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Old 04-13-2012, 07:53 PM   #21
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I suspect the point of the OP was Asset Allocation. That is dividends as opposed to interest. You either have a pension or you don't but you can decide on AA.
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Old 04-13-2012, 08:03 PM   #22
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Originally Posted by nvestysly View Post
We are planning on a WR of ~3% based on the total of our portfolio today. I use the ~ symbol because on any given day the value of the portfolio changes but the dividends have been consistent and growing. We have been using dividend reinvestment for years in our tax deferred accounts. Starting next year we will turn off the dividend reinvestment and use that cash to live on.
+1

I'm also currently DRIPing nearly every equity stock/ETF/MF that I own (I let the preferred stocks in my tax-advantaged accounts spit out the divs in cash to accumulate), and I also plan on turning off the DRIPing/opening up the spigot full-blast once I FIRE (perhaps 10-12 years or so, age 45-47).

My current portfolio yields:
3.37% Taxable accounts (US/foreign stocks/REITs/MLPs)
6.3% Tax-deferred accounts (lots of preferred; some bond ETFs/REITs/BDCs)

Total net worth AA is about 85% equities/15% fixed income

If I were able to FIRE on just a 2.5% yield, I'd be comfortable with about a 1.5 year full living expense emergency fund for supplemental needs. Because I would only use it to supplement a yield drop (and not have to fully fund the entire 1.5 years), the e-fund would actually last much longer.

When I FIRE, I hope that my net yield from my portfolio will be enough to live off of w/o regularly liquidating anything - maybe 2.5% yield? It'll be an interesting challenge to see what it is at that time, and how I factor in the (higher) fixed-yield of the preferreds/CDs to the lower withdrawal rate. Perhaps I'll just FIRE at a 2.5% withdrawal/dividend yield but with a very small emergency cushion, and just build up the cushion with the excess yield thrown off?

But, given my conservative nature, I'll probably retire with the 1.5 year e-fund already funded, and just spend whatever yield is spit off each year.

5% of my net worth is in some I-bonds from 2000/2001 that have 19 years to go before maturity, so I may just roll those at maturity into some new savings bonds and let them be my 'e-fund' (depending on what the fixed income arena looks like at that time).
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Old 04-13-2012, 11:04 PM   #23
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Typically when a company cuts a dividend the stock price drops quickly, so you might not have as much principal to invest in a new company.

Dow Chemical cut it's dividend for the first time in 97 years in 2009 - by 64% ouch! The stock price dropped like a rock. There were people who had been heavily invested in Dow and living off the dividends that were in real trouble. Some had to sell the stock to generate income back then and the stock price was in the toliet.
Agreed.

That is why I would only put ~5% of my portfolio in each stock.

With a $1m portfolio, $25k in each company, theoretically generating about $40k/yr. If one of the companies cut the dividend to zero or disappeared overnight, you'd be out about $1k/yr (and $25k). I would have enough in my emergency fund or bucket to cover that or hopefully any extended downturn.

I think it would be about 5 companies in a year that cut their dividend to zero or stock price dropping to zero would start to be a concern, but I think the odds of that are pretty slim.

If PEP, KFT, HNZ, JNJ, MCD disappeared overnight then it would be time for the Doomsday Preppers!
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Old 04-14-2012, 01:14 AM   #24
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I am planning to live off dividends.

You may find some things of interest here: Income Investing, Retirement Investing and Dividend Stocks - Seeking Alpha

RDS is paying 5% these days, distributing only 1/3 of their earnings to do so. I do not like Shell for many reasons, but I may have to re-evaluate with a dividend that high.

DW will not let me invest in tobacco companies, but they pay out well and from what I can see of the 3rd world, consumption is not going to go away soon.

You can get dividends alone or you can get dividends with growth, too. Check out XOM: Income Investing, Retirement Investing and Dividend Stocks - Seeking Alpha You cannot buy a bond at 2.2% that shows that kind of growth record. I have been hoping to buy on a dip as I do not think their big play on domestic natural gas is going to be a big payer.

