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Dividends vs Portfolio Performance
Old 11-01-2019, 04:19 PM   #1
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Dividends vs Portfolio Performance

Slow day at the marko household today, so an idle question:

Preliminary year-end dividends came in the other day. I now have over a decade of tracking total annual dividends vs portfolio value (all MFs).

With very little change in portfolio AA or the funds it holds, this year's dividends will be a bit lower than last year. Last year was the best dividend year of all time despite a bad portfolio year.

Burning up my Excel sheets today, I haven't really been able to find a year to year correlation between how well the portfolio does and dividends. Granted over a decade they've only varied about .7% from average of any year.

What I did find was a slight correlation if I slip a year. That is, last year was a bad year for the portfolio and this year had slightly lower dividends...this occurred a few times. Conversely 2017 was a good year so my 2018 dividends--almost a year later were the best of all time.

Just wondering if there are any gurus out there who might confirm or explain if I'm just seeing things or what. Per usual I could be out in the weeds.
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Old 11-01-2019, 04:40 PM   #2
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Yes, after a bad year distributions drop a bit. After a really bad year they might go to 0 for cap gains distributions.
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Old 11-01-2019, 05:06 PM   #3
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So this would explain how the dividends for 2018 were excellent despite a bad year because the dividends were reflecting a good 2017?
Quote:
Originally Posted by audreyh1 View Post
Yes, after a bad year distributions drop a bit. After a really bad year they might go to 0 for cap gains distributions.
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Old 11-02-2019, 10:43 PM   #4
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Along this line I have (or will have after RMDs) cash to invest in equities. One is a Roth account, the other outside of IRAs. We are 'mature' - 80ish - investors with currently a 50/50 allocation. I am weighing a solid dividend payer such as VZ or T, vs S&P 500.

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Old 11-03-2019, 12:42 AM   #5
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Along this line I have (or will have after RMDs) cash to invest in equities. One is a Roth account, the other outside of IRAs. We are 'mature' - 80ish - investors with currently a 50/50 allocation. I am weighing a solid dividend payer such as VZ or T, vs S&P 500.

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Since you ask for comments . . .

Both solid companies, but with low growth. BPR is the best value of the stocks I follow, very solid management and financials, 6.9% yield at the moment with 5-8% annual dividend growth expected over the years. This is a non-US REIT, so if held outside an IRA there will be some tax complexity, including foreign tax withheld (no issues in an IRA).
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Old 11-03-2019, 01:53 AM   #6
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Quote:
Originally Posted by marko View Post
Slow day at the marko household today, so an idle question:

Preliminary year-end dividends came in the other day. I now have over a decade of tracking total annual dividends vs portfolio value (all MFs).

With very little change in portfolio AA or the funds it holds, this year's dividends will be a bit lower than last year. Last year was the best dividend year of all time despite a bad portfolio year.

Burning up my Excel sheets today, I haven't really been able to find a year to year correlation between how well the portfolio does and dividends. Granted over a decade they've only varied about .7% from average of any year.

What I did find was a slight correlation if I slip a year. That is, last year was a bad year for the portfolio and this year had slightly lower dividends...this occurred a few times. Conversely 2017 was a good year so my 2018 dividends--almost a year later were the best of all time.

Just wondering if there are any gurus out there who might confirm or explain if I'm just seeing things or what. Per usual I could be out in the weeds.
Hmmm... I have never looked at dividend alone, and pay more attention to portfolio value, which of course is driven more by capital gain/loss, whether realized or not.

How would I not know better what my dividends are? That's because much of my stash is tax-deferred, and when I make a withdrawal from that blob, I pay the same tax whether it's principal, cap gains, or dividends, or short-term income from option trading. So, all I care is for the blob to grow no matter how. Life is simpler when you have to look at just one number.

In some years, cap gains distributed by MFs jumped up a bit if there was some upheavals, and active funds had a bit of portfolio churning. However, I think the OP talked about dividend only, and that should be more stable.

I just used Quicken to rely on it to sum up all past dividends in a report, and saw that my 2018 dividends were 4% higher than 2017 dividends. I won't know exactly what the total 2019 dividends would be yet, but it looks like it would be higher than 2018, perhaps as much as 20%.

But it may not mean anything, as I have shifted my stock composition towards more defensive stocks, despite also reducing the stock AA from 70-80% down to 60% currently.

In the course of looking at this, I saw that I could live OK on just the dividend+interest income of the portfolio, even without SS, and would still feel very comfortable. Yep, that's what Bernicke has been saying all along, that people spend less as they age.
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Old 11-03-2019, 01:21 AM   #7
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So this would explain how the dividends for 2018 were excellent despite a bad year because the dividends were reflecting a good 2017?
In part yes, but 2018 also represents the case where distributions can be pushed higher due to a correction/bear as panic selling causes redemptions which forces funds to realize more cap gains. Then the following year you get some relief as the situation normalizes and there are less gains to realize. 2018 had also been a strong year before the close to 20% late year correction exacerbating the situation.

If this year continues to be a good one, expect higher distributions again next year.

