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swodo 08-20-2011 03:44 PM

Dividend paying Stocks
 
Many of the pundits now say that high quality dividend paying stocks are currently a good investment to have in the current economy.
I hold such quality investments and they in total pretty much follow the performance of the Dow. Hardly seems like a relatively safe investment.
Your thoughts please?

Gatordoc50 08-20-2011 05:36 PM

If you are going for income then dividend paying stocks may be a good idea. However a 4% dividend doesn't mean much if the stock loses 50 % of it's value if you are going for appreciation. There are a lot of so called good companies that haven't come close to regaining there stock price in over a decade.

Gatordoc50 08-20-2011 05:37 PM

Quote:

Originally Posted by Gatordoc50
If you are going for income then dividend paying stocks may be a good idea. However a 4% dividend doesn't mean much if the stock loses 50 % of it's value if you are going for appreciation. There are a lot of so called good companies that haven't come close to regaining there stock price in over a decade.

Sorry for the misspells and grammar. Lol

MichaelB 08-20-2011 05:46 PM

Quote:

Originally Posted by swodo (Post 1103388)
Many of the pundits now say that high quality dividend paying stocks are currently a good investment to have in the current economy.
I hold such quality investments and they in total pretty much follow the performance of the Dow. Hardly seems like a relatively safe investment.
Your thoughts please?

It depends on your investment objectives and risk tolerance. Here are a couple of threads on dividends you might find interesting.
http://www.early-retirement.org/foru...urn-55897.html
http://www.early-retirement.org/foru...swr-52046.html

freebird5825 08-20-2011 06:04 PM

My answer to getting into dividend paying stocks is VHDYX. I freely admit my shortcomings when it comes to buying individual stocks. I have a low to medium risk tolerance.

I opened an account in VHDYX in Spring 2009. ;D

VHDYX Vanguard High Dividend Yield Index Inv, mutual funds, quote, price - Morningstar

haha 08-20-2011 06:05 PM

Quote:

Originally Posted by swodo (Post 1103388)
Many of the pundits now say that high quality dividend paying stocks are currently a good investment to have in the current economy.
I hold such quality investments and they in total pretty much follow the performance of the Dow. Hardly seems like a relatively safe investment.
Your thoughts please?

The purpose of dividend investment is income, not market returns.

If what you are intersted in is market returns, save yourself a lot of work and grief and buy indexes according to your AA.

Ha

grumpy 08-20-2011 06:51 PM

I don't know which dividend payers you are looking at but many of mine have held up pretty well lately. I started buying many of these near their lows following the 2008 debacle. Even with the Dow down from 12800 to 10400 they are still above my average cost and I have been collecting (and reinvesting dividends).

Some examples are: AEP, EXC, JNJ, MMP, MMC, VZ, . I hold positions in 14 other dividend payers with an overall average yield on my cost over 5%. I am continuing to buy on the dips.

Nords 08-20-2011 07:18 PM

Quote:

Originally Posted by swodo (Post 1103388)
Many of the pundits now say that high quality dividend paying stocks are currently a good investment to have in the current economy.
I hold such quality investments and they in total pretty much follow the performance of the Dow. Hardly seems like a relatively safe investment.
Your thoughts please?

Here's a blog post of the Dividend Growth Investor laying a direct smackdown on the 4% SWR:
Dividend Growth Investor: Why I am a dividend growth investor?

Of course they don't assess the relative amounts of capital between the two portfolios needed to achieve the same dollar amount of inflation-adjusted annual spending. I guess the trick would be rigorous screening and regular purchases of individual stocks to achieve above-average returns which would also produce above-average dividends.

In other words, if you want to avoid consuming principal then you gotta be willing to work longer or harder.

mathjak107 08-20-2011 07:21 PM

its all about total return just like any stock. there is no magic in a dividend. in fact dividends are cut just at the worst of times if your trying to live off them directly.

usually you end up selling shares at a loss to make up the income shortfall.

you can create a dividend off any stock. just sell a little piece each year. whether the company does it or you do it the net effect is the same.

watch your total return ,its all that counts.

haha 08-20-2011 08:06 PM

Quote:

Originally Posted by mathjak107 (Post 1103484)
its all about total return just like any stock. there is no magic in a dividend. in fact dividends are cut just at the worst of times if your trying to live off them directly.

usually you end up selling shares at a loss to make up the income shortfall.

you can create a dividend off any stock. just sell a little piece each year. whether the company does it or you do it the net effect is the same.

watch your total return ,its all that counts.

Thank you. I guess I must be deluded, because I have been living off dividend stocks for over 2 decades. Perhaps I have unknowingly joined the communion of the undead?

Ha

GregLee 08-20-2011 08:09 PM

Quote:

Originally Posted by mathjak107 (Post 1103484)
its all about total return just like any stock. there is no magic in a dividend.

That's the way it seems to me, but I keep suspecting I must be missing something when I keep reading stuff about "preserving principle" or "living off dividends". What are they talking about? I know there are some tax differences between dividends and capital appreciation, but they seem relatively trivial. Aside from that, it's all just money. If you invest through mutual funds, you can instruct your fund manager to reinvest dividends and distributions, and then you can just be concerned with the market value and how it changes from year to year as you contribute and withdraw. If you no longer contribute, you might consider the initial market value as the "principle" and withdraw any excess that accumulates as your "dividend".

Ronnieboy 08-20-2011 08:17 PM

Quote:

Originally Posted by haha (Post 1103495)
Thank you. I guess I must be deluded, because I have been living off dividend stocks for over 2 decades. Perhaps I have unknowingly joined the communion of the undead?

