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Old 01-11-2008, 05:43 PM   #41
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Zathhras, you hit the nail on the head. If the fixed amt per share looks good percentage-wise at say 5% then it will look like the best stock in the world if NAV drops by 50%, suddenly that is a 10% dividend yielder, a star. Something just seems "not koshher" about a stock that shines when it's NAV falls.

Dividends seems like an advertising ploy. Like a glow in the dark key chain sealing the deal on a $2mil home sale. Well, maybe not that bad.

And kcowan, I have dividend "hawks" flapping around me in the form of advisers and I am trying to resist the pressure by getting the details. But my gut feel is what you say, if I can't live with less income should they slash dividends, then the only solution that is avaiable it to have more principle than I need.

But it is plainer than clear water, if you consider a dividend payer to be a fool proof source of steady income. Get glasses. And it's really surprising to hear someone say buy something that has a history of paying large and increasing dividends. Hmmmmm, would those same people have had that level of confidence (circa 200) in the "past performance" of dot.com stocks.

jiMoh, that is an interesting strategy and I plan to give it a look myself and maybe back test it for 10 years. Thanks.
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Old 01-11-2008, 06:02 PM   #42
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Hmmmmm, would those same people have had that level of confidence (circa 200) in the "past performance" of dot.com stocks. .
This is possibly the strangest analogy that you could have picked. Certainly valid criticisms of a dividend strategy exist, but this is not one of them.
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Old 01-11-2008, 07:00 PM   #43
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Haha, it is common to read that a selection of a stock that yields dividends should be based on it historical record of paying a high dividend and better yet a record of growing that dividend amount.

Is that a fair assessment? If so, that is similar (in my mind) to saying look at the past performance,,,blah, blah, blahh.

Any clarification of your negative feeling on my comment is apreciated.
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Old 01-11-2008, 07:39 PM   #44
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Haha, it is common to read that a selection of a stock that yields dividends should be based on it historical record of paying a high dividend and better yet a record of growing that dividend amount.

Is that a fair assessment? If so, that is similar (in my mind) to saying look at the past performance,,,blah, blah, blahh.

Any clarification of your negative feeling on my comment is apreciated.
Well, assuming that you are serious... I could say a few things about the comparison of stocks with a long history of paying and increasing dividends and the dot.bomb stock mania. There are huge differences between these groups.

One difference is embedded in the sentence you used: “History”. There was no history of even earnings in most of the dot.com stocks, no free cash flow- mostly eyeballs and burn rate. Some are likely viable businesses, but the % of survivors in miniscule.

On the other hand, to regularly pay and annually increase dividends over 10, 20, even 50 years is an accomplishment that argues strongly for a quality franchise with good margins and a culture that propagates itself- else they would not be able to do this.

But history can’t be the endpoint of your research. More a starting point to get candidates for greater study.

In particular, you need to satisfy yourself that the past success is highly likely to continue.

In short, this is not a no-brainer strategy for people without the time, or skill, or inclination to do the work. Over 70 years ago Ben Graham classified investors as enterprising, or other. Dividend strategies are more suitable for enterprising investors, who nevertheless may be on the conservative side.

Ha
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Old 01-11-2008, 09:22 PM   #45
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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.
Interesting plan. If I read this correctly, you will be holding upwards of 70 stocks. You, in essence will be trading your j*b for full time portfolio management. That's ok if that is your hobby/passion. But it can get rather tedious if it is not something that you want to spend all of your waking hours doing. Just an observation.
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Old 01-11-2008, 09:27 PM   #46
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More sex?

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? how does that get you more sex? uh ... just asking, ... as I'm always looking for ways to mmmm maximize my uh ... activity
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Old 01-11-2008, 09:49 PM   #47
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Interesting plan. If I read this correctly, you will be holding upwards of 70 stocks. You, in essence will be trading your j*b for full time portfolio management. That's ok if that is your hobby/passion. But it can get rather tedious if it is not something that you want to spend all of your waking hours doing. Just an observation.
That does seem like a lot of work. WORK? Did I say WORK? Time to go bite down on a bar of soap.

