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Old 01-11-2008, 08:46 AM   #21
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Wellesley right now is just 36% in stocks. I don't know what the historic mix has been, but right now most of it's yield is coming out of bonds, not dividend paying stock.
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Old 01-11-2008, 08:50 AM   #22
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Wellesley right now is just 36% in stocks. I don't know what the historic mix has been, but right now most of it's yield is coming out of bonds, not dividend paying stock.
36% equities is right where Wellesley should be. From the Vanguard website:

"The fund [Wellesley] invests approximately 60% to 65% of its assets in investment-grade corporate, U.S. Treasury, and government agency bonds, as well as mortgage-backed securities. The remaining 35% to 40% of fund assets are invested in common stocks of companies that have a history of above-average dividends or expectations of increasing dividends."
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Old 01-11-2008, 08:53 AM   #23
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Wellesley right now is just 36% in stocks. I don't know what the historic mix has been, but right now most of it's yield is coming out of bonds, not dividend paying stock.
your point?
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Old 01-11-2008, 09:22 AM   #24
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There's a guy in Canada by the name of Derek Foster who retired at 34 relying on dividends to fund his early retirement. He's been retired four years now and has published two books on the matter.

Yes, there are some risks with this strategy but Mr. Foster advocates buying only quality, recession-proof companies that have a track record of increasing their dividends over time to keep up with inflation.

In Canada, you can receive a little over $4K per month from dividends and pay almost zero tax since we have a nice little thing called the Dividend Tax Credit.
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Old 01-11-2008, 09:29 AM   #25
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The dividend hawks that I have talked with say that if you are in retirement and can live off the dividend yield from your portfolio, then you can ride out market dips and ignore NAV. In the long run, your stocks will return inflation protection where your CDs will not.

Can you ride out dividend cuts? If not then you will start eating into principal and the approach might come apart at the seams. But CD yields could also drop and force you to eat your principal. So it seems that the strategy would work best if you have extra principal to ride out the down periods. So maybe it works if your SWR is 3% rather than 4%?

Of course this conclusion is not too profound. You will be OK with most strategies if you have more money than you need. But if the Fed ends up dropping its rate down to 2.5% to stimulate the economy, maybe the dividend approach will beat CDs. IOW you will gain an advantage from siding with the central bankers.
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Old 01-11-2008, 09:35 AM   #26
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I need a serious logic check on my thinking. Thanks.

I flirted with a portfolio of 90% "high dividend yielding stocks. It seemed reasonable but I heard a comment today by Suze Orman on Today. She told a caller roughly, "right now CDs, treasuries, etc are so low in yield that a good dividend stock is a better choice for income production. Because, no matter what happens to the stock price you still get the dividend."

OK, yes, she is not a Bogle. But that attitude seems prevalent.

But doesn't investing in a dividend payer have additional risks.
1. Risk to NAV
2. Risk to reduction of dividend payout.
3. ** And if the NAV decreases then the yield "seems" to be "hhigh" but it needs to be factored by the reduction in NAV

Example
$100 initial value in VWxx yiedling 4.0% should produce $4.00 per year
But if the NAV drops by 20% then the $80 current value produces only $3.20.

So the dividend sounds great when advertised as 4% but it could be "net" 3.2%.

Would appreciate any comments that clear me up on this seeming contradiction to buying dividend stocks.
Dividends tend to stay fixed. if a company promises a $4 per year dividend, they don't eliminate or cut it when the stock price drops. They continue to pay the $4 dividend.

Many posters here are retired and living off dividends only. Others here use a yield for a portion of their income in retirement. When using yield, NAV is less of a concern, assuming income remains constant.

The primary risk an investor has with dividends is the company lowering their payout. This does happen- companies like Dana and Xerox had high dividends in early 90's only to cut them when times went bad.

I am constructing my dividend portfolio now. Here is my strategy:

10 of holdings will be 25% of income. These 10 holdings will be large companies with a good history of payouts. PG, MO for example.

25% of income will come from utility and financial stocks. Plan is to hold close to 20 stocks in this position. These are smaller companies, so I want more holdings to reduce risk.

25% of income will come from small and mid cap stocks which pay a dividend. This portion has high risk associated with it. My plan is to hold 20-40 stocks in this position. All pay a dividend, but the yield will be lower than above. The hope is the NAV (principal) of this position grows enough where I can sell the stocks and reinvest it.

25% of income will come from REITs. The yield here is high. 10 holdings will be enough, I think.

The goal of this whole portfolio is to pay for most household expenses (bills) in retirement. Because things like electirc, gas and water go up in cost over time, it makes sense to map this portion of expenses to dividends, which also increase over time.
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Old 01-11-2008, 09:37 AM   #27
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I was getting the impression, probably incorrect, that you were saying that Wellesley was primarily dividend paying stocks.

Quote:
Wellesley has always taken a value tilt through its focus on higher dividend stocks
and you talk about it's
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high dividend strategy
without mentioning that they only do this with a minority of their holdings.

Without knowing too much about Wellesley, and thinking it may be very heavily invested in dividend paying stocks, I see that it is barely over 1/3 stocks, by design as REWahoo pointed out.

