Dividend stock vs bonds

[foxfirev5]

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

We're only two months into this mess. I have absolute confidence that the daily dividend cuts will start to be reflected in my dividend etf payouts by the end of this quarter. A bigger question is how low and how long?

 

[Eszpresszo]

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

I also own SPHD and its the dominant position in my Roth IRA. Why didn't the dividend change? Well, the value of the shares has no impact on the payout of its holdings. The portfolio is composed of HIGH YIELD stocks, which are typically low-growth or no-growth companies who have no much better to do with their money than pay you a generous dividend. They won't be growing revenue aggressively, so they can't increase their dividends aggressively, either.
What does happen when the share prices of the holdings slump, is that the actual yield percentage on the stocks do increase. The dividend might be the same, but the share price is lower. If you add more shares now, you are now getting the same payout at a lower share price. Though we could argue that you are now getting "more for less" than you did 3 months ago, for those who starting a new position or adding to an existing one. Actually, I would argue now that now is the best time in ten years to build up your equity positions, for income or growth.
At some point, I expect there will be modest annual increases in the payout of SPHD, as any financially healthy company should be able to do that. In the event of stagnant dividend payouts from SPHD, I will be moving onto something else with a least some dividend growth.

 

[Bruno]

The portfolio is composed of HIGH YIELD stocks, which are typically low-growth or no-growth companies who have no much better to do with their money than pay you a generous dividend. They won't be growing revenue aggressively, so they can't increase their dividends aggressively, either.

At some point, I expect there will be modest annual increases in the payout of SPHD, as any financially healthy company should be able to do that. In the event of stagnant dividend payouts from SPHD, I will be moving onto something else with a least some dividend growth.

I would be happy if the Dividend stays close to the same. I also bought some DGRO on the way down and it back to within $500 of what I paid.

Thanks for your input.

 

[RetireBy90]

Sounds to me like you have some CD income that will go away and looking to use dividend paying stocks to continue the income that the CDs paid or pay today. If looking at alternatives to a low yield CD I would look for a safe alternative till the current situation is over. In a year or so your choice would be longer dated bonds, higher risk bonds or back to a CD. I would not compare a CD with fixed guaranteed regular income with a stock. You might consider a regulated utility as closer, but consider GE or Boeing. I used them for income years ago and we know How that worked out. I know others have shown the reliability you seek, but some don’t. Just my opinion.

 

[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.

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

I added more columns to the ETF sheet and re-named it. Here is my link:
https://docs.google.com/spreadsheets/d/13lPUXP0fsmP_gzit6zzvfXwz5pUPrWeX8u_t4NPFNCQ/edit?usp=sharing

I included a column for 5-year performance as some of the ETFs do not go back 10 years.

 

[Eszpresszo]

We're only two months into this mess. I have absolute confidence that the daily dividend cuts will start to be reflected in my dividend etf payouts by the end of this quarter. A bigger question is how low and how long?

Yes, that is the risk of equities that goes beyond loss of market value. The upshot here (in my case at least) is that when the smoke clears, we will see which companies were strong enough to continue making dividends. The indexes for the ETFs I am interesting in will inevitably delist the under-performers (and non-performers) in regards to distributions.
I am only starting to build my income portfolio, so I am not too deeply vested in SPYD and IDLV yet. And honestly, I don't have that much insight in how these specialty benchmarks are constructed, though I read the prospectus and look for info from the publisher of the indexes. In the end, we are speculating on how well the benchmarks are constructed in regards to quality, as well to all the other things we are speculating on.

 

[Eszpresszo]

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?

The tax question is one of the downsides of investing in foreign stock funds, where you have no control of where the holdings are based. Yes, you can be (and most likely will be) liable for taxes on the dividends from foreign companies. And these are withheld from the dividend.

The best explanation I have seen can be found here:
https://www.onefpa.org/journal/Pages/JUN16-Understanding-Tax-Implications-of-Foreign-Stocks.aspx

Some nations have a tax treaty with the US that exempt the withholding (the UK, Singapore and Hong Kong being good examples). But other countries can withhold as much as 30%! But, because our nation has a dim view of double taxation, you can file for a tax credit when you file your US income taxes. But, it has to be in a taxable account. That sounds counter productive to hold an investment in a taxable account to avoid paying taxes. But, that's what you have to do with the exception of Canada. For stocks held in an IRA, Canada does not withhold taxes from dividends! The UK only withholds taxes for REITs are the rate of 20%. Common stocks are exempt.

I think for many investors, all this isn't worth the trouble. You do make yourself vulnerable to capital gains distributions in taxable accounts, too. It will take a significantly higher dividend payout to make these kind of investments worthwhile, and for some it is a hassle when they just want to collect some passive income. However, my situation is different than most. I do plan to spend much time living abroad in retirement. I travel abroad frequently for pleasure, anyways. So, retirement abroad allows me to do what I love to do anyways. However, when you have a fixed income in US Dollars, you need to be aware of how exchange rates will impact your purchasing power abroad. The USD is very strong against most foreign currencies now. That will inevitably change and we will see a reversion to the mean. You dollar will buy less in your host nation or your vacation destination. That is why I have a strong interest in high-yield investments from abroad, specifically those with UN-HEDGED currency exposure (which is the case for virtually mutual fund and ETFs).

I want to see my payouts from my overseas investments rise when the US Dollar slides. I've been on the wrong end of currency exposure before at a critical time. I was able to leave for a semester abroad in Germany, when the Iran Hostage Crisis unwound, and the dollar slumped. Suddenly, all the money I had worked hard for to save up for my this suddenly was going to buy a lot less. It didn't help that we were still in the grips of runaway inflation, which was eating away at your savings. So, I learned a lot from my experience then, and this is my reason for needing foreign currency exposure in my income flow. I recommend that others looking to retire abroad or spend time abroad do the same. Aside from being good insurance against serious economic threats (currency devaluation and inflation), it can also be profitable in the end, as well.

 

[target2019]

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

I've found that etf.com has the best summary of etf's...
This link takes you to the sector breakdown and top 10 companies.
https://www.etf.com/SPHD#fit

It is ironic that SPHD analysis on that page states this:

SPHD Factset Analytics Insight
SPHD cherry-picks the market rather than delivering the whole basket. It chooses the 50 least volatile, highest-yielding S&P 500 stocks, so its looks little like the broad large-cap market. It heavily overweights traditionally defensive industries like utilities and basic materials and, unsurprisingly, underweights the more volatile technology and consumer cyclical companies. It tilts small and generally succeeds at delivering an attractive yield at reduced risk.

Yet the result seems to be the opposite.

SPHD tilts to sectors that have not done well in a pandemic (REIT for example) and holds just one tech company (IBM). Healthcare is underweighted too. That explains the drop of -30% in NAV. The dividend will not grow much because of the sector over-weighting in SPHD. It's also possible that the dividend is pausing before dropping soon. I sure hope not, since I hold SPHD too, but not

This link has all 51 holdings:
https://www.invesco.com/us/financial-products/etfs/holdings?ticker=SPHD

Sector performance stats are at this link:
https://eresearch.fidelity.com/eres...ectors/si_performance.jhtml?tab=siperformance

This recession is the first test for some of these ETFs...
https://docs.google.com/spreadsheets/d/13lPUXP0fsmP_gzit6zzvfXwz5pUPrWeX8u_t4NPFNCQ/edit?usp=sharing