I like dividends too. I just do it using DVY, PID, a reit fund, and about a 1/2 dozen stocks. Easier to manage.
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Old 01-11-2008, 10:21 PM   #48
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it is common to read that a selection of a stock that yields dividends should be based on it historical record of paying a high dividend and better yet a record of growing that dividend amount.
Not in my experience. I have rarely read anything stating the above unless it also mentioned other things to base your decision on. As Ha indicated, it is a good STARTING point, but certainly not the end of needed research.

Typically dividend paying stocks that have a long history of increasing the dividend year over year are well run companies. As Ha said, they couldn't afford to if they weren't.
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If the fixed amt per share looks good percentage-wise at say 5% then it will look like the best stock in the world if NAV drops by 50%, suddenly that is a 10% dividend yielder, a star.
Only to someone that knows nothing about investing in stocks. This would be like saying a company is a star because it made a lot of money on Tuesday. You need to look into many other aspects of the business, not base it solely on dividend rate. Just as you wouldn't base an investment decision solely on P/E ratio.
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Old 01-11-2008, 10:23 PM   #49
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Ha Ha is exactly right "History" is what seperates internet stocks (and frankly many growth stocks) from most dividend stocks.

Take a bank I recently purchased BB&T founded in 1872. It has been paying dividends since 1904 and for the last 36 years has increased dividends each year. It cut dividends once in 1933 by a penny, now that is history.

This dependablity has a downside, there is for instance no way that BB&T after 135 years is going to be the next Google. Finding a 10-20 bagger in 10 year period is great way to accelerate your ER and investing in boring dividend stock pretty much elminates that potential.

There are also clearly some risk, the subprime meltdown maybe the extinction meteor who's impact result in a massive wave of bankruptcy of banks and financial companies.
In such environment the chances of a dividend boost aren't great, a dividend cut seems possible, and a dividend suspension concievable but unlikely. I guess I have to believe future career prospects for CEO who stops paying dividends for the first time in more than century looks really grim. (Unless it is a turn around specialist). My best guess is BB&T will muddle through this crisis like it did the panic of 1873, the great depression, the S&L crisises in the 70s and bunch of other lesser headline events.

Perhaps it will grow stronger, I hope so, but even if just keeps paying its dividend I'll be content.
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Old 01-11-2008, 10:39 PM   #50
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I suspect that he's counting on the diversification to cover for a lack of active management. He could use a policy of only looking at a stock if it actually cut its dividend and the portfolio would probably work fine, as long as he chose decently initially.

Really, at 70 names, you could think of it as its own high-yield index. He would typically have to make a few adjustments a year. A dividend cut, or an aquisition could be the only criteria he'd need to use.


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Interesting plan. If I read this correctly, you will be holding upwards of 70 stocks. You, in essence will be trading your j*b for full time portfolio management. That's ok if that is your hobby/passion. But it can get rather tedious if it is not something that you want to spend all of your waking hours doing. Just an observation.
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Old 01-12-2008, 01:36 AM   #51
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I suspect that he's counting on the diversification to cover for a lack of active management. He could use a policy of only looking at a stock if it actually cut its dividend and the portfolio would probably work fine, as long as he chose decently initially.

Really, at 70 names, you could think of it as its own high-yield index. He would typically have to make a few adjustments a year. A dividend cut, or an aquisition could be the only criteria he'd need to use.
I'm FIREd and don't want to piss away my time have the time to do this. I woulda stayed w*rking (NAH, now I'm lying to you) if I wanted to w*rk this hard. I gave up a cushy 6 figure job to do this FIRE stuff (and btw still wouldn't trade it for anything)
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Old 01-12-2008, 06:58 AM   #52
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the only thing i have to say about the dividend paying stock thing is you need to select the best possible companies with a long history of dividend increases. not from a drop in share price. other wise all you get for your money is a piece of your share value back and a cut in the stock price by the same amount. we all assume the giving away of company assets will be a non event to the share price and that the stock will recover from the drop it takes very quckly, it may or not be true , its an assumption.

companies only increase their dividends for one reason, because they have the money . a high dividend by itself means nothing.
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Old 01-12-2008, 07:43 AM   #53
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Interesting plan. If I read this correctly, you will be holding upwards of 70 stocks. You, in essence will be trading your j*b for full time portfolio management. That's ok if that is your hobby/passion. But it can get rather tedious if it is not something that you want to spend all of your waking hours doing. Just an observation.
Not really. The goal is dividend income- if the income is coming in, not much to worry about. I have experimented with screens for the mid cap/small cap situation. At end of year, usually around 7-10 of the stocks I picked were bought out (use a screen with increasing profits, HIGH insider ownership and a few other balance sheet or market items). Meaning I don't need to maintain the small cap/mid cap piece over time- it needs to last one year. The next year I might replace 2/3 of the small cap position because of the activity the previous year.

