The BEST Norwegian Widow Portfolio

[ScaredtoQuit]

I am thinking about placing more of my portfolio in dividend stocks in lieu of my current slice and dice strategy... (Hear that UncleMic? You're rubbing off!) When I think back to the bear market of a few years ago, I remember my dividend stocks holding up fairly well. No dividends were skipped during the downturn and the impact on market value wasn’t as extreme as with the index fund portions of my portfolio. My thinking is that I might be better able to ride out the next downturn psychologically if those dividends keep coming in.

For those with experience investing in dividend stocks, please provide feedback on this strategy. Also, please share what individual income stocks and/or mutual funds that have performed well for you over the years. Please share the reason you like the stock, how long you’ve owned it and information about the current yield.

Right now, my favorites include the following:

Citicorp (C)
Currently yielding 4%, this stock has it all… steadily rising earnings per share, steadily rising dividend payouts, international exposure, and a household name. I figure the dividends from any future investments in Citicorp will provide an automatic safe withdrawal of 4% plus provide long-term appreciation for the future. I’ve been a Citicorp shareholder for more than 10 years.

Bank of America (BAC)
My reasoning on this one is almost exactly the same. However, BAC is currently yielding an even higher 4.4%. I 've only owned this one for about two years but it's been quite profitable.

Nuveen Preferred & Convertible Income Fund (JPC)
I’ve been cautioned about the junk bond component of this fund, but over the last year or so that I’ve owned it, this one has worked out well for me. Current yield is around 8%. However, I am watching it like a hawk in case a future economic downturn starts to drag on the junk bond component of the fund.

Right now, I’ve got about $800K devoted to slice and dice (including a 35% debt component), $100K in dividend stocks, and another $100K in money markets. In a few months after I bail, I will be getting another lump sum of about $700K. I am thinking of earmarking about 60% of that for dividend stocks.

 

[clifp]

I'd highly recommend allocating $100 for Morningtar's Dividend investor newsletter, certainly worth trying it out for free 30 days.

He has two real money $100K portfolios of dividend stocks one called the builders portfolio is for stocks with modest dividends 3-5% but with prospects of increasing dividends by 7-10% a year. It includes not only the prenniel favorites, JNJ, BAC, and MMM but a number of smaller companies with boring business but growing dividends like Bemis (package manufacturer) and Compass Material (salt).

The second portfolio is the called Harvest, which consists of high yielding stocks with modest growth potential but a yield of about 6%. A lot of these stocks consists of Master Limited partnership, which are terrific investments for individuals. (Tax laws discourage the purchase by mutual funds and institutions) Some of these are stocks you've heard of like Lloyds of London, but most you haven't.

http://www.morningstar.com/Products/Store_StocksMDI.html?pgid=wwhome5d

 

[Brat]

Too bad you missed a real Norwegian widow's investment, Diania Shipping.

 

[ScaredtoQuit]

I'd highly recommend allocating $100 for Morningtar's Dividend investor newsletter, certainly worth trying it out for free 30 days.

http://www.morningstar.com/Products/Store_StocksMDI.html?pgid=wwhome5d

Thanks for the tip. I've been looking at services and Morningstar sounds like (1) one of the cheapest services and (2) obviously the most reputable

 

[CyclingInvestor]

I am 48, retired last year. I keep 100% of my investment $$ in
dividend stocks. I currently own 14 of the 29 that I track. These
29 meet my criteria of a long history of increasing earnings and
dividends, management which (IMO) is pro-shareholder and
makes good capital allocation decisions. I have lost a number of
companies to takeovers (CPG, KMI, PAG, SPK), and keep an eye
out for new additions, but most fail for some reason.


I own :

GGP KIM PLD VNO WRE
BAC C GE ITW JNJ KO MMM PG WMT

I track (and sometimes own, but not now) :

ARE AVB BXP CUZ DRE
AFL BUD EMR FO HD JCI PFE SYY VMC WM

 

[donheff]

He has two real money $100K portfolios of dividend stocks one called the builders portfolio is for stocks with modest dividends 3-5% but with prospects of increasing dividends by 7-10% a year.

The second portfolio is the called Harvest, which consists of high yielding stocks with modest growth potential but a yield of about 6%.

If you invested $100K in the Harvest portfolio you would anticipate a $6k yield. If the market tanked 20% (and the Harvest portfolio followed suit) would you then expect the 6% yeild to apply to an $80K base? I understand there is no guarantee for the stock price or the dividend. I am just interested in an "everything else equal" perspective.