Ha

Zombie alert!!

At least your dividends will continue to pay either way ;D

I believe CyclingInvestor will have the same comment.

Dividend stocks will be part of my retirement plan.:dance:

REWahoo 08-20-2011 08:21 PM

Unclemick will be along shortly to psst on this thread...

DblDoc 08-20-2011 09:08 PM

Quote:

Originally Posted by Ronnieboy (Post 1103500)
Zombie alert!!

At least your dividends will continue to pay either way ;D

I believe CyclingInvestor will have the same comment.

Dividend stocks will be part of my retirement plan.:dance:

And mine...as part of my index funds :rofl:

More than one way to Rome. Just don't fall into the trap of thinking it is less risky than a total return approach. TANSTAAFL.

DD

clifp 08-20-2011 09:12 PM

Quote:

Originally Posted by haha (Post 1103449)
The purpose of dividend investment is income, not market returns.

If what you are intersted in is market returns, save yourself a lot of work and grief and buy indexes according to your AA.

Ha

Quote:

Originally Posted by Nords (Post 1103482)
Here's a blog post of the Dividend Growth Investor laying a direct smackdown on the 4% SWR:
Dividend Growth Investor: Why I am a dividend growth investor?

Of course they don't assess the relative amounts of capital between the two portfolios needed to achieve the same dollar amount of inflation-adjusted annual spending. I guess the trick would be rigorous screening and regular purchases of individual stocks to achieve above-average returns which would also produce above-average dividends.

In other words, if you want to avoid consuming principal then you gotta be willing to work longer or harder.


Despite mine and others love for dividend investing (it has become even more popular in the last few years even Cramer talks about dividends several times per show) there isn't a lot of data that it is superior to total return investing. Part of the reason I think this is true is because so much of the research has focused on the accumulation phase, and for the most part (there is a Vanguard study which is an exception) the withdrawal stage studies are awfully simplistic. The other possibility is that Mathjack and other are right, and dividends aren't a magic bullet.

It is undoubtedly simpler to buy index funds and do annual rebalancing.

As Nords says it is does require more capital to get portfolio that lets you live off the dividends. For instance the yield on VHDYX is 2.72% and the yield for the 10 stocks suggested the Dividend growth investor is 3.0%. So if you want to withdraw 40k/year strictly from the income requires 1.33 to 1.47 million. My portfolio has yield of 4.2% but that is because I have number of MLP like KMP,MMP, BLP, and SPH that yield in the 6-7.5% range and my largest holding Intel has 4.4% yield, so that balances out my index funds like VTI 1.8% yield or Well Fargo WFC at 2.0%.

The benefit to me is that I am pretty confident that next year I'll receive at least $44,697 in dividends and I actually expect that amount to increase by a couple of thousand due to dividend increases. The dividend plus additional interest from CDs and Vanguard GNMA fund and rental income is what I can budget for living expenses. Having the high degree of confidence on next years income, makes it easier to cope with market volatility and reduces the chance I'll do something silly like sell at the bottom.

I have only been doing this for a 11 years, so HaHa and I must have Folie a Deux

haha 08-20-2011 09:28 PM

One thing frequently ignored is that serious dividend investors like to get a lot more information on their intended investments than most indexers or total return investors. It takes considrable amount of work and time and some skill.

This doesn't guarantee that it will be successful for a given investor, but this type of investing does have a much longer history than modern total return investing.

Dividend investors are not disinterested in total return, they just are not planning to harvest any of the price increases for living expenses.

Ha

JPatrick 08-20-2011 09:29 PM

Quote:

Originally Posted by swodo (Post 1103388)
I hold such quality investments and they in total pretty much follow the performance of the Dow. Hardly seems like a relatively safe investment.
Your thoughts please?

Well they have not all followed the DOW.
Take DVY for instance, it has fallen, but roughly half as much as the DOW over the past 6 months. The magic is probably as simple as the fact that it is an index and one or two, or twenty failures won't sink it.
Up against most any index, DVY comes out on top and you get that nice 3.5 div. My figures are for the past 6 months.
I've bought quite a lot of DVY over the past two weeks, and I'm planning to pick up more if it falls back to its recent low.

heirloom 08-20-2011 10:26 PM

I haven't seen anyone mention utility stocks. They have a nice dividend and are a safe investment.

Index funds...I'm not that crazy over them even though their rates are cheaper. My 401K is Vanguard, so you know mostly what it consitsts of. When the mkt hits bottom, they will be a great investment because everything will go up.

But when the mkt hits the top, you need a good managed fund imo.

Plus...I love PTTRX for a total return fund. Can't wait until Dec to see the HUGE CG we get. VTBIX is a good bond.

I sold all my index funds right before the correction and will get back in when I think the upcoming recession is over. YES...a recession is on its way.

bbbamI 08-20-2011 10:28 PM

Quote:

Originally Posted by REWahoo (Post 1103502)
Unclemick will be along shortly to psst on this thread...

http://www.freesmileys.org/smileys/smiley-chores012.gif

heh heh heh

Nords 08-21-2011 01:08 AM

Quote:

Originally Posted by clifp (Post 1103520)
I have only been doing this for a 11 years, so HaHa and I must have Folie a Deux

I've noticed that most of the dividend-investing skeptics appear to still be in the accumulation phase, while most of the dividend-investing believers are in the ER phase.

It's possible that correlation does not equal causation. But in this instance I think dividend investing is a better path to ER than most.


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