Dividend paying Stocks

[mathjak107]

many of the companies prior to 2008 and 2009 that didnt cut those dividends out of fear, all along should have but instead took hits in principal. many raised dividends even though investors lost money all along the way. their total return sucked. investors were poorer .

some of the names were the bluest of blue chips. kiplingers had a list of some . yes some were tech stocks but in the day they were still best of breed. and still raised dividends in spite of principal falling for share holders right up to today..

heres a few.

microsoft had a stock market value in 2000 of 508 billion ,it paid no dividend.
today its worth only 213 billion and pays 2.6%

merck in 2000 was worth 184 billion in stock market value and paid 1.4%
today 107 billion 4.4%

general electric in 2000 was 438 billion in market value, it paid 1.2%
today 194 billion and pays 3.3%

walmart was 244 billion in 2000 and paid .3%
today its 182 billion in value and pays 2.8%

cisco systems in 2000 was 375 billion in value ,it paid no dividend
today its 83 billion and pays 1.6%

intel in 2000 was 331 billion in market value,dividend was .1%
today its 113 billion in value and pays 3.2%


again i do like dividend payers but i dont single them out as superior for their cash payments. its only about total return to me and what they are doing to my net worth over all..

they all go right into my stock bucket ,if they pay dividends i re-invest them right back in. in now way are they counted on as an income proxy.

my income stream is a steady stream of cash instruments and bonds and soon an immeadiate annuity thrown in to steady things even more..

 

[grumpy]

Mathjack,

I have to disagree, not with your numbers but with the real situation with good dividend paying stocks. It has been my experience that, for such stocks, even in a flat market, the drop resulting when the stock goes x-dividend is very quickly made up. Potential buyers of the stock are attracted by the prospect of the future dividend, and are not concerned with the supposed decrease in company value from the previous dividend. This keeps the price of the stock stable, even when profits are not growing.

 

[mathjak107]

your assuming the pointer resets are a non event and im saying they are just as much an event as a funds price is from its resets over time.

while your fund may be up nicely add back in all those distributions over the years and see what it might have been. yes hypothetical but still real numbers

 

[clifp]

again i do like dividend payers but i dont single them out as superior for their cash payments. its only about total return to me and what they are doing to my net worth over all..

they all go right into my stock bucket ,if they pay dividends i re-invest them right back in. in now way are they counted on as an income proxy.

my income stream is a steady stream of cash instruments and bonds and soon an immeadiate annuity thrown in to steady things even more..

Are you still working? If so when are you retiring?. If not when did you retire and did you do so with a pension?

 

[MichaelB]

Mathjak107, are you saying there is no difference to total return over time whether or not a company pays dividends, as long as those dividends are reinvested?

 

[mathjak107]

correct that is my point. a total return is a total return no matter what. a 3% dividend and 4% capital appreciation is no different than any other stock that has a 7% annual return yet folks tend to not treat them the same.

the fact is they are both stocks and if one chooses to sell a piece of the non dividend payer quarterly or yearly for all purposes there is no difference.

but the entire point im making is folks tend to treat those dividend paying stocks as a proxy for fixed income and they are not.

no matter how you slice it they have all the risks and issues any stock has and as such needs to be treated as such because any stock can be treated in a manor to spin off income.. market action in any case will obscure that fact in a rising market.

 

[mathjak107]

Are you still working? If so when are you retiring?. If not when did you retire and did you do so with a pension?

still working.. im 59 and my wife is 60. we were going to pull the plug last june and retire and move from nyc to where we have a 2nd home in the poconos of pa.

we are realizing we really dont want to be there for the harsh winters and put the house up for sale.

we may continue to work another 2 years or so until we decide what and where we want to do.


we will have a small pension of around 20k but everything else will be our nest egg.

i use 2 portfolios. one is the do it yourself version of the permanent portfolio.. the other is a model portfolio from fidelity insight newsletter. been following them since 1987 with great success.

its all incorporated into a 3 bucket plan for withdrawls.

 

[TONASKET]

like divy stocks

I also started buying individual dividend paying stocks and one mutual fund in 2008 and keep adding to them. I have only invested in telecom, nat gas and oil, tobbaco, drugs, and some small banks. I don't buy a stock above $35, they must have a divy of 5%+ when I buy it and I never own more that 500 shares of any company.
I have ridden the ups and downs of pricing but have used this as a buying opportunity. I have 43% of my retirement portfolio in these types of stocks. This seems to be working for me.

