Dividend stock vs bonds

[JJpop]

Ok I will forget about the dividend method. I guess I just needed to hear it and I am planning on being around for awhile. Thanks for the excellent feedback.

 

[Big_Hitter]

Goal is simply 3000 to 4000 per year in dividends to spend and when I go to the great beyond hopefully leave well more than 100K to someone.

2000 shares of T will get you $4,000 a year in dividends at the current dividend level

not suggesting that T is right for you but I'm a bit long in it

like others have said, dividend stocks have $0 par value

 

[JJpop]

2000 shares of T will get you $4,000 a year in dividends at the current dividend level

not suggesting that T is right for you but I'm a bit long in it

Yea it seems so simple. What could ever go wrong that would force T to cut its dividend in half or more? Wells Fargo is yielding 7 pct. Two huge companies with millions of customers and a long history. Just do not trust it.
If I wanted to play around with some funny money I might buy a little of each but no way would I make a large investment.0

 

[Big_Hitter]

Yea it seems so simple. What could ever go wrong that would force T to cut its dividend in half or more? Wells Fargo is yielding 7 pct. Two huge companies with millions of customers and a long history. Just do not trust it.
If I wanted to play around with some funny money I might buy a little of each but no way would I make a large investment.0

when I said a bit long, T is about 3% of my liquid stash

 

[JJpop]

I was referring to buying enough to pay 4000 in dividends for myself.
This subject really makes my brain feel like a ping pong ball when listening to total return people vs dividend people. I understand both sides which makes my brain feel like a ping pong ball

 

[Big_Hitter]

ah, ok got it - I was just answering the question

yes we have lots of opinions, one of mine is that "the only free lunch you get is diversification"

now that I'm actually retired, I'm using tax-exempt interest and qualified dividends to offset our monthly expenses

 

[gwraigty]

I was referring to buying enough to pay 4000 in dividends for myself.
This subject really makes my brain feel like a ping pong ball when listening to total return people vs dividend people. I understand both sides which makes my brain feel like a ping pong ball

I'm an income oriented investor. I don't let the continual debates sway me from doing what has worked for me for a long time already. Neither should anyone else, IMO. Listening to both sides is useful when someone is undecided or would like to do a blend of both investing styles. You seemed pretty convinced of your path to begin with.

 

[HarveyS]

I appreciated the question and the debate. It is always good to have a review of some basics which causes me to think about where I am, what I own, and why. Thanks to all who contributed.

 

[ERD50]

OP seeems to have made it pretty clear that he understands your suggestions and is not interested.

And that's fine. But I still like to break out these points to the larger audience, and to test my own beliefs.

...
Life is short. Let's spend the rest of it arguing with people we don't know about things that don't matter.

It's only an argument if you view it as such. I simply see it as a discussion that might shed some light on some beliefs that just might not be as they appear. And if my beliefs are off base, I sure hope someone will come forward and point out where I might be going off track. I sure don't want to go through life holding close to things that just might not be what they seem.

But I guess it mattered enough to bring you back after a year and half of radio silence?

-ERD50

 

[JJpop]

It is an interesting subject because there are probably more dividend focused investors than sell shares total return investors. I believe in math and academic analysis which is on the side of sell your shares total return,but the problem is there are many very successful dividend focused investors. I may be wrong but I believe I am correct.

 

[JackJester]

But -- and there is always a but -- ERD50 is usually right. In fact he has been wrong only one time in recorded history. It was when he thought he was wrong but he was really right.

This is a common thread on this forum. Folks state that they want to live off of dividends and ask about this type of investment. Then others, like ERD50, remind us that there is no difference in total return when you compare a growth strategy vs a dividend strategy over the long haul. But, to me, the key boils down to taxes. If I am in a low 10-12% tax bracket, isn't it better for me to take those tax-free dividends vs having to sell some growth stock to get those tax-free LTCG? If it is truly an equal affair, then I'd rather not have to think about selling the growth stock, and instead just sit back and let my dividends come automatically. I have a lot of SCHD, but I also have an equal amount of SCHG. So, What is best for a low tax bracket investor?

 

[Montecfo]

I was referring to buying enough to pay 4000 in dividends for myself.
This subject really makes my brain feel like a ping pong ball when listening to total return people vs dividend people. I understand both sides which makes my brain feel like a ping pong ball

Jpop,

I think we all just have to do what seems right and never stop learning.

Cheers!

 

[target2019]

I was referring to buying enough to pay 4000 in dividends for myself.
This subject really makes my brain feel like a ping pong ball when listening to total return people vs dividend people. I understand both sides which makes my brain feel like a ping pong ball

You might buy $1,000 of both SCHD (value) and SCHG (growth) at his time and watch the results to decide if you want to go further.

 

[OldShooter]

You might buy $1,000 of both SCHD (value) and SCHG (growth) at his time and watch the results to decide if you want to go further.

This is a good idea but with a caveat: You really have to wait years before you can draw any conclusions. Ideally, run the experiment for ten years or more. Sectors go in and out of favor slowly. Growth and value are like that, as are US and International.

I have done this kind of thing several times. In 2015 I set up a $100K "couch potato" benchmark 65% total US and 35% total international, dividends reinvested, no rebalancing.

I have used that benchmark to evaluate several alternative portfolios. My rule is to make no comparisons until at least two years have passed. I would like to do five or ten, but at the ten year point I might be dead. So, by the time I would have the results I need, I may not need them any more. At two years, admittedly the comparison is probably more noise than signal but I feel like I have at least learned something.

