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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 03:10 PM   #21
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Re: large stable dividend stocks vs diversified funds

effectively whether you sell off 4% of the value of your stock or they do so they can pay you your dividend its still 4% sold and a drop of 4% in the value of your holdings. ..am i missing something here?
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 03:13 PM   #22
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by HaHa
Thinking about the dividend strategy IMO is a good corrective to fuzzy logic about SWR. Say you assembled a $1,000,000 diversified portfolio of 25 companies that produced an average yield of 4%, or $40,000. You feel that your dividends over time will at least keep up with inflation, and probably even beat it, so you spend that $40,000, and continue to spend whatever cash flow you get from the dividend payout of your portfolio. Then, out of the blue, stocks including your portfolio rocket up 100%, without any remarkable change in your dividends received other than the accustomed gentle rise. There is a concomitant doubling of PE ratios.

So you have been enjoying a de facto 4% SWR, but now since your stocks have doubled in price, you are only drawing 2%. Time to live a little? To old fashiioned rich people the answer would be clear- one never invades principle! Do you agree with them that since the earning power of your portfolio has changed little or not at all, neither has your spending power?

Ha
I agree with the old fashioned rich people. Although I am not quite retired, my
portfolio and outlook is to be prepared in case I retire tomorrow. I would not
want to kill the goose laying my golden eggs of retirement.

I was a beneficiary of the expansion of FFO ratios of REITs in the last 6 years,
while the yields on top REITs dropped from 7-10% to 3-4% while most were
raising their dividends 5-10% per year. Since I plan to live on the dividend flows
only I only consider myself richer by the amount of the dividend increases
(adjusted by changes in quality and growth prospects), not by the much larger
increase in market value.
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 03:16 PM   #23
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by mathjak107
effectively whether you sell off 4% of the value of your stock or they do so they can pay you your dividend its still 4% sold and a drop of 4% in the value of your holdings. ..am i missing something here?
I really don't understand what you are asking. It might help if you could tell me who "they" are, and what "they" have to do with the issue of spending cash flow from dividends vs. spending an arbitrary 4% SWR.

Ha
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 03:34 PM   #24
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by mathjak107
effectively whether you sell off 4% of the value of your stock or they do so they can pay you your dividend its still 4% sold and a drop of 4% in the value of your holdings. ..am i missing something here?
The difference is that the dividend strategy is vulnerable to bad business
conditions (cut dividends), while the total market strategy is vulnerable to
bad market conditions (lower prices). In general, among blue chip companies
in stable industries, business conditions change much more slowly than
market conditions.

If you buy a quality REIT at $30 paying a well covered $2 dividend
and its price drops to $15-$20 for 5 years (as its dividend and FFO keep
increasing by 5-10% each year), its fall in market price is irrelevant to the
income based retiree. The fact that the money is off chasing high tech stocks
does not hurt the REITs business conditions. If you start with 1000 shares
of KIM, you will still have it all after the 5 year downturn, making more money
and paying more dividend each year.

Overall, the two strategies should produce an equal return - the dividend
strategy just survives the market volitility better if you can afford it.
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 04:56 PM   #25
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Re: large stable dividend stocks vs diversified funds

actually i was replying to some thing ha ha had written...

" believe that given a comfortable amount of assets, say 40 to 50x income needs, individual dividend paying stocks are far superior as a source of living cash, as dividends as a source of spending money are more stable than stock prices which must be liquidated periodically to get the needed cash."


i was questioning the dividends being a better source of money to spend as opposed to selling some stock...maybe im missing something but getting a 4% dividend and having a corrosponding drop of 4% in the stock price seems no different to me than liquidating 4% of your stock holdings on a none paying dividend stock......
"
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 05:27 PM   #26
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Re: large stable dividend stocks vs diversified funds

I invest in several individual dividend paying stocks with increasing dividends....There are advantages to this and and just doing an index and I think it depends more on the individual. I do believe that folks that can ignore market psychology can do better than an index...Also my expenses are much lower than indexing...I can control the taxes better......I enjoy it and dont feel that I am taking on excessive risk since my individual stock ownership is not a large percentage of my total net worth.
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 05:29 PM   #27
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Re: large stable dividend stocks vs diversified funds

My wildly emotional non math view of the whole deal is this:

Taking my dividends every year is like a steady job with a regular paycheck vs

Taking 4 or 5% variable out my rebalanced portfolio each year is like hustling up a new job each and every year.

