Help setting up a dividend paying portfolio

[calichica]

Hi,

I have been seeing a lot more about dividend paying portfolios lately for some reason. DH and I are 28/27 respectively and have about $65,000 cash that I would like to begin investing.

I have previously posted our financials. Improvements in economy and job security have made investing this money an option over the past few months.

I am a Vanguard junkie.

Would you?
Invest in individual dividend paying stocks? If so, please help me compile a list of suggestions

Invest in Vanguard dividend paying index fund? If so which one?

Take another approach?

Thanks in advance!

 

[braumeister]

At your age I would be more focused on growth than dividend payments.
The longer your time horizon, the more growth/risk you can handle, and you're still at the early part of that curve.

 

[travelover]

I think that you are too focused on dividend investing - it is not free money. Have you read a few books from this recommended reading list?

Investment Books

 

[David1961]

I agree with braumeister that at your age, it's better to focus on growth instead of dividends.

Having said that, I think the basic decision on individual stocks versus mutual funds depends on how much time you want to spend tracking your portfolio. If you have the time to spend and you enjoy doing your own research, going with individual stocks makes sense. If not, I'd go with a fund.

 

[calichica]

Thanks for the input. I have always thought that growth was the way to go and still believe that. But seeing people closer to my age group focusing on dividends had be questioning for a minute.

I will continue on my normal path.

 

[eta2020]

I would not invest in individual stocks. It is too risky. What I would do is split money between 2 ETFs. Vanguard's VIG and Schwab's SCHD.

Even though those are Dividend ETFs they will give you growth as well because they focus on high quality companies with growing yield.

But I would not focus on those 2 ETFs only. You should also own broad index funds and international funds. IE VXUS, VTI.......

 

[clifp]

Thanks for the input. I have always thought that growth was the way to go and still believe that. But seeing people closer to my age group focusing on dividends had be questioning for a minute.

I will continue on my normal path.

I don't see a reason for somebody at your age with your saving to invest specifically in dividend stocks. I love them as early retire in the withdrawal phase.

That said I think understand how to value dividend stocks is a very useful skill to pick up in your investment education. The value of allstocks, even Twitter, is equal to the present value of their future dividend payments.

But of course figuring thatout is part art and part science. If you are looking for information on how to do I highly recommend getting an introductory free copy of the Morningstar Dividend Investors newsletter.
As part of the newsletter the editor Josh Peters has some valuable lessons on what to look for when purchasing dividend stocks.

 

[eta2020]

1) What you should value is growth of dividend which is result of growth of earnings.
2) What you should also value is "Competitive Advantage or Moat".

3) What you should not pay attention to current high yield generated by companies that will go nowhere.

There are Dividend Funds which give you 1 and 2 and not 3.... I would own them in your age...

 

[IlliniProgrammer]

At your age I would be more focused on growth than dividend payments.
The longer your time horizon, the more growth/risk you can handle, and you're still at the early part of that curve.

You're absolutely right to be making that point, but from a behavioral perspective, it feels pretty darned good to be collecting $X00 in dividends every quarter for doing absolutely nothing. Especially when interest rates are basically zero.

Also, one of OP's advantages may be that she is in a lower tax bracket than the average investor in a Master Limited Partnership. MLPs generate UBTI so you can't put them in tax-free accounts, and OP may have a huge advantage for investing in these funds if he is in a relatively low tax bracket. (However they will also complicate her taxes.)

I would advise OP to stay focused on contributing to her retirement savings accounts. However, if she MUST buy dividend stocks outside of an IRA, and she is in the 25% tax bracket or lower, she may be a good candidate for investing in MLPs (IE: KMP, ETP, TCP, etc.)

 

[Onward]

I have been seeing a lot more about dividend paying portfolios lately

That alone is reason to avoid focusing on dividends.

 

[twolfy]

I agree with growth at your age. No sense paying more taxes than you need to. I tend to think of divend paying stocks more like bonds/bond funds and these should be best kept in IRA/401K type accounts especially at your age. Investing in a low cost index stock fund (domestic and foreign) I believe would be a better choice.
Glad you have the good fortune of money to invest!

 

[clifp]

I agree with growth at your age. No sense paying more taxes than you need to. I tend to think of divend paying stocks more like bonds/bond funds and these should be best kept in IRA/401K type accounts especially at your age. Investing in a low cost index stock fund (domestic and foreign) I believe would be a better choice.
Glad you have the good fortune of money to invest!

Actually in many cases it maybe cheaper and more tax and expense efficient to have dividend stocks than index funds.

First of all it won't make much difference in any case.

