Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
It's all about the dividends
Old 12-25-2006, 04:19 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,880
It's all about the dividends


Quote:
In a similar finding, only 39 percent of investors answered that tax-deferred variable annuities are most appropriate outside a qualified retirement plan.

To be sure, annuity sellers contend that the insurance features of variable annuities, including the option to receive guaranteed lifetime income, make them appropriate for qualified plans and justify the additional insurance costs. Every year since 1999, industry figures show most sales of variable annuities have been as part of qualified plans.
The last sentance in the above quote makes me ill.


Quote:
Among this above-average group in terms of assets, a mere 3 percent knew that 64 percent of the historical return of stocks, as measured by the Standard & Poor's Index, has come from reinvested dividends. (Most thought the portion of returns attributed to dividends would be 33 percent or less). Only 15 percent knew that, over the past 10 years, dividend-paying stocks have outperformed nondividend payers in the index (they have, by more than 8 percent).
Who needs more proof that value investing is the key to a long term success formula?

http://www.sun-sentinel.com/business...1274280.column
__________________

__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd 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: It's all about the dividends
Old 12-25-2006, 08:04 PM   #2
Recycles dryer sheets
Bram's Avatar
 
Join Date: Dec 2006
Posts: 214
Re: It's all about the dividends

Quote:
The last sentance in the above quote makes me ill.
The old saying, "Misery loves company" fits right me about now. At least I know I'm not the only ding-dong who has purchased an annuity inside a qualified plan!

I am sooo glad to have found this forum,,,, only wish it had been sooner!
__________________

__________________
.
.

Every step of the journey is the journey.
Bram is offline   Reply With Quote
Re: It's all about the dividends
Old 12-25-2006, 08:21 PM   #3
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: It's all about the dividends

Quote:
Originally Posted by Bram
The old saying, "Misery loves company" fits right me about now. At least I know I'm not the only ding-dong who has purchased an annuity inside a qualified plan!
Don't assume you are completely stuck with that decision. I once paid over $5k to roll over a 120K annuity (penalty for early out). Did the math, and the expense ratios of the annuity offerings alone, compared to much cheaper replacement IRA investments at Vanguard, made for a break-even on that decision of about 5 years even if performance were the same.

Factor in the better performance of the Vgd funds (other than that due to expense ratio) and I bet it was a 4 year break-even.

So check it out and even if you have to leave some money on the table, you may well be better off biting the bullet and switching. Just consider it a cheap lesson learned.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: It's all about the dividends
Old 12-25-2006, 08:22 PM   #4
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: It's all about the dividends

not arguing the importance of dividends, but thought Better Investing had quoted something in the range of 40% from dividends in recent years (something like 20-30 year period)...I suppose you can get the 60%+ by looking at some down years and sure makes for a better column by this dude....to make it seem like everyone is so out of touch....
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: It's all about the dividends
Old 12-25-2006, 08:28 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,609
Re: It's all about the dividends

Quote:
Originally Posted by Bram
The old saying, "Misery loves company" fits right me about now. At least I know I'm not the only ding-dong who has purchased an annuity inside a qualified plan!
See also: http://money.cnn.com/magazines/money...01/01/8397404/

BTW, many 401(k) and 403(b) are wrapped in annuities. It is one way for small businesses to offer these plans without the employer paying the expenses to run them. It's the employees who pay and pay and pay.
__________________
LOL! is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 07:32 AM   #6
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 67
Re: It's all about the dividends

"From 1871 through 2003, 97 percent of the total after-inflation accumulation from stocks comes from reinvesting dividends. Only 3 percent comes from capital gains."

Page 126 of "The Future For Investors", by Jeremy Siegel.
__________________
ForeignExchange is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 08:04 AM   #7
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: It's all about the dividends

Quote:
Originally Posted by ForeignExchange
"From 1871 through 2003, 97 percent of the total after-inflation accumulation from stocks comes from reinvesting dividends. Only 3 percent comes from capital gains."