 

[clifp]

If you invested $100K in the Harvest portfolio you would anticipate a $6k yield. If the market tanked 20% (and the Harvest portfolio followed suit) would you then expect the 6% yeild to apply to an $80K base? I understand there is no guarantee for the stock price or the dividend. I am just interested in an "everything else equal" perspective.

First of all if the S&P went down 20%, I'd expect the Harvest portfolio to go down much less than 20% probably closer to 5-10%. That is because almost all of the stocks in the portfolio have a Beta much less than 1. A typical stock is Kinder Energy Partners which owns 25,000 miles of pipeline for oil and natural gas, it has a Beta of .27 and yield of 5.9%. Rates on pipelines are regulated so revenues are pretty constant, as are expenses. It is possible that company could cut distributions but unlikely (the last four years distributions have increased from $.62/quarter to $.83) .

So even if the portfolio went down from $100K to $80K (which could happen if the market tanks and interest rates go up a 2-3%), I would expect my annual income to remain at $6K and in fact even grow slightly. I think it is the stability, high yield and prospect for future growth of income which makes dividend stocks so appealing to early retirees.

 

[GOJAGATORS]

I have about 90% of my IRA in dividend paying stocks. I've been investing this way since I opened my IRA in the early 80's, so I've experienced crashes, the roaring 9o's, the tech wreck... etc. I've always concentrated on dividend paying stocks, although not neccesarily the highest yielding stocks available, but always stocks that consistently raise the dividend. Morningstar as already mentioned, is a decent suggestion, and I would also suggest checking the Mergent's web site for their dividend achiever's lists of stocks that have raised their dividend for at least the last 10 years. Good place to get some ideas to do further research on. For a book suggestion, try Lowell Miller's "The Single Best Investment" as a starting point.

One thing I've noticed when discussing individual stocks with other people, is that its real easy to end up with aportfolio full of large cap only stocks, with a very heavy tilt to the value side. Be sure to take this into account with your assest allocation.

As for personal experiences, my portfolio held up better than most during the market crashes, but can lag a little during big upside market moves. A growing dividend stream that outpaces inflation with below market volitility has always been my goal. I enjoy the research part of adding a stock to my porfolio and still own many of the stocks I bought 15 years ago. The "getting paid while you wait" part of the dividend stream, allows me to be more patient with my stocks.

Anyway, dividend stocks work for me. Good luck

 

[terminator]

I own :

GGP KIM PLD VNO WRE
BAC C GE ITW JNJ KO MMM PG WMT

I track (and sometimes own, but not now) :

ARE AVB BXP CUZ DRE
AFL BUD EMR FO HD JCI PFE SYY VMC WM

That's a good list.

Some of the dividend payers I own are:
ACAS ALL BAC BBT C COP CORS CVX CVY GE GPC
GWW HD HOG IBM JNJ LLY MMM MSFT NCC PFE
PG UNTD UPS USB VZ WM XOM

I also track about another 75-100 stocks ranging from 1% to very high yield and watch for things that go on sale. I'm pretty careful not to reach for yield as I'd rather have a sustainable dividend with ability to raise the dividend (so I pay attention to the payout ratio). My best one so far is my GE stock on which I have a personal yield of about 25%. So, I'm a big believer in dividend-paying stocks since it's worked well for me investing in growing dividend payers.

I'll add one thought about index slice & dice versus individual dividend stocks. Setting aside some MLPs and REITS (most of which aren't bargains anymore), with mainstream dividend payers, to get a 4% average yield you'll be mostly limited to the areas of banking, insurance and utilities. If you want to be "diversified" then you'll probably see your yield cut down to about 3% or so when you add other stocks like those mentioned in this thread . . . at which point you might do just as well to buy a general value fund like VTV or one of the plethora of dividend ETFs (like PEY, DVY, CVY, etc.). Anyway, it sounds like you know what you are doing so good luck.

 

[Freein05]

You might also include some REITS in your portfolio. I have owned REITS for years and have enjoyed dividends of around 5% plus capital appreciation. I only invest in REITS that lease and own real property. No mortgage company or development REITS. One of the REITS even pays monthly dividends. Realty Income (O).

 

[clifp]

I'll add one thought about index slice & dice versus individual dividend stocks. Setting aside some MLPs and REITS (most of which aren't bargains anymore), with mainstream dividend payers, to get a 4% average yield you'll be mostly limited to the areas of banking, insurance and utilities. If you want to be "diversified" then you'll probably see your yield cut down to about 3% or so when you add other stocks like those mentioned in this thread . . . at which point you might do just as well to buy a general value fund like VTV or one of the plethora of dividend ETFs (like PEY, DVY, CVY, etc.). Anyway, it sounds like you know what you are doing so good luck.