Since I have started to do both as of last year - will take a while to see which is the most comfortible. Did do non cola pension plus dividends from 98 to 2004. 2005 was the first year starting 5% variable after rebalancing.

We'll see. we'll see - heh heh heh heh heh - at year 13, it's time to loosen up and spend a tad more.

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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 06:35 PM   #28
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Re: large stable dividend stocks vs diversified funds

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Originally Posted by unclemick2

We'll see. we'll see - heh heh heh heh heh - at year 13, it's time to loosen up and spend a tad more.

Go for it big guy! DW and I have hopefully finished getting my in-laws house ready for the estate sale. Then the house goes. They can't possibly enjoy all of their money now (1 in nursing/1 in assisted living) and they really never enjoyed it before IMHO. I intend to enjoy it for them and my kids can get their own.

I'm mostly hoping to get my life back since my MIL broke her hip a year ago June.
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 06:48 PM   #29
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Re: large stable dividend stocks vs diversified funds

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We'll see. we'll see - heh heh heh heh heh - at year 13, it's time to loosen up and spend a tad more.
oops...I thought I read "now at age 13....." and thought you were finally coming out as the girl in missoula....
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 08:49 PM   #30
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by mathjak107

i was questioning the dividends being a better source of money to spend as opposed to selling some stock...maybe im missing something but getting a 4% dividend and having a corrosponding drop of 4% in the stock price seems no different to me than liquidating 4% of your stock holdings on a none paying dividend stock......
What 'corrosponding drop of 4%? There isn't necessarily a 4% drop in value of the stock with a 4% dividend payment. And, if there is a drop in the stock value, there is not a corresponding drop in the dividends (although the company may decide to cut their dividend payouts).

Personally if you have the funds I like the dividends idea. Especially if you research and find companies with a solid history of dividend growth.
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Re: large stable dividend stocks vs diversified funds
Old 08-20-2006, 09:02 PM   #31
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by mathjak107
actually i was replying to some thing ha ha had written...

" believe that given a comfortable amount of assets, say 40 to 50x income needs, individual dividend paying stocks are far superior as a source of living cash, as dividends as a source of spending money are more stable than stock prices which must be liquidated periodically to get the needed cash."


i was questioning the dividends being a better source of money to spend as opposed to selling some stock...maybe im missing something but getting a 4% dividend and having a corrosponding drop of 4% in the stock price seems no different to me than liquidating 4% of your stock holdings on a none paying dividend stock......
"
All these guys have in different ways answered your question, but in case you still need another look, make or find a plot of 30 or 40 years of S&P dividends vs. time. Then get another of the S&P index itself vs. time. Look at these plots; then decide which is more stable. If this doesn't speak to you, ignore it.

Ha
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Re: large stable dividend stocks vs diversified funds
Old 08-21-2006, 03:41 AM   #32
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Re: large stable dividend stocks vs diversified funds

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Originally Posted by Zathras
What 'corrosponding drop of 4%?* There isn't necessarily a 4% drop in value of the stock with a 4% dividend payment.* And, if there is a drop in the stock value, there is not a corresponding drop in the dividends (although the company may decide to cut their dividend payouts).

Personally if you have the funds I like the dividends idea.* Especially if you research and find companies with a solid history of dividend growth.
there is always a drop in the price of the stock by the amount of the dividend paid..no question..it may appear different depending on the days action on the day the dividend is paid but a dividend is always offset by a corresponding drop in value by that amount....
a dividend paid is a non event total return wise...its a zero gain or loss.
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Re: large stable dividend stocks vs diversified funds
Old 08-21-2006, 09:51 AM   #33
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Re: large stable dividend stocks vs diversified funds

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Originally Posted by mathjak107
there is always a drop in the price of the stock by the amount of the dividend paid..no question..it may appear different depending on the days action on the day the dividend is paid but a dividend is always offset by a corresponding drop in value by that amount....
a dividend paid is a non event total return wise...its a zero gain or loss.
I certainly appreciate that explanation. Good luck!

