Dividend Growth / Dividend Income Investing for RE

[CabinLifeAt50]

Hey all, I've seen a lot of posts about index investing, funds, etfs, etc but fewer about dividend growth investing or dividend income investing. I would like to see what others are up to in this area, though not looking for this to be an market index fund vs stock picking debate.

-Do you invest in individual stocks for dividends?
-If so, any interesting resources you use for research?
-What kind of dividend strategy do you employ? (high yield, dividend growth, blend, other etc)
-Do you blend dividend focused etfs/funds into your strategy?

For me, DW and I use our taxable account and one of our IRAs for focused dividend investing across about 60 individual stocks that are spread across a number of market segments. We focus on companies of about 2.5% yield or higher with 6-9% dividend growth rate. We've been able to average about a 4% yield and generally hold the stocks for as long as they are viable-no day trading here. We use Fidelity and Morningstar as our primary research areas- gotta love all the analyst reports available at both as well as divvy information.
We do have some dividend focused etfs in our HSA account but pretty small % of our overall portfolio.

We do invest in individual stocks in the IRA when we consider them a value and grow positions when they are on sale. We've also started using Motif Investing for a couple of our own custom baskets of dividend stocks which we are averaging into each month for our taxable account, allows to keep the fees way down while getting a large diversification.

Overall we are looking for the dividend growth to beat inflation (nice raises each year) and provide a solid income source for early retirement so we don't have to touch the principal amount. We are not trying to beat the market with our holdings for the core money invested and are primarily focused on that continual income growth.

Would love to hear what everyone else is running with in this area.

 

[CyclingInvestor]

I have invested exclusively in dividend-growth individual stocks since 1993. I generally own about a dozen (the best current values) of the about 30 I track. I use Value Line (library) and 10Ks for info, and have no interest in funds or ETFs.

It has gone fairly well. I retired in 2006 at 48 when my investments (almost 90% in IRAs) generated enough income to replace my net salary.

 

[CabinLifeAt50]

Very nice! You've done what we are trying to get to. Love watching the income grow and so looking forward to that crossover point.

Congrats!

 

[Whisper66]

-Do you invest in individual stocks for dividends? - Yes but only occasionally, only a few and only with money I consider acceptable to be at higher risk. Normal investments are broad funds that I buy and expect to hold long term.

-If so, any interesting resources you use for research? - I haven't found any trending techniques that seem reliable to me. So basically I just focus on current list of Dividend Aristocrats when I want to buy a single stock for dividends.

-What kind of dividend strategy do you employ? (high yield, dividend growth, blend, other etc) - Dividend Aristocrats with temporary (hopefully) low prices. Generally only consider those with reasonable P/E ratios (say at least less than 30). For examples, the only recent ones I bought (late August 2015) were CVX, XOM, T, EMR, PG

-Do you blend dividend focused etfs/funds into your strategy? - Yes, I have one fund in a Vanguard fund targeting dividend growth companies (VDIGX).

 

[YVRRocketSurgery]

I invest in dividend paying stocks in my taxable account. However, I'm in Canada so I primarily buy Canadian companies in order to take advantage of our dividend tax credit.

I primarily look for companies that have the ability to grow their dividends. I try to limit my exposure to a couple of companies per sector to give me a bit of sector diversification.
While I automatically have the dividends reinvested, I might stop this because it's a pain in the rear from a house keeping perspective.

My biggest mistake was early on was just chasing yield. I was mainly just looking for companies with great yield and not researching their underlying business enough and got caught with, unexpected to me, dividend cuts.

My goal is to also replicate my net salary with dividend income to hopefully serve as a base but also along with index etfs providing additional growth for my portfolio overall.

 

[Senator]

My main holdings are IVW, IVV, DVY, QQQ, IWM. I mainly want something that is commission free so I can purchase as many or as little as I want.

I also want to be able to hold forever, and not have to pay taxes just because I want to re-allocate. I do not want to care if a companies earnings, or dividends go south. If my portfolio goes bad, so does the world.

I have owned companies that went bankrupt. The S&P is a lot easier to hold. Never underestimate the ability of a company to fold, or stick you with a massive tax bill. Medronic caused a LOT of issues with capital gains and the inversions.

 

[pb4uski]

I'm a total return investor. I don't particularly care whether my returns are from dividends or from realized appreciation.... at the end of the day it is still cash.