 

[JJpop]

Look at small cap value historically vs the last few years. This is why the total mkt is sensible because you get a piece of everything. Other than that you are just guessing.
The more I think about this the more I realize that buying the dividend etf or a fund like VEIPX is simply a way to replace the income from the CDs while also getting a decent long term return. It is simpler and easier to understand for someone like my wife.

 

[OldShooter]

Look at small cap value historically vs the last few years. This is why the total mkt is sensible because you get a piece of everything. Other than that you are just guessing. ...

Yes. It is a tough step to finally accept the fact that the market is very close to random, but once you make that step then you understand what to do. Very counterintuitive, though.

I never used to like the quilt charts, but they are a good way to reinforce understanding of the randomness.

 

[target2019]

This may be of interest to OP:
https://www.schwab.com/stock-slices

If I had a time machine, I would buy which 10 companies and invest on a monthly basis?

 

[target2019]

This article has a chart with a selection of dividend ETFs.
https://themetareview.com/building-a-dividend-portfolio-part-1/

And the author goes on to make a list of the top ten companies held by each ETF, and has a link to spreadsheet.

I had considered the number of stocks within some of these ETFs. For example, SCHD holds 97 companies, while VIG holds 187 companies. NOBL has 64 stocks, while VYM has 394 stocks. In the end I went with SCHD because of what it did not hold.

 

[JJpop]

Thank you. I looked at the article and am looking at Schwab Slices.

 

[dixter]

a different view here... build your own corporate bond fund... your goal is to get $4000 per year.. so as a minimum you need a bond(s) paying a coupon of 4%... at par that will cost you $100K ... you decide the time frame that you want to keep the bond.. at the end of the term you get the $100K paid back to you, just like when a CD matures, but you get the $4000 per year... so lets say you choose a 30yr bond... you get the $4000 per year for 30yrs and get your $100K back... you get to choose what company you want and how many bonds for the company(s) you choose... you don't have to pay any maintenance fees to anyone because you are the one maintaining your own bond fund.. its easy and you have full control... a couple things to keep in mind that is very very important.... after you go on fixed income your worst enemy will be inflation and taxes.. so your $4000/yr today won't be $4000 in your future...

 

[JJpop]

I have a few Corp bonds in my IRA. The yields have come way down on anything but more junk like unless you go out 30 years. I will look at it again though.

 

[Sunset]

OP - Perhaps you want to read the Preferred Shares thread:
https://www.early-retirement.org/fo...he-good-the-bad-and-the-in-between-77428.html

It's pretty common to find some pretty safe utility stocks paying well over 5%. That you can hold nearly forever. The disadvantage is not a lot of capital appreciation possibility.

 

[Bruno]

About 6 months ago i bought 100k of SPHD. It pays a monthly dividend. Its value now is down to 71k but the dividend ($360) is still paying the same. I figured that the Dividend would change at some point. Can someone explain that to me.

Thanks

 

[Eszpresszo]

Ok. I know the difference between stocks and bonds and total return vs dividend investing.
I see the low low yields on fixed income and I have an extremely low stock allocation anyway.
My question is what is the negative about buying a quality dividend etf like SCHD or fund VEIPX in taxable and just taking the dividends for income. We are in the 12 pct bracket so no taxes on the dividends.

I am also banking on dividend producing stocks for retirement. Sticking with ETFs that focus on solid, financially healthy dividend payers is a great strategy for increasing dividend income and capital appreciation over time. I must put emphasis on solid, financially healthy dividend payers, as too many stocks out there have a high yield for a good reason (and its not good for the investor). Before the financial crisis, WisdomTree had a number of high-yield stock ETFs that were heavily composed of dicey financial stocks and mortgage REITs. It didn't go well once the financial crisis hit, as you can imagine.
But, to your question. The downsides would appear to be the usual risks with equities: possible loss of capital (remember what happened to GM shareholders during the financial crisis). The lesser peril is underperforming the market as the staunch dividend payers usually do. But, during this last decade, as you have seen, value stocks consistently lagged the market overall. That could change in the next decade. Still, SCHD and VEIPX are great options for someone who wants steady, growing dividends and modest capital appreciation.
Another idea for income stocks is to look abroad at diversified, international value stock ETFs. Even the plain vanilla EAFE Value index is a high-yield bench mark by accident. This index is the benchmark for the iShares EFV, which now has a yield over 6%, with stocks at their currently depressed values. The portfolio is dominated by international blue chips like Toyota, Glaxo, HSBC and Siemens. The portfolio is predominantly Japan, the UK and the Eurozone countries. The other sweet spot besides the high yield is that the USD is overvalued and that will inevitably end with a correction in the exchange rate (it always does). And when that happens, the yield on the dividends should get a boost, as well. By no means is EFV the only option here. There are other international ETFs that actually focus on high dividend stocks. But the quality angle of the portfolio is dubious for some of these. The one I am currently accumulating is IDLV, which is focused on a low volatility foreign stock, and has a yield over 7%. You can hardly find junk bonds with that kind of yield, these days. And while that number might sound like a red flag, this ETF performed as advertised during the latest rough ride for the global stock markets. The current portfolio is overweight Japan, and well diversified by sector, instead of over-weighting real estate and utilities. Not a recommendation, but worth a look.

 

[JJpop]

Thank you for the great info,I will definitely take a look. Do you have to pay any special taxes investing in EFV or the other international etf?