Ha
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 02:55 AM   #34
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Re: large stable dividend stocks vs diversified funds

its interesting how the system works when a dividend is payed..automatically the prices are adjusted downward by the amount of the dividend at the next open by the exchanges computers .all limit orders and stop losses are automatically lowered too...otherwise all stop losses and limit orders would be triggered or be closer to being triggered..
the idea of a stock returning some of your money goes back to the time after the 29 crash so the story goes..people were very leary of stocks and of what companies do with idle cash and so a return of your money little by little was founded......basically people became trained to think this was a good thing..
the problem is alot of people out there equate a dividend paying stock with say bank interest....they are not the same,,,the bank interest is over and above your account value...the dividend is a return of your own equity....
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 03:40 AM   #35
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Re: large stable dividend stocks vs diversified funds

Quote:
Originally Posted by mathjak107
the idea of a stock returning some of your money goes back to the time after the 29 crash so the story goes..people were very leary of stocks and of what companies do with idle cash and so a return of your money little by little was founded......basically people became trained to think this was a good thing..
Really? I thought the main reason stocks have value is because they pay dividends, or are expected to pay them some day. Other than that you are just holding a claim ticket for the eventual liquidation value of the company (and how much of that ever typically makes its way back to the common stock shareholders anyway?)
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 04:24 AM   #36
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Re: large stable dividend stocks vs diversified funds

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Really? I thought the main reason stocks have value is because they pay dividends, or are expected to pay them some day. Other than that you are just holding a claim ticket for the eventual liquidation value of the company (and how much of that ever typically makes its way back to the common stock shareholders anyway?)
I would say almost correct... but not a liquidaiton value.. unless you consider some other company buying at a premium a liquidation...

You are buying future cash flows of the company.. or should I say expected future cash flows... that is why some seem to have very high PEs as they are expected to have oversized future cash flows..

Some of those cash flows might be a dividend...
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 04:38 AM   #37
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Re: large stable dividend stocks vs diversified funds

you are buying the value and future value of the company...if many dividend paying companies never payed dividends they would just have huge cash hordes most likley making their per share price just that much more..as warren buffet once said the reason companies pay dividends is because they cant find anything better to do with their extra cash...since value sitting in cash dosnt earn much as far as the projected future value of the company,companies will shed their excess cash as dividends so as not to dilute the future blue sky value...warren buffet also said berkshire wont pay a dividend until the day he can no longer grow that money by investing in his companies
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 04:40 AM   #38
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Re: large stable dividend stocks vs diversified funds

you can create your own dividend on any company...just sell off the 3 or 4% a year and bingo a dividend......
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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 07:55 AM   #39
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Re: large stable dividend stocks vs diversified funds

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I would say almost correct... but not a liquidaiton value.. unless you consider some other company buying at a premium a liquidation...
True, buyouts and having a company go private are also ways to get one's money back if one holds forever.

To the original question, I hold my allocation to Japanese stocks in the form of individual stocks, for tax reasons. Mindful of Bernstein's diversification point, I aim to hold as many positions as possible; I have about 60 stocks now, half large-cap, half small-cap. All dividends and new money go towards new names; I never buy the same company twice, and I never sell.

I would rather just buy an ETF, but unless the dippy tax laws change, this seems to be the best I can do. I do not expect to beat an index fund, but merely hope, through diversification, not to lag one too badly.

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Re: large stable dividend stocks vs diversified funds
Old 08-22-2006, 08:57 AM   #40
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Re: large stable dividend stocks vs diversified funds

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i
the problem is alot of people out there equate a dividend paying stock with say bank interest....they are not the same,,,the bank interest is over and above your account value...the dividend is a return of your own equity....
Mathjak,

Maybe this is a terminology quibble but I don't think it is proper to say that a dividend is a return of your own equity. If it were, it would not be taxable, would it? Also, I have several dividend paying stocks in which, over the years I have sold shares equivalent to my original investment. I receive a dividend on the shares I still hold but I have none of my own equity in those shares. Maybe we can say it is a return of some of my capital gains?

Grumpy
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