Note I’m talking about distributions - the cap gains. Not specifically dividends.

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Preliminary year-end dividends came in the other day. I now have over a decade of tracking total annual dividends vs portfolio value (all MFs).
I know you are talking about distributions in the OP because that’s what preliminary estimates are provided for. They usually include dividends. It’s the cap gains distributions specifically that show this 1 year lag behavior and that can be high during a bad market year.
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Old 11-03-2019, 01:35 AM   #8
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In some years, cap gains distributed by MFs jumped up a bit if there was some upheavals, and active funds had a bit of portfolio churning. However, I think the OP talked about dividend only, and that should be more stable.
The OP said dividends but I think really means cap gains distributions due to the reference to preliminary year-end estimates. Such estimates include cap gains distributions and are provided because annual cap gains distributions are far less predictable than dividends alone.

Yes dividends alone would be far more stable.
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Old 11-03-2019, 01:52 AM   #9
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The OP said dividends but I think really means cap gains distributions due to the reference to preliminary year-end estimates. Such estimates include cap gains distributions and are provided because annual cap gains distributions are far less predictable than dividends alone...
Sounds reasonable to me. I never went looking for estimates of cap gain distributions. As explained earlier, it does not matter to me now regarding the tax liability.

In the past, when still having earned income and having more in taxable funds before I spent them down, there were years I was hit with AMT due to high cap gain distributions. Knowing it a month or two in advance would not help me dodge the tax bill anyway.
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Old 11-03-2019, 02:04 AM   #10
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Sounds reasonable to me. I never went looking for estimates of cap gain distributions. As explained earlier, it does not matter to me now regarding the tax liability.

In the past, when still having earned income and having more in taxable funds before I spent them down, there were years I was hit with AMT due to high cap gain distributions. Knowing it a month or two in advance would not help me dodge the tax bill anyway.
It could help somewhat, as knowing in advance you had the option of selling a fund ahead of the distributions payout realizing all gains as long term, rather than having some as short-term cap gains distributions and thus subject to AMT. I had a few cases over the years where I had lower unrealized gains in a fund than the estimated year-end distributions, so I would sell these funds ahead of payout thus reducing the taxable proceeds for the year.

Fortunately I’m well below AMT thresholds now with the last tax law changes.
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Old 11-03-2019, 05:10 AM   #11
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The OP said dividends but I think really means cap gains distributions due to the reference to preliminary year-end estimates. Such estimates include cap gains distributions and are provided because annual cap gains distributions are far less predictable than dividends alone.

Yes dividends alone would be far more stable.
OP here. No, I separate dividends and cap gains in my tracking. I understand why cap gains vary from year to year.

What I found were that MF dividends (some paid monthly, some only at year's end) were slightly off for '19 despite a stellar portfolio performance.

I found a mild correlation between a bad portfolio year and poor dividends if I put a one year lag in the mix: a bad port year '18 seems to reflect 12 months later in poor dividends for '19 and a good port year for '17 seems to reflect 12 months later in good dividends for '18 despite that '18 was bad.

As you note, the dividends are fairly stable so I'm not talking about huge swings percentage-wise but with large-ish numbers involved it does make a difference dollar-wise.

For example my '18 dividends registered at 2.65% of my portfolio and this year they are 2.12% of my portfolio with a 12 year average (including '08) of 2.57%; actual dollars are also off by about 8%. Just found it odd that I'm having the best year ever yet my dividends did not reflect that.

Also note that I'm an Excel freak (more of a record keeper than mathematician) with a lot of free time so I do tend to over analyze by nature.
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Old 11-03-2019, 06:08 AM   #12
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Marko,
It may be that you're seeing something that has several causes. Is this bond funds and stock funds?

In stock MF you might see some cause from certain companies cutting dividends. And, companies have been dropped from the MF's. And as mentioned by others, after a poor year, I'd think more companies would retard the growth of dividend in following year.

You've certainly presented a mind-bending question. Since you're talking about mutual funds, there's a lot of companies in the mix. It would make for an interesting academic study, if just one fund were the subject.
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Old 11-03-2019, 06:39 AM   #13
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OP here. No, I separate dividends and cap gains in my tracking. I understand why cap gains vary from year to year.

What I found were that MF dividends (some paid monthly, some only at year's end) were slightly off for '19 despite a stellar portfolio performance.

I found a mild correlation between a bad portfolio year and poor dividends if I put a one year lag in the mix: a bad port year '18 seems to reflect 12 months later in poor dividends for '19 and a good port year for '17 seems to reflect 12 months later in good dividends for '18 despite that '18 was bad.

As you note, the dividends are fairly stable so I'm not talking about huge swings percentage-wise but with large-ish numbers involved it does make a difference dollar-wise.

For example my '18 dividends registered at 2.65% of my portfolio and this year they are 2.12% of my portfolio with a 12 year average (including '08) of 2.57%; actual dollars are also off by about 8%. Just found it odd that I'm having the best year ever yet my dividends did not reflect that.