Advice: If buying individual stocks, buy on weakness.
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Old 04-14-2012, 02:03 AM   #25
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RDS is paying 5% these days, distributing only 1/3 of their earnings to do so. I do not like Shell for many reasons, but I may have to re-evaluate with a dividend that high.
Ed, since this is your special area of expertise, could you expand your critique of Royal Dutch?

Ha
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Old 04-14-2012, 11:10 AM   #26
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I searched the forum, but couldn't get the answers I am looking for. Does anybody get all their current and future needs met on dividend income alone? By that I mean producing an income flow that allows money left over at the end of the month to keep up with inflation pad out the emergency fund etc.
Yes. I spend less than my dividends.

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If I was to plan that for retirement what would be some good assumptions for average div rate for a basket like a high yield dividend ETF. Just turning 40 plan on working for at least another 6-10 years. Want to use that time to see if I can build a portfolio that can create that type of stream.
I have no idea. I have 30% Wellesley (VWIAX), but otherwise my portfolio is not oriented towards high dividends. My portfolio dividend rate for 2011 was 2.73%.

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For number crunches out there lets assume my current lifestyle requires $4500 a month before tax. What sort of emergency fund would you keep on hand in cash to ride out a period wher dividends dropped and anything else you can see as a pitfall of this strategy. Lets assume that over the next 10 years I can build such a portfolio.

I think knowing that I could never outlive my mest egg is a big plus for me and would have me pulling the trigger quickly.
Look forward to you input.
I have about 2-3 years' cash in Vanguard, and every month my dividends go into that Vanguard cash. Early in January I move the entire year's spending money from Vanguard to my local bank, for convenience, and make no more withdrawals from Vanguard throughout the year. This lessens any month-to-month concerns about yield. It also gives me a better handle on how I am doing with my spending, by simply looking at my bank account.

Like some others have expressed above, I do not lose sleep over the possibility of dividends dropping. In my case, I can afford to spend more than my dividends if necessary because I am already 63. I am just not inclined to do so. Right now I don't need to spend all of my dividends, and yes, it is very reassuring to know that in all probability one would never outlive one's nestegg.
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Old 04-14-2012, 11:25 AM   #27
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RDS is paying 5% these days, distributing only 1/3 of their earnings to do so. I do not like Shell for many reasons, but I may have to re-evaluate with a dividend that high.
I picked up some RDS in my IRA. They are a foreign company, but RDS recently started offering shareholders the option to receive dividends in shares instead of cash. This means that you avoid getting hit with a foreign tax withholding of their home country - which means you can hold it in a retirement account and not loose out on deducting that foreign tax...or, if you hold it in a taxable account, you should be able to receive the shares as payment-in-kind and not have to declare the stock dividend as income in the year you receive it.

My account's at TD Ameritrade. Some brokers may not be able to accept the shares in lieu of dividends in a tax-free deal, so you might want to check first.
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Old 04-14-2012, 06:01 PM   #28
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Our plan is also to fund retirement with dividends and supplement with SS and DH part time work (his choice). I do the bulk of our investing and bought stocks that have a history of increasing dividends every year. I too research investments using the Seeking Alpha site and particularly follow the contributor Dividends for Life. Currently, dividends and my part-time job are supporting us. We have a year before qualifying for SS. We have a cash reserve for emergencies. I keep track of our monthly expenditures and re-invest extra $.
I will retire in nine months, DH is finishing up a few jobs from his remodeling business.. January 2013 is our target full retirement date. I'm READY!
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Old 04-15-2012, 04:55 AM   #29
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Ed, since this is your special area of expertise, could you expand your critique of Royal Dutch?

Ha
Part of it is personal, Ha. I don't even buy their gasoline.

