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Old 07-14-2015, 06:36 PM   #81
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I was referring to Wellington. I just don't think an actively managed fund that is 35% fixed income is a reasonable benchmark to measure dividend payers versus the broader market.
I guess my comment is more as Wellington Management as a group of money manager than Wellington as a specific fund. I'd love to know how much Wellington and Wellesley alpha was due to bond management vs stock selection. The fact that VDIGX is also managed by Wellington Management as is Windsor and have modest out performance, I don't think is a coincidence. I personally think there are at least 3 companies American funds, Dimensional Funds Advisers, and Wellington Management that have long history of adding alpha. American Fund sells load funds, DFA requires an financial adviser, so that leave Wellington as providing good management for a very modest 20-25 basis points fee. Which is a long winded way of saying having the Ws in your retirement portfolio is probably smart.

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Make of this what you will, but I just don't see anything giving these div-payers providing a clear advantage. And I'd like to re-address the comments about the past 15 years being a low interest rate period. Yes, true, and it could mean something. But I will re-iterate my 'pragmatic' comment/view on this - it seems that some posters are telling us these div-payers will be significantly more stable in a downturn. But we see that isn't the case. Does it matter what the environment is? They don't seem to be getting the protection they seek. Perhaps they should seek that protection elsewhere? A higher fixed income allocation? More TIPS? Annuitize a portion of their holdings?

OK, the 'trap'...

Here's the odd thing. After researching these, and finding a slight advantage for VIG and VDIGX in the 2007 crash, I noticed something funny:


VDIGX Yield: 1.89%

__VIG Yield: 2.23%

__SPY Yield: 1.96%

VDIGX has a lower yield than SPY? And VIG isn't much higher (~ 14% increase). So what is all this about high dividend payers? I'm confused!

-ERD50
Well statistically companies that pay dividends have lower volatility than non dividend payers over a long period of time.(see M* data) Even if the benefits were pretty modest this century. 2009 was the worse year on record (even worse than Great Depression) for dividend cuts. It was pretty much impossible to have dividend oriented portfolio in 2007 and not have plenty of bank stocks, almost all of which slashed dividends and were hammered. But despite this heavy concentration these funds still did better/no worse than the broad market.

The stability most of us speak of is primarily income. My income dropped <5% from March 08 to March 09. So I guess the benefits are also psychologically,looking at the 2008/9 crash and saying well my income is only down 5% makes it a lot easier to avoid panic selling.

Hehe I figured you'd catch the minimal differences in yield between a dividend funds and the S&P. So yes frankly if you are relying on passive dividend ETFs than it's hardly worth the effort. There doesn't seem to be that many good dividend funds out there even if you include actively managed funds. Although I've spent minimal time researching them.

Most all of the dividend fans on the forum buy individual stocks. The yield on my portfolio is 2.8% which is more than adequate for my needs, but yes I believe in capital gains also and have happily harvested them recently. Berkshire is my largest holding drags down and my yield a lot. The dividend yield of the stock portfolio of Wellington has a 2.75% yield, Wellesley is 3.55% The bond portion of their portfolio actually decrease the overall yield

The yield on Josh's portfolio is 4.1% now a large part of this is because of Master Limited Partnership and REITs like O with 5% yield. So it is certainly possible to create a portfolio of stocks that is consistent with 3.5-4% withdrawal .
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Old 07-15-2015, 09:18 AM   #82
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Most all of the dividend fans on the forum buy individual stocks. The yield on my portfolio is 2.8% which is more than adequate for my needs, but yes I believe in capital gains also and have happily harvested them recently. Berkshire is my largest holding drags down and my yield a lot. The dividend yield of the stock portfolio of Wellington has a 2.75% yield, Wellesley is 3.55% The bond portion of their portfolio actually decrease the overall yield .
I am in a similar boat. Only have individual stocks. Yield is about 3.9% now but generally has been around 3.75%. This is generally enough for us and seems like a reasonable SWR. In Canada I would have to pay about 40-50bps for a good div ETF. This would represent about 15% of my div income and in my opinion this extra diversification would not be worth it. Only one div cut in 2008-9 representing an insignificant loss of earnings.
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Old 07-15-2015, 09:49 AM   #83
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... 2009 was the worse year on record (even worse than Great Depression) for dividend cuts. It was pretty much impossible to have dividend oriented portfolio in 2007 and not have plenty of bank stocks, almost all of which slashed dividends and were hammered. But despite this heavy concentration these funds still did better/no worse than the broad market.