 

[GregLee]

I think what you aren't grasping is that from a practical and psychological perspective it makes a pretty big difference between having to sell X% of your portfolio and having a good deal of confidence that you collect $Y in dividends.

I get that part. When my father died in 1972, I set up my mother's investments to include some growth stock mutual funds. But then over a decade later, I went over her accounts and noticed all those growth funds were gone. She explained that she didn't get any money from them, so she sold them and bought things that would bring her regular checks. I tried to explain that if she wanted money from those growth funds, all she had to do was take it. Or even have the funds send her monthly checks. But no, that made no sense to her at all. That would be spending her principle. So the growth stocks had to go.

 

[MichaelB]

correct that is my point. a total return is a total return no matter what. a 3% dividend and 4% capital appreciation is no different than any other stock that has a 7% annual return yet folks tend to not treat them the same.

the fact is they are both stocks and if one chooses to sell a piece of the non dividend payer quarterly or yearly for all purposes there is no difference.

but the entire point im making is folks tend to treat those dividend paying stocks as a proxy for fixed income and they are not.

no matter how you slice it they have all the risks and issues any stock has and as such needs to be treated as such because any stock can be treated in a manor to spin off income.. market action in any case will obscure that fact in a rising market.

[FONT=&quot]Mathjak107, no stock is a proxy for fixed income and I do not see anyone making that argument. The Tweedy Brown paper referred to earlier makes that case that higher dividend paying stocks are superior investments compared with lower paying or no dividend stocks. To quote them [/FONT]
[FONT=&quot]

High Dividend Yield Stocks in the U.S. Have Produced More Return with Less Risk than their Low-Yield Counterparts

[/FONT]
[FONT=&quot]According to Tweedy Brown, dividend stocks offer less risk and higher returns.
[/FONT]

 

[clifp]

Jeremy Siegel (Stocks for the Long Run) and his friend Jeremy Schwartz (Wisdom Tree) not surprisingly makes a strong case for buying stocks in general and dividend paying stocks in particular.

A year ago in these pages, in a piece called "The Great American Bond Bubble," we wrote that yields on Treasury bonds were unsustainable and those rushing into bond funds were in for a rude awakening when interest rates rose. Long-term rates did in fact rise sharply last fall, but recently, on the heels of the economic slowdown and the Federal Reserve's "pledge" to keep interest rates low for the next two years, U.S. Treasury rates plunged to even lower levels than last summer, reinflating the bubble to the bursting point.
One market that now makes no sense to us is the popular Treasury Inflation Protected Securities (TIPS), where recent yields should be enshrined in Ripley's "Believe It or Not!" The yield on the benchmark 10-year TIPS turned negative for the first time in history, meaning investors are now lending money to the government with the hope of receiving a sum 10 years from now that is worth less in purchasing power than the dollars they fork over today.

This astounding situation can only be justified by extraordinary pessimism about the prospects for the U.S. economy. Economic theory predicts that the real yield on long-term TIPS should approximate the real growth in the economy. And when these securities were first floated in 1997, investors received a 3.4% yield, which was very close to the 3.6% average GDP growth over the previous 50 years. The average yield on the 10-year TIPS since it was floated has been 2.5%.
To be sure, real growth since 2000 has been a much lower 1.3%, but there have been two recessions over the past decade, the last one being the most severe since the Great Depression. Even those forecasters who believe in Pimco's pessimistic "New Normal" for the U.S. economy predict real growth at 2%.



...
Prior to the recent recession, there were only five years in the S&P 500's history when dividends declined, and the maximum yearly decline was just 3.3%. In the 2000s, financial companies paid increasing dividends out of unsustainable profits, and S&P 500 dividend growth accelerated. When the housing bubble burst, these financial firms' profits and dividends collapsed. Yet it is little known that the entire decline in dividends of U.S. stocks during the recession was due to the fall of the financial sector. The sum of the dividends paid by firms in the other nine sectors of the U.S. equity markets was actually higher in 2009—at the bottom of the worst recession and bear market in the past 75 years—than it was in 2007, when stocks and the economy were at their peak.
Today the aggregate dividends paid by the nonfinancial sectors are about 20% higher than they were at the 2007 peak. Furthermore, the dividends of financial firms today comprise only 16% of the total dividends paid, less than half their proportion in 2007. In other words, another financial crisis cannot have the same impact on either the earnings or dividends of the U.S. equity markets. Finally, dividend growth in the last two years has averaged over 10% per year, more than twice the long-term dividend growth rate, as firms rightly begin to return their record cash balances to shareholders.