More technically, they were doing some things that I did not like but I would rather not get specific. One of them had the potential to give the company a black eye one day. Maybe they do things differently now. I was not impressed with the way they dealt with problems. But they make money anyway and there are worse oil companies.

Warren Buffett likes franchises that make money in spite of themselves. Maybe I should look at it that way.
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Old 04-15-2012, 05:54 AM   #30
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Both retired, with no SS nor pensions at this time.

No, we could not do it on dividends alone.

At our current total portfolio annual yield and annual inome requirements, we would need a bit over $6M invested - a bit less than we currently have, to make it work.

We are total return investors through funds, not just concentrating on high yield indivudial stocks or funds. All distributions are reinvested for additional shares. When any of our funds meet our criteria for "harvesting gains" (as in the first quarter of this/last year), we do so, as mainly capital appreciation investors.

We don't face "immediate risk" of either dividends or increase in current fund value, since we both have many years of cash (including tax due) in our respective personal portfolios. Yes, I know we face "inflation risk" in this manner, but then again, we don't face dividend risk nor have to worry about the next five plus years of what will happen in the equity/bond markets.

Just our way of doing things as current retirees, since you asked the question.
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Old 04-15-2012, 09:33 AM   #31
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"I'm also currently DRIPing nearly every equity stock/ETF/MF that I own (I let the preferred stocks in my tax-advantaged accounts spit out the divs in cash to accumulate), and I also plan on turning off the DRIPing/opening up the spigot full-blast once I FIRE (perhaps 10-12 years or so, age 45-47)."

I have been looking into purchasing preferred stocks but it seems more difficult to find good analysis on them. I also looked at the ETF, PFF. Do you purchase individual companies or ETF's for your preferred stock allocation?
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Old 04-15-2012, 10:01 AM   #32
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Retired for 10 years now. I currently harvest all dividend and CG distributions from my taxable accounts which represent about 45% of liquid assets. Once I start SS this year when I turn 62 this should be sufficient to cover our regular ongoing expenses.
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Old 04-15-2012, 07:51 PM   #33
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Yes. I spend less than my dividends.



I have no idea. I have 30% Wellesley (VWIAX), but otherwise my portfolio is not oriented towards high dividends. My portfolio dividend rate for 2011 was 2.73%.



I have about 2-3 years' cash in Vanguard, and every month my dividends go into that Vanguard cash. Early in January I move the entire year's spending money from Vanguard to my local bank, for convenience, and make no more withdrawals from Vanguard throughout the year. This lessens any month-to
-month concerns about yield. It also gives me a better handle on how I am doing with my spending, by simply looking at my bank account.

Like some others have expressed above, I do not lose sleep over the possibility of dividends dropping. In my case, I can afford to spend more than my dividends if necessary because I am already 63. I am just not inclined to do so. Right now I don't need to spend all of my dividends, and yes, it is very reassuring to know that in all probability one would never outlive one's nestegg.
I really like this idea. I would most likely follow something very similar. 3 years cash buffer in the stock constantly getting fed by the dividends as a top up mechanisum. I would set up a spending account of around 1 year at the bank as a living account. If we had a period of drop in dividends noting that I plan on only being in etfs that have many stocks in them. That should take care of any single stock causing too much trouble.

With 4 years of cash on my side I would have many years of reduced dividends for a buffer in theory 8years if divs dropped by 50%. Also if we ever get CD back in the 4,5,6,7% range it would be worth locking a portion into those at that time.

I think most people seem to have "just enough" to retire and need to have growth to carry them through retirement. With this method you would need a bigger nest egg, but I am thinking 46 based on my calcs still seems too young for me to start Early Retirement. 50 seems much better to me and thats only 10 years out.

Thanks for you input, it is giving me a very nice feeling and confidence in my plan.
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Old 04-15-2012, 08:18 PM   #34
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I have been looking into purchasing preferred stocks but it seems more difficult to find good analysis on them. I also looked at the ETF, PFF. Do you purchase individual companies or ETF's for your preferred stock allocation?
Because of the expense ratios of the preferred funds, I just simply hold my nose scan what appears to be a crap shoot relatively safer bet and take a position. Given my current portfolio holdings, I consider myself enough diversified to not need to pay the preferred fund that 0.75%+ expense ratio.