 

[Dash man]

I have a mix of dividend stocks from different sectors, primarily in companies that grow dividends. I also have some dividend ETFs and growth stocks/funds just to keep things manageable.
My largest holdings are MAIN, O, T, AVGO, ABC, DUK, AEP, JNJ, RPM, SBUX, KMB and DVY, along with a large chunk in an S&P fund. MAIN and O are in IRAs for tax purposes and they pay monthly. MAIN has supplemental dividends in June and December which is really nice. I've held all of these for years and my dividend payments based on original investment are much better that any new investment would pay. I reinvest dividends only in my IRAs. We have a contract in a house we just sold, so I'll be looking to add to my holdings soon.


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[bingybear]

I have to second that I'm really a total return investor, but I see dividends as an important part of my total return. I have a professional running one IRA with a dividend growth approach. However, being in an IRA and not taking dividends out, it truly looks like total return. Since I don't see the dividends unless I actively look for them, I would not know they are there.
I mostly use ETFs such as SDY, DVY, IDV,HDV and others.. I don't consider IVV and similar as real dividend plays as they are broader indexes that really don't focus on dividend stocks, but broad combinations dividend and growth together. I do own etfs like IVV, but don't consider them pure dividend plays.
I do buy individual dividend stocks. I use the free research on Schwab's and Fidelity's sites. I tend to use Argus, S&P Capital, and MarketEdge 2nd opinion for much of my decisions.
I looked at Motif that the OP noted. I'm not sure how that would play into my process. It sounds like you have to pick your basket and buy the same group so stocks. Right now I'm still in starting mode, so I'm picking stocks as I think they are attractive.

As noted with my professionally run IRA, I don't think doing a dividend investing in an IRA is the best place considering taxes.... at least in my case. I should be able to stay within the 15% marginal tax bracket which makes LTCG and Q-divy taxed at 0. So I mainly run my dividend portfolio attempts in taxable accounts. In addition to tax savings, I get a nice piece of paper (1099) that details my dividend progress at the first of the year.

 

[W2R]

I don't invest with dividends in mind; mostly I invest in broad index funds, along with 30% Wellesley.

Despite that, in retirement I think it's a fun goal to spend less than my dividends for the previous year. I did that from 2009-2014. In 2015 I bought a house in cash so my spending exceeded my dividends. But other than the house, I met that goal again.

 

[CabinLifeAt50]

I mostly use ETFs such as SDY, DVY, IDV,HDV and others.. I don't consider IVV and similar as real dividend plays as they are broader indexes that really don't focus on dividend stocks, but broad combinations dividend and growth together. I do own etfs like IVV, but don't consider them pure dividend plays.
I do buy individual dividend stocks. I use the free research on Schwab's and Fidelity's sites. I tend to use Argus, S&P Capital, and MarketEdge 2nd opinion for much of my decisions.
I looked at Motif that the OP noted. I'm not sure how that would play into my process. It sounds like you have to pick your basket and buy the same group so stocks. Right now I'm still in starting mode, so I'm picking stocks as I think they are attractive.

I have a few of the same ETFS- IDV, HDV, DVY and a few others in my HSA currently- quite like them for ease of management and the income they spin off. Being an HSA, adds a bit of cash to use for medical if needed without touching the balance.

For Motif, you can pick a premade basket- think just like an etf, or build your own. I just build my own which I picked a number of high quality dividend growers. I own the underlying shares in the basket just like buying the stock individually and you can buy/sell individually as well as buy the whole basket at once. I'm using this to average into the basket of stocks each month, sometimes some stocks are higher sometimes lower, but we all do the same thing when buying into etfs/funds at any given point.

I have a mix of dividend stocks from different sectors, primarily in companies that grow dividends. I also have some dividend ETFs and growth stocks/funds just to keep things manageable.
My largest holdings are MAIN, O, T, AVGO, ABC, DUK, AEP, JNJ, RPM, SBUX, KMB and DVY, along with a large chunk in an S&P fund.

Some great companies there! I have O, T, DUK, AEP, JNJ out of that batch for the same reason. It's great to see the announcements for dividend raises as time goes as well as that growing stream of income without doing anything to the underlying shares.

 

[CabinLifeAt50]

I don't invest with dividends in mind; mostly I invest in broad index funds, along with 30% Wellesley.