Page 126 of "The Future For Investors", by Jeremy Siegel.
boy, why not just turn it around and say that the dividend is burned up by inflation, and what is left is the cap. gain....
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 08:11 AM   #8
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: It's all about the dividends

Quote:
Originally Posted by Maddy the Turbo Beagle
boy, why not just turn it around and say that the dividend is burned up by inflation, and what is left is the cap. gain....
Yeah, that 97% number is bogus for the reasons you mention.

But it even the 50-65% figure for the dividend contribution to total returns is pretty impressive. It's internal DCA'ing, I guess.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 08:36 AM   #9
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 67
Re: It's all about the dividends

Quote:
Originally Posted by Rich_in_Tampa
Yeah, that 97% number is bogus for the reasons you mention.

But it even the 50-65% figure for the dividend contribution to total returns is pretty impressive. It's internal DCA'ing, I guess.
I don't think so. Professor Elroy Dimson found much the same thing, both in the U.S. and the U.K.

"For the full period studied (1926 through 2003) in all income producing asset classes, the income component represented substantially all of the returns."

Examining The Income Component Of Total Returns

As for the effect of inflation, from 1900 to 2005, Dimson, Marsh and Staunton from the London Business School found a real dividend growth rate of 1.32% in the U.S.

The Worldwide Equity Premium: A Small Puzzle.




__________________
ForeignExchange is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 08:49 AM   #10
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: It's all about the dividends

Quote:
Originally Posted by ForeignExchange
I don't think so. Professor Elroy Dimson found much the same thing, both in the U.S. and the U.K.
If 97% of return is dividend-generated, that implies that capital gains/appreciation approaches zero, no?

Thus, it appears they are applying the full impact of inflation to the appreciation side of the equation only, leaving dividends unaffected. After all, there are many stocks that pay little or no dividends, as I understand it.

Or, equally likely, I am totally misunderstanding the concepts here. Can you explain further?
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 09:47 AM   #11
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 67
Re: It's all about the dividends

Quote:
Originally Posted by Rich_in_Tampa
If 97% of return is dividend-generated, that implies that capital gains/appreciation approaches zero, no?
For change in valuation, I only have the Robert Arnott figure of 0.6% from 1802 to 2000.

Dividends and the Three Dwarfs

Quote:
Originally Posted by Rich_in_Tampa

Thus, it appears they are applying the full impact of inflation to the appreciation side of the equation only, leaving dividends unaffected. After all, there are many stocks that pay little or no dividends, as I understand it.

Or, equally likely, I am totally misunderstanding the concepts here. Can you explain further?
My interpretation of the results from the dividend studies is that over the long term most of the appreciation of equities comes from the reinvestment of dividends. In Robert Arnott's study, where he talks about the "real growth in dividends of 0.8%, he says "That dollar figure is way less than most people would have expected." I have to admit it surprised me.

The problem is, the yields are so low now, that the dividends are only supplying a third of the returns they once did.

As for stocks that pay little or no dividends, the older I get, the less interested I am in them. I leave these for others to invest in.

__________________
ForeignExchange is offline   Reply With Quote
Re: It's all about the dividends
Old 12-26-2006, 08:49 PM   #12
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: It's all about the dividends

Quote:
Originally Posted by Rich_in_Tampa
If 97% of return is dividend-generated, that implies that capital gains/appreciation approaches zero, no?
Thus, it appears they are applying the full impact of inflation to the appreciation side of the equation only, leaving dividends unaffected. After all, there are many stocks that pay little or no dividends, as I understand it.
Or, equally likely, I am totally misunderstanding the concepts here. Can you explain further?
Dimson et al pulled in a lot of numbers for their research. It took an entire team of data crunchers and they didn't just whip something out before deadline.

The disconnect is that dividends used to be a lot higher at the beginning period of their study, and they've steadily declined in the last half of the 20th century.

I'm pretty sure that D&M didn't pay taxes on their dividends, and I don't know whether they reinvested them or not. Those effects can accumulate significantly over a few decades, let alone a century.
__________________

__________________
*
*

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
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
DIvidends ashtondav FIRE and Money 36 10-22-2006 11:29 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 01:13 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.