I'm wondering if there are funds with a strong majority of holdings in dividend stocks. I suppose value funds are the closest? And Wellesley at 35-40% may be up there?
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Old 01-11-2008, 09:40 AM   #28
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Originally Posted by Calgary_Girl View Post
There's a guy in Canada by the name of Derek Foster who retired at 34 relying on dividends to fund his early retirement. He's been retired four years now and has published two books on the matter.
Foster did not retire. He just switched from working 40 hours a week to hawking his books for a profit. Why would anyone who was retired work so hard at writing and promoting his books?

(ISTR the tax free income is more like $30k or $2.5k per month. Depends on what other deductions you can claim. How much principal must you have to have to get $30k per year in dividends? Reading books from gurus can be dangerous to your financial health.)
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Old 01-11-2008, 09:41 AM   #29
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I'm wondering if there are funds with a strong majority of holdings in dividend stocks. I suppose value funds are the closest? And Wellesley at 35-40% may be up there?
I own PRFDX (T Rowe Price Equity Income).

For more dividends, try Alpine Dynamic Dividend -ADVDX
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Old 01-11-2008, 10:00 AM   #30
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Foster did not retire. He just switched from working 40 hours a week to hawking his books for a profit. Why would anyone who was retired work so hard at writing and promoting his books?
)
More sex?

Ha
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Old 01-11-2008, 10:56 AM   #31
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I was getting the impression, probably incorrect, that you were saying that Wellesley was primarily dividend paying stocks.

and you talk about it's without mentioning that they only do this with a minority of their holdings.

Without knowing too much about Wellesley, and thinking it may be very heavily invested in dividend paying stocks, I see that it is barely over 1/3 stocks, by design as REWahoo pointed out.

I'm wondering if there are funds with a strong majority of holdings in dividend stocks. I suppose value funds are the closest? And Wellesley at 35-40% may be up there?
Sorry, I was just trying to make the point that there was nothing really special about high dividend stocks over just value stocks, and was using Wellesley as an example. Vanguard also has two funds focused on high(er) dividend stocks, Equity Income Fund (VEIPX) and High Dividend Yield Index fund (VHDYX). There are also numerous ETFs like SDY and DVY, though many of them seem to be more concentrated in certain sectors than others.

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Old 01-11-2008, 11:16 AM   #32
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I am not a big fan of bonds. I'll just keep plodding along with my MO, PG, BP, etc.
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Old 01-11-2008, 04:32 PM   #33
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...a dividend has a potential for two sources of volatility (stock price and dividend slashing).
Dividends really are not affected directly by the stock price. A crash in the stock price MAY lead to dividend slashing, but not always (depends how big the crash is I suppose).
A company does pay you 2% of it's stock price, it pays you a set dollar amount per share you own. The dividend yield you see is what that percentage is for that particular time.
So if I get $1 a share and own 1000 shares. I get $1000 regardless of the stock being priced at $45/share or $55/share.

This is why many people say it gives a more stable flow of income. The ups and downs really don't affect them unless they get to a very large level (e.g. financials right now are starting to adjust).
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Old 01-11-2008, 05:10 PM   #34
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This is why many people say it gives a more stable flow of income.
And it's not just that people say this; it is an historical fact.

Ha
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Old 01-11-2008, 05:20 PM   #35
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Dividends really are not affected directly by the stock price. A crash in the stock price MAY lead to dividend slashing, but not always (depends how big the crash is I suppose).
A company does pay you 2% of it's stock price, it pays you a set dollar amount per share you own. The dividend yield you see is what that percentage is for that particular time.
So if I get $1 a share and own 1000 shares. I get $1000 regardless of the stock being priced at $45/share or $55/share.

This is why many people say it gives a more stable flow of income. The ups and downs really don't affect them unless they get to a very large level (e.g. financials right now are starting to adjust).

if anyone thinks its all about dividend income ill be more than happy to pay anyone an 8% dividend , say for the next 5 years. only i keep the principal
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Old 01-11-2008, 05:22 PM   #36
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if anyone thinks its all about dividend income ill be more than happy to pay anyone an 8% dividend , say for the next 5 years. only i keep the principal
That would be silly.
I would rather have both the dividend and keep the principal
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Old 01-11-2008, 05:30 PM   #37
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exactly, but lots of people get so wrapped up in this dividend thing they forget its all about total return
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Old 01-11-2008, 05:36 PM   #38
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exactly, but lots of people get so wrapped up in this dividend thing they forget its all about total return
How do you know this? Because I think it is quite a bit easier to set up a secure and moderately growing dividend stream than to guarantee that you won't get caught in the reverse cost averaging of living off "total return" if the returns lag inflation for a good while.

The last big long mess was the early and mid seventies. Dividends climbed smartly all through that, yet stock index quotes were down 40% or worse depending on thet index, and stayed down for a good while.

Ha
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Old 01-11-2008, 05:39 PM   #39
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thats why i myself use a bucket system . probley never a chance of ever selling stocks in a down year
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Old 01-11-2008, 05:39 PM   #40
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How do you know this? Because I think it is quite a bit easier to set up a secure and moderately growing dividend stream than to guarantee that you won't get caught in the reverse cost averaging of living off "total return" if the returns lag inflation for a good while.

The last big long mess was the early and mid seventies. Dividends climbed smartly all through that, yet stock index quotes were down 40% or worse depending on thet index, and stayed down for a good while.

Ha


a nice holding of cd's in those years beat all
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