Also note that I'm an Excel freak (more of a record keeper than mathematician) with a lot of free time so I do tend to over analyze by nature.
OK - I obviously did misinterpret your OP so thanks for that correction. Some thoughts: It seems unless you have a year like 2008/2009 where many companies cut their dividends, after a bad market year you would see about the same $ in dividends with some increase accounted for by share reinvestment in your portfolio.

Looking at it % wise just depends on the value of your portfolio at any given time. If the portfolio grows a lot, but dividend payouts haven’t increased much yet, you would see a drop % wise.

Cap gains distributions dominate my taxable income so I’ve never observed the pattern of dividends alone. And a big part of my dividends come from bond funds so those are driven by interest rates.

Paid YTD I have a reduction in total distributions of almost 50% compared to this time last year! And from what I am starting to see in estimates, I expect big drops in end of year cap gains distributions plus smaller interest payments from bond funds.
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Old 11-03-2019, 08:32 AM   #14
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Marko,
It may be that you're seeing something that has several causes. Is this bond funds and stock funds?

In stock MF you might see some cause from certain companies cutting dividends. And, companies have been dropped from the MF's. And as mentioned by others, after a poor year, I'd think more companies would retard the growth of dividend in following year.

You've certainly presented a mind-bending question. Since you're talking about mutual funds, there's a lot of companies in the mix. It would make for an interesting academic study, if just one fund were the subject.
I agree that it's a complicated question/observation with too many moving parts to ever nail down. OTOH, it is possible to be some sort of coincidence; correlation/causation; as noted I could be out in the weeds (per usual) as well.
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Old 11-03-2019, 08:39 AM   #15
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Looking at it % wise just depends on the value of your portfolio at any given time. If the portfolio grows a lot, but dividend payouts haven’t increased much yet, you would see a drop % wise.

Paid YTD I have a reduction in total distributions of almost 50% compared to this time last year! And from what I am starting to see in estimates, I expect big drops in end of year cap gains distributions plus smaller interest payments from bond funds.
Yes, I've seen the same thing in my bond fund...a slow but small creep downward since June. Overall with Prelim YE reports--combined dividends and CGs-- I'm seeing just about 45% drop in dollars vs last year BUT a 15% dollar gain over my 12 year average.

Granted 2018 was an extraordinary year for dividends and CGs...my best ever; so a comparison to last year is bit unfair.

If there is no correlation to the previous year, maybe a better question might be why are dividends and CG's for this stellar year down?
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Old 11-03-2019, 09:15 AM   #16
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I agree that it's a complicated question/observation with too many moving parts to ever nail down. OTOH, it is possible to be some sort of coincidence; correlation/causation; as noted I could be out in the weeds (per usual) as well.
On this page you may find year-by-year for the S&P500 dividend.
https://www.multpl.com/s-p-500-dividend/table/by-year
Other links at the site have earnings, rate of growth, etc. Information is in tables, and it can be copied to Excel as needed.

I think you could correlate dividend to earnings of previous year in Excel, and see if the realtionship you mention holds up. Or maybe it is the rate of dividend growth that went down (as earnings rate increases in follow-on year).

Another thought is to perform a similar analysis of the top 10 individual holdings of the S&P500, and see what goes on.

If I type much more I will sprain my brain...
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Old 11-03-2019, 09:18 AM   #17
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Oh my, scanning this thread I'm glad to be a total return investor... I hardly pay any attention to dividends... they are what they are.... besides, if I receive $100 of dividends then the value of my shares just decrease by $100 so it doesn't make a difference to me and my cash allocation provides all the liquidity than I need.
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Old 11-03-2019, 09:25 AM   #18
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Oh my, scanning this thread I'm glad to be a total return investor... I hardly pay any attention to dividends... they are what they are.... besides, if I receive $100 of dividends then the value of my shares just decrease by $100 so it doesn't make a difference to me and my cash allocation provides all the liquidity than I need.
I agree, but my question isn't about the pros or cons of dividends
it's more about the why they might be down in a good year and up in a bad year, coupled to a questionable(?) observation that a good/bad previous year might be an influencer.
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Old 11-14-2019, 08:15 AM   #19
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Not to re-ignite this boring thread, but I came across something today that might help explain my inquiry/observation.

https://www.morningstar.com/articles...s-2019-edition
Excerpt: "At the same time, investors continue to yank their dollars from many actively managed funds, and that forced selling can compel management to sell appreciated positions. Those distributions in turn are made to a reduced group of shareholders. That's where big capital gains distributions come in."

This, and the inverse: a larger group of shareholders, could also apply to dividends as well.

My original observation was it seemed that a current year's dividend was out of sync by one year, reflecting the previous year, not the current one.

Now I wonder if a good year brings in all kinds of new investors and as a result, the same/more dividends are paid but to a larger set of recipients, dropping the individual's payment. Conversely a bad year has investors leaving a fund so that the following year there are fewer recipients to be paid.

Just an idea which per my usual, may or may not hold water.
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Old 11-14-2019, 08:44 AM   #20
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... I haven't really been able to find a year to year correlation between how well the portfolio does and dividends. ...
Why would you expect one?
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