe this rises to 32.5% for higher rate payers (albeit lower than the ordinary income rate for these poor souls).

As for the dearth of dividend folk here - I'll let UncleMick and his two close friends respond.
__________________
nil illegitimus carborundum
F M All is offline   Reply With Quote
Re: DIvidends
Old 10-19-2006, 09:58 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,946
Re: DIvidends

I'll agree with the general premise that dividend yield is widely overlooked here and in general.....I could never understand either especially after recent tax changes that favor dividend income over ordinary income for higher brackets....it's 15% I think.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Re: DIvidends
Old 10-20-2006, 12:01 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,014
Re: DIvidends

Currently in Canada, income is taxed higher than dividends, which in turn are taxed higher than capital gains. The exact proportion depends on your province and marginal tax rates. Dividend income should definitely be part of the withdrawal mix.
__________________
Meadbh is offline   Reply With Quote
Re: DIvidends
Old 10-20-2006, 06:03 AM   #11
Dryer sheet aficionado
 
Join Date: Jun 2006
Posts: 32
Re: DIvidends

Hi
Quote:
I have no problems finding yield..........but am more interested in growth at this time...........
In the UK, from 1986 to 2006 (the period in which we have had a high yield index) high yield outperformed growth. Their lower growth in some years was massively outweighed by their much smaller losses in 2000, 2001 and 2002. Maybe it's different in the USA but over here value tends to outperform growth over the long term. The majority of our long term total return comes through the re-investment of dividends. For those of you who interested in poring over market facts here's a link to a UK analysis http://www.hedgeweek.com/download/20...udy%202006.pdf

Quote:
do you agree that the tax on dividends is 10% for lower rate tax payers? I believe this rises to 32.5% for higher rate payers (albeit lower than the ordinary income rate for these poor souls).
Yes, that's right. But the yield quoted by the index, individual shares and mutual funds is after that 10% tax, because it's deducted before payment. So, after tax (for someone earning less than about $80,000) the yield on our main FTSE 100 index (the 100 largest companies in the UK) is 3.2% right now with a PE of about 12.5. If you trawl our largest 350 companies and simply take the 50% with the largest yields the overall (after tax) yield is 3.9%. On the other hand interest from banks and savings accounts is taxed at 20% for a low rate payer. Highest rates are about 5% so you net 4% - about the same as from a portfolio which can grow over time!!!

We would have real problems with your SWRs because, over the last 100 years, our market growth has lagged yours by about 2% per year. In addition our mutual funds are really expensive compared to yours. An active fund will charge about 2% a year and we even have trackers that charge 1% a year. We have about 2 funds that charge 0.2% a year and even our ETFs charge 0.4% a year.

Quote:
ashtondav, wanna share the names of your high-dividend funds/etfs with us? I'm still working on increasing the dividend/value tilt in my foreign funds.
We have an ETF which tracks the largest dividend yielders of our largest companies. This has a forecast yield of about 4.5% (again for a UK basic rate taxpayer that's after tax of 10%). It's ticker is IUKD i think

We have several investment trusts currently yielding nearly 4% that have never cut their dividend in the last 25 years. Take a look at trustnet.

For more discussion on High Yielding share strategies you could sign up and look at the discussion boards of the UK Motley Fool site (It's all free over here ). In particular http://boards.fool.co.uk/Messages.asp?bid=51166 and you can link to a podcast here http://www.fool.co.uk/specials/2006/...?ref=foolwatch.

Unfortunately we have nowhere near as much discussion of early retirement in the UK. We probably earn too little, are taxed too much, have higher priced goods and have lower market returns . We don't have to worry quite so much about medical insurance, though . You probably get better treatment!


__________________
ashtondav is offline   Reply With Quote
Re: DIvidends
Old 10-20-2006, 08:55 AM   #12
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: DIvidends

Quote:
Originally Posted by jazz4cash
I'll agree with the general premise that dividend yield is widely overlooked here and in general.....I could never understand either especially after recent tax changes that favor dividend income over ordinary income for higher brackets....it's 15% I think.
I also think this board doesnt talk enough about the tastiness of beaver_cheese, but I dont think I would start a new thread on it questioning why we dont talk about it more...
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 06:50 AM   #13
Confused about dryer sheets
 
Join Date: Oct 2006
Posts: 2
Re: DIvidends

Quote:
Originally Posted by Zathras
I myself like and use dividend investing.

