24k from dividend investment

[ferco]

What model portfolio would yield 24k annually in dividend income? If one is withdrawing the 24k dividend annually and not reinvesting how long would your egg(investment) last? I assume the withdrawl would be taxed at the long term capital gains rate of 15%. Assuming this is your only source of income by the time you take your standard deduction(s) you may owe no tax at all?

 

[dex]

How much $ are you starting with?

 

[ferco]

Well, I'm trying to work the equation backwards.....what of amount of stocks A+B+ C at yield X will give an 24k annual yield?

 

[unclemick]

Hmmm

You are facing a vast universe - dividends are in a cycle of popularity - so Wall Street is rolling out a lot of products to feed the ducks.

Even some of the old tryed and true (Dodge and Cox) are closed to new investors.

Ballpark - 3.75%, my stogy old Norwegian widow Drips - that's low for me historically.

Being less than pure (theory wise) - I'd play some numbers games with pssst Wellesley, Wellington et al and see what it did for me.

Tread carefully.

heh heh heh heh heh - it can be done, but frame your rules carefully.

 

[maddythebeagle]

What model portfolio would yield 24k annually in dividend income? If one is withdrawing the 24k dividend annually and not reinvesting how long would your egg(investment) last? I assume the withdrawl would be taxed at the long term capital gains rate of 15%. Assuming this is your only source of income by the time you take your standard deduction(s) you may owe no tax at all?

kinda hard to figure since you will need to make some assumptions on a basket of individual dividend stocks (i.e. what your dividend increases will be...) Also, there will be cap. gains on the stock....

I dont understand the tax question....If all you had was a standard deduction, you would still owe 5% on dividend income...although in 2008 (I believe the tax goes to 0, but might not last forever)....

 

[brewer12345]

How about we work with real numbers?  Look at DVY, which is a basket of dividend stocks yielding roughly 3.5%.  If you held the stocks directly, you could shave off some annual expenses, but let's leave that aside for now.  So using DVY as a proxy, $24k of pre-tax income would require 24/.035 = $685,714 in capital.  If you wanted $24k after tax, you need (24/.85)/.035 = $806,723.

 

[astromeria]

Dividends received in the current year in a taxable account are taxed at the dividend rate, which depends on your income (I forget how low your income has to be to get the 5% dividend tax rate instead of 15%). Holding the stock that pays the dividends short or long term has nothing to do with taxing the dividends--the long-term rate applies to realized capital gains, not dividends.

It's risky to hold 100% stocks in or close to retirement, even relatively stodgy dividend-payers (and DVY is one of my largest positions). The main reason to hold fixed income is to smooth out the volatility. And remember that a stock's dividend rate can change--and not always for the better.

 

[brewer12345]

It's risky to hold 100% stocks in or close to retirement, even relatively stodgy dividend-payers (and DVY is one of my largest positions). The main reason to hold fixed income is to smooth out the volatility. And remember that a stock's dividend rate can change--and not always for the better.

I don't disagree, but an argument might reasonably be made that if you never sell anything and are willing and able to simply live on your dividend checks, who cares what the stock price is? OTOH, given the possibility of dividend cuts, I think I'd want some TIPS or similar in the mix before committing to such a strategy.

 

[unclemick]

I cheat

75% Target Retirement 2015
15% dividend stocks

The rest is Roth(7%) and some uninvested cash(3%).

heh heh heh

 

[grumpy]

ferco,

I hold a portfolio of 19 dividend paying stocks that I acquired over about 10 years. These stocks yield $8,139 in annual dividends. This is equal to 5.5% on my initial investment (most of these companies have raised their dividends over the years). These shares have a collective current yield of 3.71%. The shares are in 9 market segements: banking, food, industrial, oil, pharmaceuticals, publishing, real estate, retail, and utilities. To generate $24K per year in dividend income by buying shares today of these same stocks in the same ratios as my holdings would require $650K. I can post a list of the stocks if you are interested but I am not necessarily recommending a buy on any of them today.

Grumpy

 

[brewer12345]

Further to Grumpy's post, you could theoretically create a portfolio that would throw off $24k for a lot less than 600+k. There is stuff out there yielding 10 to 15%, after all. But there is a trade-off between risk and reward in most cases.

 

[ferco]

All of the responses have been most helpful! Grumpy, I'd certainlty be interested in the list of the 19 dividend yielding stocks that you hold; I would by all means the necessary due diligence before investing in anything.

 

[grumpy]

All of the responses have been most helpful! Grumpy, I'd certainlty be interested in the list of the 19 dividend yielding stocks that you hold; I would by all means the necessary due diligence before investing in anything.

ferco,

Here are the stocks I hold:
Bank of America (BAC)
Washington Mutual (WM)
Regions Financial (RF)
Altria(MO)
Sara Lee(SLE)
RPM(RPM)
Dow Chemical(DOW)
Superior Uniform(SGC)
ExxonMobil(XOM)
Pfizer(PFE)
RR Donnelley(RRD)
Washington REIT(WRE)
Bassett Furniture(BSET)
Southern(SO)
Aqua America(WTR)
American States Water(AWR)
Dominion Resources(D)
Pepco(POM)

Many of these business may currently look unattractive but I was able to buy into them at very attractive prices at various points in the past.

Grumpy

 

[terminator]

You need to define what kind of stocks you want to hold before you can figure out how much you need. Brewer is right that you can find very high dividend yields -- and frankly some of them are fairly low risk if you are willing to buy shares in a L.P. Personally, I'm not willing to deal with the tax complexities and ordinary income that would come with that. But if you were I think you could get 7-8% without being terribly risky. So, you'd need about $300k.

If you are looking for S&P 500 type stocks, you could get 4% pretty easily with banking, REIT and utility stocks. You'd need about $600k.

If you want some more growth potential in there, then you are looking at somewhere between 1-3%. You'd need $1MM+.


All of this is pre-tax of course and my understanding is that the L.P. tax would be ordinary income versus the dividend income of the latter two strategies.

Personally my dividend strategy is to select companies with long histories of raising dividends, significant free cash flow, low debt and payout ratios that aren't too high so they have room to raise. As an example, my GE stock now annually pays out 21% on my original investment. I'd rather buy companies that pay 2% now with the potential for earnings, dividends and the stock price doubling every 5-10 years than to buy a 4% yielder that is in a mature business.

 

[brewer12345]

All of this is pre-tax of course and my understanding is that the L.P. tax would be ordinary income versus the dividend income of the latter two strategies.

Depends on the LP. SPH pays out distributions that are almost completely tax-deferred. STON pays distributions that are taxable mostly as ordinary income. CHC pays out distributions that are 80 to 90% tax free (muni interest).

 

[maddythebeagle]

Personally my dividend strategy is to select companies with long histories of raising dividends, significant free cash flow, low debt and payout ratios that aren't too high so they have room to raise. As an example, my GE stock now annually pays out 21% on my original investment. I'd rather buy companies that pay 2% now with the potential for earnings, dividends and the stock price doubling every 5-10 years than to buy a 4% yielder that is in a mature business.

good point. I think maybe the OP's question should be clarified I think most folks here start a portfolio with smaller amounts and reinvest dividends over the years and at some point start to take the divies as income...for these folks, looking for a mix of qualified dividends with growth is best to eventually work up to the 24k in income. This would be different from somebody that has a lump sum (say from selling a house) and wants to invest it to get 24k in income.