The stability most of us speak of is primarily income.
I didn't do a detailed analysis, but I made a chart of divs from VDIGX and SPY, and it looked like SPY divs were actually very stable. Subject to some eyeball interpretation - SPY divs are increasing over the decades, VDIGX looks pretty flat; and while SPY does drop some in 2009, that looks to be more than offset by the rise in the years before. IOW, divs didn't drop below their pre-rise levels, they only dropped relative to the peak - there was only upside.


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Hehe I figured you'd catch the minimal differences in yield between a dividend funds and the S&P. So yes frankly if you are relying on passive dividend ETFs than it's hardly worth the effort. ...Most all of the dividend fans on the forum buy individual stocks. ...
And that's the problem. Without being able to quote a specific fund for comparison, there really isn't a practical way for a personal investor to do much actual, meaningful comparisons. It becomes all about stock picking, active versus managed, etc. And it does beg the question - if the high-div-payers really are 'better' in some meaningful way, why isn't that reflected in a basic index fund/ETF of some sort? I could just as well say "Well, SPY doesn't include the best of the broad market, I can pick the best stocks and do better. So beat that (undefined group of stocks)!". OK, but how does a statement like that help an individual investor? What action can be taken (getting to that pragmatic side of things).


A side note on active management:

Quote:
I guess my comment is more as Wellington Management as a group of money manager than Wellington as a specific fund. ... Which is a long winded way of saying having the Ws in your retirement portfolio is probably smart. ...
The W's are pretty amazing. Many of us reference the many studies that show active management does not reliably out-perform the indexes, and the active winners often rotate in/out, but are these the exception? And if so, why? I put it at as a question, because I'm not sure there is an appropriate index benchmark. But my proxy would be an equiv AA of a total bond fund and a total stock fund, and they appear to out-do that. Do they have the magic sauce?

-ERD50
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Old 07-15-2015, 10:30 AM   #84
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I am in a similar boat. Only have individual stocks. Yield is about 3.9% now but generally has been around 3.75%. This is generally enough for us and seems like a reasonable SWR. In Canada I would have to pay about 40-50bps for a good div ETF. This would represent about 15% of my div income and in my opinion this extra diversification would not be worth it. Only one div cut in 2008-9 representing an insignificant loss of earnings.
The good news is that advisor fees will be disclosed in a couple of years and that will bring downward pressure on them.

But it is tough to beat an occasional $10 trading fee!
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Old 07-15-2015, 03:35 PM   #85
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And that's the problem. Without being able to quote a specific fund for comparison, there really isn't a practical way for a personal investor to do much actual, meaningful comparisons. It becomes all about stock picking, active versus managed, etc. And it does beg the question - if the high-div-payers really are 'better' in some meaningful way, why isn't that reflected in a basic index fund/ETF of some sort? I could just as well say "Well, SPY doesn't include the best of the broad market, I can pick the best stocks and do better. So beat that (undefined group of stocks)!". OK, but how does a statement like that help an individual investor? What action can be taken (getting to that pragmatic side of things).


A side note on active management:



The W's are pretty amazing. Many of us reference the many studies that show active management does not reliably out-perform the indexes, and the active winners often rotate in/out, but are these the exception? And if so, why? I put it at as a question, because I'm not sure there is an appropriate index benchmark. But my proxy would be an equiv AA of a total bond fund and a total stock fund, and they appear to out-do that. Do they have the magic sauce?

-ERD50
There are both interesting questions and my one word scientific wild ass guess (SWAG) is testosterone, or more specially lack of it.