For instance a $100K worth of VTI (Vanguard, total stock market) pays about about $1,850 (1.85%) in dividends. A $100K Dividend growth portfolio like M* dividend newsletter has yields 3.2% or $3,200 dividends. At the 15% tax bracket that is only $200 a year tax difference between the 2 portfolios. If they are a couple that makes under $72,500 they are in the zero percent tax bracket for dividends/capital gains. It actually make sense to fill out the zero income bracket. Although one can do that with re balancing but it is more hassle than just collecting dividends.

Even for a fund with as low as expense as VTI .05%, it is possible to save money buying stocks directly, although admittedly the saving are small until the portfolio gets near $1 million.

Although every portfolio is different as general rule, bonds and REITs should be in your IRA and 401K. Dividend stocks are fine in either your taxable or tax deferred accounts.

 

[grumpy]

The reason you are hearing and seeing so much about investing in dividend paying stocks is because interest rates are so low.

 

[Surewhitey]

Some we have or had in the past :
XOM
T
CTL
TOT
INTC
AGNC
NLY
BMY
ABT
WMT
ABBV
MSFT
CSCO
NS
BPT
AZN
Some are obviously more risky, but we've done ok with most of them.
Some growth we've had are:
CMG
WAG
GMCR
NFLX
PNRA
FDO
JNPR

 

[calichica]

Thanks everyone. I am not looking to put my entire portfolio into dividend paying stocks but I enjoy being able to bounce ideas off the group and at least walk away with some talking points.

 

[haha]

Thanks everyone. I am not looking to put my entire portfolio into dividend paying stocks but I enjoy being able to bounce ideas off the group and at least walk away with some talking points.

A dividend portfolio involves lot of work keeping up with news of the individual companies, listening to conference calls, reading SEC filings.

Don't get involved with individual stocks unless you are seriously interested in this type of thing, and you have at least some accurate understanding of accounting, strategy and business realities, and also you have the time to devote to it. It takes much more time than asset allocation into either funds or ETFs. There are dividend ETFs, which might offer a cost effective way to get exposure to this area, if you feel committed to doing so.

Get blindsided and your individual stock portfolio can hurt you big time.

Ha

 

[Milton]

A dividend portfolio involves lot of work keeping up with news of the individual companies, listening to conference calls, reading SEC filings.

There is no real need to get so caught up in that sort of thing, unless you want to. While it may be necessary to stay on top of all the latest developments if one is a day trader, long-term buy-and-hold investments don't require much work.

 

[target2019]

A newer ETF is out there -- NOBL -- ProShares S&P 500 Aristocrats. I am looking at this as a way to collect dividends, and in the early stages of analysis.

 

[target2019]

Two articles below explain the type of analysis that goes into picking stocks for a dividend portfolio. Personally, I would go with one of Vanguard funds or the NOBL etc, as I do not really have the time to properly keep up on this type of investing.

You need a free Seeking Alpha account to read.

You May Think That The Market Is Overvalued But These Dividend Champions Are Not: Part 1 http://seekingalpha.com/article/1840522?source=ansh $AFL, $ED, $JNJ, $MMM, $MSA, $SWK, $T, $WMT

What Stock Market? These Dividend Contenders Are Not Overvalued - Part 2 http://seekingalpha.com/article/1852661?source=ansh $DE, $GPM, $NPM, $QCOM, $SCG

 

[twolfy]

There is no real need to get so caught up in that sort of thing, unless you want to. While it may be necessary to stay on top of all the latest developments if one is a day trader, long-term buy-and-hold investments don't require much work.

I agree. I bought most of my individual dividend paying stock a long time ago and just left them alone, other than adding to them when I could, and just kept having the dividends reinvested. Significant contributor to why I could retire earlier than I expected. Vanguard has a very good High Dividend yield index fund also that I use.
Good luck with your investments. Compounding is great , compounding over many many years is even better.

 

[Dash man]

Being so young, you'll want to look for stocks that are increasing their dividend each year. Over time this will benefit you a great deal. There are also stocks such as MAIN that are business development companies that invest in many other small businesses therefor are diversified by the nature of their business. Similarly, triple net REITs like O are lower risk and tend to increase their dividends regularly. The two stocks mentioned also pay dividends monthly, so compounding the reinvested dividends occurs faster. A BDC or a REIT still involve risk, so research them carefully, but there are some good ones out there.

 

[galeno]

If you are conservative investors your port should look like this: 70%VT + 15%BND + 15%BNDX.

Keep it cheap. Keep it simple. Ignore the casino by buying and holding no matter what. Over the long term your returns will blow away almost everybody in here.