In addition that same screen, for last 3 years, has found around 30 stocks. Around 10 get bought out, and around 5 start increasing their dividend considerably. This piece is quite volatile on NAV, but the dividend stream will rise faster than the rest of the portfolio over time. That is the ultimate goal.

Because I would be FIREd, maintaining this would not be a time issue. Looking at it 2X per month for 2 hours each time is enough, IMO. I spend that much time surfing the web in one day most of the time. Just need to channel my energies to other places I guess.
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Old 01-12-2008, 07:46 AM   #54
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I suspect that he's counting on the diversification to cover for a lack of active management. He could use a policy of only looking at a stock if it actually cut its dividend and the portfolio would probably work fine, as long as he chose decently initially.

Really, at 70 names, you could think of it as its own high-yield index. He would typically have to make a few adjustments a year. A dividend cut, or an aquisition could be the only criteria he'd need to use.
The large cap piece (25%) would not change much. Those changes are easy to see because those companies are in the news.

The utilities piece (25%) would not change much either. Those companies are steady, and it a utility company goes out of business, someone does not have electricity.

The small cap piece I already explained, Turnover will be close to 67% from what my screens tell me (I run a screen like this each year to see how I do). This is 25%

The REITs are he next research step. I think it will be more like the mid cap piece, where turnover is high.

I don't plan to create this piece until the mortgage is paid off, so I have 20 years to figure it out. Maybe 25.
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Old 01-12-2008, 08:04 AM   #55
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Anyone have any data on international dividend paying stocks ?

Heard a clip on radio where guest said big cap international companies generally pay a higher dividend and historically these international dividends are "more durable and dependable" (I wouldn't guess this on the surface).

Haven't had a chance to research. Isn't there an international dividend ETF ?

In general, dividends are on the "risk/return line" like other asset classes - there's more return than treasuries and other fixed income - and that comes with some greater risk.
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Old 01-12-2008, 09:20 AM   #56
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i use powershares PID in my index mix
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Old 01-12-2008, 09:41 AM   #57
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Perphaps this has already been said in this long thread, but I am surprised Suzy didn't mentioned preferred stocks. If you buy A+ you can get 6-7% return. Yes the principle will fluctuate so you have to buy these for holding and generating income, but they are still a lower risk than purchasing higher dividend base stocks. Advantage of the base stocks is on the growth potential,which preferred don't have to any great degree, but risk is higher.

Just a matter of income vs wanting the growth side, but if you are replacing CD's with these it seems an another alternative.
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Old 01-12-2008, 09:44 AM   #58
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i owned fidelity convertable securities and while a great fund in an up market it got just as hammered in a down as any other equity fund. im a big believer now dont mix equities and bonds. keep them seperate and keep them dedicated to what they are
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Old 01-13-2008, 09:03 AM   #59
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Are any posters using the dividend yield for income concerned about this possibility?

Investors May See Dividends Disappear: Financial News - Yahoo! Finance

It seems to me that with the huge losses by financial institutions (major source of dividends), it might lead them to either slash, suspend or slow growth of dividends. For instance B of A needs 4 billion for it's acquisition, will it be collected by lowering dividends?

BB&T lost nearly 40% of it's stock price this years and that seems to be a real show stopper for me. Earning 4% dividend yield on a declining asset.
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Old 01-13-2008, 10:32 AM   #60
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Are any posters using the dividend yield for income concerned about this possibility?

Investors May See Dividends Disappear: Financial News - Yahoo! Finance
Certainly. The trouble brewing there has been evident for quite a while. I
redlined WM from my list of tracked stocks early last year, and redlined
BAC and C around mid-year as the trouble spread. Part of investing in
these stocks for income is following them - otherwise you should use a fund.
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