The out performance of dividend stocks is modest 1% maybe 2% depending on what and when you measure, not particular large in the context of 10% annual returns. It can also disappear for lengthy periods of time. The volatility advantage I think is more significant but other than us old retired farts and some academics I don't think people care that much.
The headline of my dividend fund only lost 30% as opposed to 37% for SPY during 2008,isn't nearly as important as "I lost 30% of my money sell sell sell"

I'm somewhat puzzled why there isn't either a good algorithmic approach to picking dividend stocks. Perhaps there isn't or just as likely somewhat came up with one but the fund/etf never lasted long enough to show any significant advantages and it disappeared.

However among active money managers it is easy to see why dividend stocks aren't generally popular, they lack sex appeal. I know as 20 something investor buying a dividend stock would have been one small step up from buying an index fund in the excitement level and less interesting than buying the Janus 30 fund. I just bought some share of Emerson Electric,(EMR) a pretty dull company in a boring industry. Josh Peters and M* say its worth $65, I bought for $53.50 and it has a 3.4% dividend a perfect stock for me. But no twenty something HBS grad is going to get a million dollar bonus for recommending EMR, but he just might if he recommend Netflix, Tesla, Twitter earlier and loudly enough.

There is always going to be a new generation of smart 20 something wall street trader, with high testosterone levels looking to make a killing from this next generation of growth stocks. These get bid up to excessive levels on the aggravate, but there are always enough companies like Intel, Microsoft, Amgen, Apple, Google, Tesla, Netflix, Facebook, Uber, to make plenty of people rich. Meanwhile the analysis of the dull companies is left to the plodders, the hardworking grinders dutifully pouring over balance sheets, and pouring over railroad loading statistics. Other than Warren Buffett not many of these plodders get very famous or very rich, until much latter in life.

As for why do the W's do well. I believe that it isn't super difficult to do good analysis of value/dividend stocks. It just requires of a level of discipline and temperament that doesn't come naturally especially to 20 something year old males. My guess is that Wellington management does a good job of teaching this valuation process to its employees and doesn't give a lot of authority to money managers without grey hair. Everything I've heard about DFA and American Funds suggests a similar corporate philosophy.

As for myself, I'm generally too lazy to do the fundamental research so I rely on folks like Josh Peters to do it. There are folks on the forum like Brewer and RunningMan that do their own research and I suspect that makes them better investors. I do however do cross checking and I look for consensus among people who's opinions I values. So when I see that the number #2 owner of EMR was Vanguard Windsor that's signal to me that Josh probably isn't really wrong. Someday I'll tire of even doing this amount of work, hopefully I'll recognize my limitation before it cost me a ton of money. But the W's are looking like a perfectly good substitute for my individual stock purchases.
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Old 07-15-2015, 04:27 PM   #86
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My endorsement means less than zero, but EMR is only one of a few stocks I have seriously considered pulling the trigger on. I just cant convince myself to stray from my present course. And one thing is for sure, buying at $53 is a heckuva lot better than buying it when it was 70 over a year ago. You certainly will not have to worry about the management destroying the company.


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Old 07-16-2015, 07:34 AM   #87
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If you invest in dividend funds and ETFs that hold stocks with a record of increasing their dividends each year, why not? I hold Vanguard dividend mutual funds along with SDY ETF and they, along with some TE bond funds completely fund my retirement. And, SS and the ETF dividends increase each year so I'm protected against inflation. .....And, I'll leave my DW and kids a lot of money since I won't ever have to sell. To me this is a little more expensive but just as secure as an annuity. What's wrong with this, if you can afford it?
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Old 07-16-2015, 07:47 AM   #88
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If you invest in dividend funds and ETFs that hold stocks with a record of increasing their dividends each year, why not? I hold Vanguard dividend mutual funds along with SDY ETF and they, along with some TE bond funds completely fund my retirement. And, SS and the ETF dividends increase each year so I'm protected against inflation. .....And, I'll leave my DW and kids a lot of money since I won't ever have to sell. To me this is a little more expensive but just as secure as an annuity. What's wrong with this, if you can afford it?
Sounds good but certainly not as secure as an annuity. I do the same except I hold individual equities. I don't think the fees of a MF or ETF are worth it but for many it would be. Divs do get cut(fairly rare).
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