Thanks Jeremys I'll invite them to this thread..

 

[mathjak107]

[FONT=&quot]Mathjak107, no stock is a proxy for fixed income and I do not see anyone making that argument. The Tweedy Brown paper referred to earlier makes that case that higher dividend paying stocks are superior investments compared with lower paying or no dividend stocks. To quote them [/FONT]

[FONT=&quot]According to Tweedy Brown, dividend stocks offer less risk and higher returns.
[/FONT]

im not singling anyone out in this particular thread but in other threads in this section there are folks who said they do count on stock dividends directly for their income . they are loaded up on dividend payers with little cash or fixed income .

in my opinion that works until it doesnt. once we hit a snag like 2008-2009 there is a good chance those dividends will be suspended or cut forcing you to sell stock just at the worst time to make up that shortfall.


if your withdrawals have enough slack or you have other income to absorb those cuts fine but if not you can have a real delema.

its okay to say you arent concerned about where the share price is headed in the accumulation stage because they are getting that dividend but its a far different story when in the decumulation stage and spending those dividends as cash..


but you hear it all the time by retirees about why buy a bond or cd when you can buy a stock yielding 3%.

the answer of course is they are not comparing apples to apples .they serve different purposes .

its my belief that dividend or not its all still a stock and alot of retirees are trying to live off that income directly to pay bills..

i believe its wise that a retiree should not do anything more than re-invest those dividends for future growth. it should not be planned to provide an income stream off these dividend payouts directly. they are no different than selling a piece of any stock for income and that was the point of my long winded post above..

if you yourself wouldnt sell a piece each year of a stock to pay bills than dont look at the fact the company sells a piece off for you as anything but that.

im in agreement that there are some great dividend payers out there, im just saying its smart to keep them soley as stocks and not anything pertaining to feeding that income stream directly.


why am i so adamant about that

i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.

well now with the downturn what they didnt disclose clearly is that since earnings fell off those dividends were being paid with our own money that was supposed to buy more property . worse was they were borrowing money to meet the dividend payouts.

loads of retirees were counting on that dividend for their income source and were spending that dividend directly and not re-investing it ,they are in a real mess as they have been un-knowingly spending their principal. i thought something was up when the 1099 showed little taxable income.

i figured it was just the depreciation allowance we get offsetting things.

its estimated we may actually be down now about 40% in principal. but the dividends keep coming.

i dont want to go off track here but its just a reason why its bad procedure to try to live off dividends directly.

 

[Dawg52]

CD's & Treasuries are paying nothing, we shouldn't be spending dividends........I guess we should all go back to work like mathjak107.

 

[Chuckanut]

We seem to be talking about dividend stocks versus a stock market index fund. But, how do the high dividend stocks compare against a portfolio (say 50/50) of the total market index and total bond index? I am not arguing against high dividend stocks. But, I want to make sure the comparisons are fair. For examle, picking certain starting dates can give high dividend stocks a huge advantage over index funds. Picking another starting date, give the advantage to the index funds. But, we all know that already, don't we.

 

[Chuckanut]

QUOTE Today the aggregate dividends paid by the nonfinancial sectors are about 20% higher than they were at the 2007 peak. Furthermore, the dividends of financial firms today comprise only 16% of the total dividends paid, less than half their proportion in 2007. UNQUOTE



But, how does one know this ahead of time? It's easy to look back in time and say 'if I had avoided the loss in XYZ I would have made 25% that year'. But, we can't know that ahead of time. How do we know that 5 years from now it may be retail that drags us down, or manufacturing, or whatever.



These backward looking comparisons seem dangerous to me since they assume we can predict the future as accurately as we can predict the past.

 

[Zathras]

...
why am i so adamant about that

i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.

well now with the downturn what they didnt disclose clearly is that since earnings fell off those dividends were being paid with our own money that was supposed to buy more property . worse was they were borrowing money to meet the dividend payouts.

loads of retirees were counting on that dividend for their income source and were spending that dividend directly and not re-investing it ,they are in a real mess as they have been un-knowingly spending their principal. i thought something was up when the 1099 showed little taxable income.

i figured it was just the depreciation allowance we get offsetting things.

its estimated we may actually be down now about 40% in principal. but the dividends keep coming.

i dont want to go off track here but its just a reason why its bad procedure to try to live off dividends directly.

This explains a lot. Thank you.
So you are taking one example of a REIT, which is not the same thing as a Stock, which was at least poorly managed and possibly guilty of illegal activities. You then use as an example people that were using dividends from this one source.
You then extrapolate this one REIT out to all other companies and funds that behave legally? And to all people even if they have a good diversified portfolio?