It seems to me the list of two dozen stocks you have is pretty well diversified, you add to this a tanker stock or two, a REIT like Realty Income (a long time fav or mine) and/or MLPs to juice up the yield, some bonds/bond funds/CDs and you have a yield of 4+%. Next you add an international ETF, and a total stock market or the Vanguard Growth ETF which have have yields in the 1.6%. Your total income should be in the 3.5% range and you save your self the .4% ER of a Dividend ETF, plus you have better control over taxes.

 

[chinaco]

If you invested $100K in the Harvest portfolio you would anticipate a $6k yield. If the market tanked 20% (and the Harvest portfolio followed suit) would you then expect the 6% yeild to apply to an $80K base? I understand there is no guarantee for the stock price or the dividend. I am just interested in an "everything else equal" perspective.

Dividend paying companies try to maintain or increase the dividend over time rather than reduce it. Reducing the dividend is a classic sign the company is having trouble (i.e., text book investment finance). So if the market value of the dividend paying company's shares drop, the dividend $ payment should remain the same, the % would increase. Stable dividends are the way a company shows the strength/value of the company to the shareholder.



I agree with clifp: Companies that focus on dividend payout may have less volitility than a growth companies (ceteris paribus)... although sh#t happens and there is no guarantee!

 

[ScaredtoQuit]

Thanks for all of the suggestions. I think that my philosophy is indeed changing from slice and dice to dividend stocks. It just seems safer. If you are doing a 4% SWR, you can meet most, if not all of your cash needs from the dividend distributions. Much of your need for an inflation adjusted source of income is automatically addressed by periodic increases to the dividend rate. And on top of all that, you still get some degree of capital appreciation.

 

[tryan]

Tracking and choosing dividend stocks seems like www*ork.

Has anybody tried the ETF dividend fund (DVY). Seems like it might be nice to let someone fret about the details .... but then again the managment fee might be too much (not sure).

 

[JustCurious]

What is a "Norwegian Widow Portfolio?"

 

[tryan]

... living only off the dividends of stocks. Maybe Unclemick could tell us a bedtime story.

 

[terminator]

Tracking and choosing dividend stocks seems like www*ork.

Has anybody tried the ETF dividend fund (DVY). Seems like it might be nice to let someone fret about the details .... but then again the managment fee might be too much (not sure).

Well, building model airplanes, caring for a rose garden and restoring old tractors seem a lot like work too, but if you enjoy it, why not?

DVY and the like generally have expense ratios of about 0.5%. Not outrageous but not cheap either -- but when you have the dividend mindset it seems wasteful to give up 0.5% out of maybe 4%. (Although I did buy a small amount of CVY (Zacks Yield Hog) for my IRA though because it invests in some areas that I don't want to do individually.)

 

[terminator]

Thanks for all of the suggestions. I think that my philosophy is indeed changing from slice and dice to dividend stocks. It just seems safer. If you are doing a 4% SWR, you can meet most, if not all of your cash needs from the dividend distributions. Much of your need for an inflation adjusted source of income is automatically addressed by periodic increases to the dividend rate. And on top of all that, you still get some degree of capital appreciation.

Personally, I agree with all of that. Some will quibble with certain points, but mostly its a matter of personal investment taste. Anyway, there's a decent "Dividend & Income Investing" forum over at morningstar, although you have to sift through a fair amount of baloney to get to the good stuff.

 

[JustCurious]

... living only off the dividends of stocks. Maybe Unclemick could tell us a bedtime story.

Ok, so why is it called that?

 

[REWahoo]

Ok, so why is it called that?

http://early-retirement.org/forums/index.php?topic=4364.0

(If my name was "JustCurious" I think I'd spend some time using that little 'search' button up there near the top of this page... )

 

[calmloki]

http://early-retirement.org/forums/index.php?topic=4364.0

(If my name was "JustCurious" I think I'd spend some time using that little 'search' button up there near the top of this page... )

Good reading. Jane Doe - you out there? Two years on where are you investment-wise? Reading your comments it sounded like we were in much the same boat: $ from self managed rentals, not-so-hot stock adventures, security oriented, strong danger of being seduced by a good real estate buy..... Are you in Wellesley? Target retirement? Still collecting rent checks and shoveling snow?

 

[perinova]

Anyone knows a whole market dividend stock index fund? Or dividend tilt?
(I like the dividend aspect however I feel important to keep with low cost very diversified funds.)