Despite that, in retirement I think it's a fun goal to spend less than my dividends for the previous year. I did that from 2009-2014. In 2015 I bought a house in cash so my spending exceeded my dividends. But other than the house, I met that goal again.

While perhaps a different route, sounds like you are hitting the same goal, and that's great in itself!

 

[Sunset]

I'm a total return investor. I don't particularly care whether my returns are from dividends or from realized appreciation.... at the end of the day it is still cash.

+1
I did chase one div etf that paid 4% , and naturally the value of the etf dropped so it has not been a great overall reward.

I will purposefully buy a stock that pays zero dividend, as the return has beaten the market for decades nearly every year. I'll just sell some if I need cash. Yes it's Berkshire (but the cheap ones).

 

[cyber888]

I have dividend funds. I started buying big last year and during the slump the first part of this year, the principal has appreciated by 5% and the funds are earning me 6%+, mostly tax-exempt bond funds. Most of it are in EIM and NMZ.

 

[target2019]

-Do you invest in individual stocks for dividends?
-If so, any interesting resources you use for research?
-What kind of dividend strategy do you employ? (high yield, dividend growth, blend, other etc)
-Do you blend dividend focused etfs/funds into your strategy?

- Yes, invest in individual stocks for dividends.
- Rely on a custom google sheet, SeekingAlpha, & Fastgraphs
- Pretty much dividend growth. Also try to supplement areas which are not covered well in rest of portfolio (REIT, int'l)
- Use ETFs for int'l.

 

[ESRwannabe]

There are two types of withdrawal strategy that I like. One is the dividend growth strategy and the other is the endowment strategy.

Morningstar has a video explaining each of these and two others:

4 Retirement-Withdrawal Strategies

So, yes I do invest in stocks for dividends. Sometimes I buy individual stocks but mostly I just use ETFs. ETFs make everything very easy. Two good ones are from Vanguard: (VYM) High Div Yield Idx and (VIG) Div Appreciation Idx.

For the endowment method I like Vanguard's Managed Payout and then also various CEFs that have a managed distribution policy. You can find CEFs covering every sector. Right now I own CEFs that invest in covered call strats on S&P 500 and MSCI World idx. Also CEFs that invest in BDCs and also Infrasturcture (REITs, Utilities, Telecom, etc).

The endowment method sets a steady monthly income stream with the caveat that you have to watch them and make sure you aren't getting too much ROC eating into your seed corn.

The dividend growth, at least with ETFs, is pretty random income but you don't have to worry about it depleting assets.

You can also buy individual dividend stocks and you wil have much steadier income stream with added risk that comes from owning individual companies.

 

[CabinLifeAt50]

The dividend growth, at least with ETFs, is pretty random income but you don't have to worry about it depleting assets.

You can also buy individual dividend stocks and you wil have much steadier income stream with added risk that comes from owning individual companies.

Good points I've seen as well. While I have both routes, I definitely prefer the more relatively stable income growth and payout seen with the individual stocks. Makes things easier as a true income replacement from month to month. With enough stocks you can build a monthly payout pretty easy.

 

[Dash man]

One reason I like some exposure to business development company stocks like Mainstreet Capital, is they pay monthly, plus they have two additional special dividends, pay about 7%, and ate like a small mutual fund by lending no taking equity in established small to mid sized companies. Usually having a portfolio in about 200-240 companies at a time. It's grown to be my largest individual stock holding with dividend reinvesting. Executive management is paid in stock and it is a well run company. They weren't hit too badly in the 2008 market.
They do have some risk, but MAIN is rated better than any others I'm aware of.


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[ESRwannabe]

One reason I like some exposure to business development company stocks like Mainstreet Capital, is they pay monthly, plus they have two additional special dividends, pay about 7%, and ate like a small mutual fund by lending no taking equity in established small to mid sized companies. Usually having a portfolio in about 200-240 companies at a time. It's grown to be my largest individual stock holding with dividend reinvesting. Executive management is paid in stock and it is a well run company. They weren't hit too badly in the 2008 market.
They do have some risk, but MAIN is rated better than any others I'm aware of.


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BDCs are nice because they are registered investment companies. So they pay out 90% to 98% of their income to shareholders and avoid corporate tax. This translates into high income. They are also pretty diversified, making loans to many companies in all sectors. Also their loans usually have inflation protection. Lastly since they are companies you may get some dividend growth over time. IMHO, BDCs are a better deal than high yield bonds.