Sure, you could make the argument for that for my taxable accounts with some stock ETFs, but I guess I just value the diversification with individual equities more than with the preferreds.

A good number of the preferreds are companies that I either had an equity stake in, or looked at buying an equity stake but deemed the preferred relatively safer (like MFA - which I feel will face much higher funding costs and have to slash the dividend...but hopefully still stay solvent enough to pay the preferred dividend and have a higher stake in some equity value).

I didn't start looking at preferreds until maybe 6 years ago, when rates were still relatively low over the past 30 years. If, in 10-15 years time, rates are much higher and the preferred funds have a decent yield, I would re-evaluate them.
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Old 04-16-2012, 11:40 AM   #35
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Another nice web site on dividends:
Dividend Growth Investor: Dividend Stocks for Inflation Adjusted Income Stream

an article in point:
http://www.dividendgrowthinvestor.co...dividends.html

and
http://www.dividendgrowthinvestor.co...etirement.html

http://www.dividendgrowthinvestor.co...ment-plan.html
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Old 04-19-2012, 03:26 AM   #36
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Yes. I retired in 2006 at 48 and am living entirely off individual stock dividends accessed (mostly) via 72t withdrawals, which have increased a bit over 60% in 5.5 years. This has left me a good cushion if any cut their dividends. My cash balance is minimal, usually less than 1% of my portfolio. I currently average around a 3% yield, and usually own around 10 stocks. I stick to blue chip US based stocks, but many have substantial foreign presences.
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Old 04-22-2012, 10:44 PM   #37
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I picked up some RDS in my IRA. They are a foreign company, but RDS recently started offering shareholders the option to receive dividends in shares instead of cash. This means that you avoid getting hit with a foreign tax withholding of their home country - which means you can hold it in a retirement account and not loose out on deducting that foreign tax...or, if you hold it in a taxable account, you should be able to receive the shares as payment-in-kind and not have to declare the stock dividend as income in the year you receive it.

My account's at TD Ameritrade. Some brokers may not be able to accept the shares in lieu of dividends in a tax-free deal, so you might want to check first.
Just some additional information to clarify matters - Royal Dutch Shell is an Anglo Dutch company and have two classes of shares - RDS.A and RDS.B and both are offered as ADR's on the NYSE. RDS.B is issued by the English part and is not subject to withholding tax by England, as opposed to RDS.A which is issued by the Dutch part of the company and withholding tax does come into play.

So it is more profitable to buy the RDS.B, for me, at any rate in Canada. YMMV. Hope that clarifies matters. Scrip issuance & buybacks | Shell Worldwide

If you have deduced that I own RDS.B ADR's for >2years and have never paid withholding tax, you would be right.
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Old 04-22-2012, 11:02 PM   #38
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So it is more profitable to buy the RDS.B, for me, at any rate in Canada. YMMV. Hope that clarifies matters. Scrip issuance & buybacks | Shell Worldwide

If you have deduced that I own RDS.B ADR's for >2years and have never paid withholding tax, you would be right.
Is this a function of your being Canadian?
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Old 04-22-2012, 11:11 PM   #39
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So it is more profitable to buy the RDS.B, for me, at any rate in Canada. YMMV.
Same in the US. No withholding on RDS.B.
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Old 04-22-2012, 11:28 PM   #40
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Is this a function of your being Canadian?
Not as far I have searched, withholding tax is determined in my experience by the country in which company is domiciled, and not by the country in which the ADR's/ADS's are quoted (provided that there is a taxation agreement to avoid double taxation).

There are several similar dual class shares eg Unilever which is also quoted in both the Netherlands and the UK and similar advantages/disadvantages apply, depending on which one you buy.
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