Personally I like using large cap stable companies that have a good record of dividend growth. While there are quite a few, those stocks alone aren't very well diversified. So I don't want to put all my eggs in that basket.
25 consecutive years of dividend growth



Reasonable diversification across industries that are likely to have sustainable earnings growth.
__________________
JackD is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 07:06 AM   #14
Confused about dryer sheets
 
Join Date: Oct 2006
Posts: 2
Re: DIvidends

Quote:
Originally Posted by FIRE'd@51
The current yield on the S&P 500 is about 1.8%, so you would need about 56 times your annual expenses to employ this strategy just using an S&P 500 index fund, as opposed to 25 times with a 4% SWR. However, the larger the fraction of the SWR that comes from growing dividends, the more secure one should be.
If you use one of the dividend ETF's that focuses on dividend growth, you start out with a higher yield and get greater dividend growth than the S&P.
__________________
JackD is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 08:38 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
Re: DIvidends

Quote:
Originally Posted by ashtondav
[...]
We have an ETF which tracks the largest dividend yielders of our largest companies. This has a forecast yield of about 4.5% (again for a UK basic rate taxpayer that's after tax of 10%). It's ticker is IUKD i think

[...]
I think there is plenty of talk about dividends around here. Stocks, mutual funds and ETFs supply plenty of dividends. We read here all the time about DVY (3.3% yield), PID (2.9%), and lots of Wisdom Tree ETFs with "dividend" in the name. DEB is a total European dividend fund. Those yields are not quite in your 4% range, but I'm sure searching a little bit could find you something.

Then there is BDJ which is an enhanced dividend achiever fund with yield of about 8%.
__________________
LOL! is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 08:43 AM   #16
Recycles dryer sheets
 
Join Date: Nov 2005
Posts: 152
Re: DIvidends

I personally only invest in dividend paying companies. I have always done individual stocks and some etfs with raising dividends. Really dont have to worry about it because everyyear my dividends go up 5-10% without any extra investment.
__________________
trixs is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 10:24 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 1,375
Re: DIvidends

Although I hold plenty of dividend-paying stocks (through funds), I am watching closely as there are lots of financial institutions in the mix. I wouldn't be buying bank stocks right now--in fact I sold BAC (Bank of America) from my husband's Roth last week. I shed a tear--beacause of BAC, my husband's Roth had pulled ahead of mine, and I like to treat him nice I orignally wanted to add VGSIX (REIT fund) to his Roth, but I'm rethinking that now. I would choose PID, but the rest of his Roth is already in EFV (foreign large-cap value). <Our Roths are small and only have 2 investments each.> Eh...maybe I'll give him some DODBX.
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
astromeria is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 10:39 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
Re: DIvidends

Quote:
Originally Posted by trixs
I personally only invest in dividend paying companies. I have always done individual stocks and some etfs with raising dividends. Really dont have to worry about it because everyyear my dividends go up 5-10% without any extra investment.
better hope the stock price climbs back up too.

dividends dont mean a thing if the stock price dosnt go up.

those high dividend paying dogs of the dow are still dogs from when i bought them 2 years ago. luckly i sold them before they dipped and that was last venture into individual stocks. only funds now


__________________
mathjak107 is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 02:14 PM   #19
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,666
Re: DIvidends

I am sorry you had poor luck with the individual stock picking Math.
If you are going for a hold an grow portfolio of stocks, you can find plenty that grow as well as paying dividends.
My best is up 25% this year, worst is down %7. As these are holds though, the yearly bumps don't matter as long as the long term is there. Unless there is a major restructuring you will rarely see dividends cut. It does happen, but not often.
Just because some don't perform well, don't assume none perform well.
__________________
"We do not inherit the earth from our ancestors, we borrow it from our children.
(Ancient Indian Proverb)"
Zathras is offline   Reply With Quote
Re: DIvidends
Old 10-21-2006, 04:58 PM   #20
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Re: DIvidends

Quote:
Originally Posted by mathjak107
dividends dont mean a thing if the stock price dosnt go up.
If the dividends continue to grow, eventually the stock price has to go up. Meanwhile it is a good place to have your money parked and really helps your SWR.

Quote:
Originally Posted by mathjak107
those high dividend paying dogs of the dow are still dogs from when i bought them 2 years ago. luckly i sold them before they dipped and that was last venture into individual stocks. only funds now
That's because a lot of those stocks don't have growing dividends. The ones that do have done pretty well.
__________________

__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 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
Q re Dividends Bram FIRE and Money 45 12-28-2006 02:32 PM
It's all about the dividends mickeyd FIRE and Money 11 12-26-2006 08:49 PM
spending portfolio - selling versus dividends JohnEyles FIRE and Money 12 10-10-2006 10:33 AM
Dividends as income free4now FIRE and Money 18 03-22-2006 08:47 AM
Dividends, Taxes and SWR Sir_Lurksalot FIRE and Money 49 10-07-2004 04:03 AM

 

 
All times are GMT -6. The time now is 12:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.