Right now I am using a CEF to invest in BDCs. Since they are small, less liquid companies, I like having some management oversight on stock selection. The CEF is First Trust Specialty Finance (FGB). As far as I know its the only BDC focused CEF out there. It was the only one I could find on

CEF Connect - Brought to you by Nuveen Closed-End Funds

Here is morningstar info on it:

FGB First Trust Specialty Finance CEF FGB Quote Price News

I know of one ETF for CEFs as well, but I'm not using it yet. May stick to only active management on these.

BIZD Market Vectors® BDC Income ETF ETF BIZD Quote Price News

 

[ejman]

I like the steady dividends furnished by old style balanced funds such as Wellington, Wellesley. On 12/31/2005 I had $50,000 in Wellington in my Taxable account and since I was already ER'd I took all dividends in cash as follows:

2006 - $1,726
2007 - $1,890
2008 - $1,990
2009 - $1,875
2010 - $1,771
2011 - $1,963
2012 - $2,005
2013 - $1,981
2014 - $2,087
2015 - $2,091

Value at the end of 2015 was $74,485. Works for me.

 

[MRG]

I have some individual stocks MO, MRK, AEP, O, T, GE. Some ETFs too, SDOG, IDOG, PFF. Some of these I've had for a long time the MO positions have done very well.

Research mainly with Fidelity, someone here is responsible for me getting into O at a great discount. Don't recall who it was but a big thank you.

 

[Bryan Barnfellow]

My wife and I are recently retired (just passed the one year FIRE mark!). We derive 50% of our household income from a taxable stock account holding 20 dividend growth stocks, which are mostly large blue chips (such as MO, PM, PG, JNJ, GE, MSFT, PFE) plus a REIT (HCN) and two BDCs (MAIN and ARCC). The portfolio, which I began constructing in 1998, pays just under 5% annually in current income and grows the dividends about 3-4%/year. The portfolio itself is up about 50% in value, dividends aside. I spend about 5 hours each week keeping track of news, various online forums, etc. monitoring the portfolio and use Josh Peter's Dividend Investor newsletter (Morningstar product) for ideas and alerts.

The other half comes from an annuitized US 403(b) accumulation and a small Swiss pension. These are my bond equivalents. Still to come are US and Swiss Social Security for my wife and me. We have traditional and Roth Iras which we haven't touched as yet. US IRAs are taxable in Switzerland. US dividends are taxed at the full Swiss rate and we pay a "wealth tax" on the total value of our worldwide assets of around 1%. That said, I don't tend to trade much at all.

I like the dividend growth model because I can just spend the dividends and ignore price fluctuations that aren't connected to the long term fundamentals of the companies I hold. I like holding individual stocks because I have control of buying and selling and don't pay anything to Schwab beyond my original purchase/sell fees; that is, no ongoing account maintenance charges or fees. I also can use tax loss selling and balancing against gains as needed.

I worry most about the USD/CHF exchange rate.

-BB

 

[thepalmersinking]

I like DVY as we'll but you need to keep an eye on it as it is heavily exposed to utilities. Vym was what I used as a replacement for part of my DVY holdings.


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[Danmar]

I have always invested in individual div paying stocks. Portfolio includes about 12 names currently, yields about 4% and these divs represents a little more than half my retirement cash flow. Not as diversified as most would like and heavily concentrated in banks, telcos, and pipelines. All Canadian. Total return over last 20 years is about CAGR of 12%. Growing divs are my inflation hedge. Only had one div cut over this whole period and it was insignificant. Divs typically are growing at about 7-8% per year and up about 75% since the financial crises.

As others have mentioned divs are much less volatile than stock price, make it very easy to plan cash flows, and tend to be paid by well established, large cap companies. I agree that total returns are the key metric, but in my experience div growth stocks are some of the best businesses around and usually provide for a good total return.

Current issue is the increased tax rates on divs for high earners in Canada. Imbedded cap gains are too high to easily shift my stategy at this point.

 

[misanman]

I am a dividend growth investor. Investments currently generate about $58K of dividend income per year. Resources I depend on include: Excel spreadsheet, FastGraphs, David Fish's Dividend Champions, Seeking Alpha, and Josh Peters (Morningstar).

I am currently drawing down IRAs and doing Roth conversions to avoid a future tax torpedo.