I agree with you that what happened is crummy, possibly criminal. But I think just about everyone here would agree that relying on investments in a single company is very risky. Doesn't matter if it is a REIT, stock, bond or something else.

 

[clifp]

im not singling anyone out in this particular thread but in other threads in this section there are folks who said they do count on stock dividends directly for their income . they are loaded up on dividend payers with little cash or fixed income .

in my opinion that works until it doesnt. once we hit a snag like 2008-2009 there is a good chance those dividends will be suspended or cut forcing you to sell stock just at the worst time to make up that shortfall.


if your withdrawals have enough slack or you have other income to absorb those cuts fine but if not you can have a real delema.

its okay to say you arent concerned about where the share price is headed in the accumulation stage because they are getting that dividend but its a far different story when in the decumulation stage and spending those dividends as cash..



why am i so adamant about that

i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.



i dont want to go off track here but its just a reason why its bad procedure to try to live off dividends directly.

You might try reading some the articles being referred to instead of keeping repeating the same things without back up.

"There is a good chance that dividends will be cut". Ah no there is not a good chance that they will be cut significantly, see the post right before from this article.

Prior to the recent recession, there were only five years in the S&P 500's history when dividends declined, and the maximum yearly decline was just 3.3%. In the 2000s, financial companies paid increasing dividends out of unsustainable profits, and S&P 500 dividend growth accelerated. When the housing bubble burst, these financial firms' profits and dividends collapsed. Yet it is little known that the entire decline in dividends of U.S. stocks during the recession was due to the fall of the financial sector. The sum of the dividends paid by firms in the other nine sectors of the U.S. equity markets was actually higher in 2009—at the bottom of the worst recession and bear market in the past 75 years—than it was in 2007, when stocks and the economy were at their peak.

A 3.3% variation in income is pretty darn small. The only stock selling I did during the crisis in 2008,2009 was tax loss harvesting, but I more than made up for that by buying (too early in many cases) other stocks.
My income did drop by 10% but that was proportionally as much by the decrease in distributions from Vanguard GNMA and having to reinvest PenFed 6% CD at 3.5% as the admittedly large dividend cuts from financial stocks. As Siegel say most companies continued to raise dividends in 2008 and 2009. I did engage is some belt tightening but that was no different than most retired total return investors folks on the forum and this was a much due to the wealth effect as the drop in income.

Imagine that that you retired in Dec 2006. It is now Jan 2007 you have a portfolio consisting of 200K in 5 year CD ladder with 4% interest, 200K in a bond fund (VBTLX) and 600K in stock portfolio VSTAX or ETFs. You need to spend 40K a year (or use 4% and the Clyatt method). We will ignore inflation for simplicity

What are the precise steps are going you use each year to generate the 40K, while maintaining an 60/40 AA? Since you are about to retire I think developing a withdrawal strategy and back testing would be worthwhile exercise.

Look I am sorry about the untraded REIT but they are considered significantly more risking than blue chips dividends stocks and really aren't relevant.

 

[mathjak107]

CD's & Treasuries are paying nothing, we shouldn't be spending dividends........I guess we should all go back to work like mathjak107.

havent retired yet... not because we cant but only because we havent finalized our plans yet.

your off base that with that statement, its not what i said at all.

its all about having a working plan and a portfolio that meets your goals and risk tolerance.

im very much invested in dividend paying funds. but im also careful to make sure i leave at least a 15 year time frame before i count on selling them so odds are ill never sell into a downturn. thats death to a portfolio when spending down..

my plan works just fine with 7 years of withdrawls in cash instruments and eventually an immeadiate annuity, another 7 years in fixed income and the rest growing long term in equities..

why 15 years? because 15 years is the shortest time frame where we always had at least some point where equities could be sold at a gain.

my dividends are reinvested and are never used as cash . they are reinvested to keep that stock bucket growing.......

the income stream is not dependant on what stocks and dividends do in the short term. the cash flow is pretty steady and can be sustained up to 15 years out if need be.

thats only my plan, there are loads of plans,methods an ideas out there. you have to find what works best for you.

what doesnt work is what many retirees have done and that is blindly did away with the income buckets and loaded up on dividend paying stocks instead.

its for them im posting what i did above

 

[Zathras]

... It's easy to look back in time and say 'if I had avoided the loss in XYZ I would have made 25% that year'. But, we can't know that ahead of time. How do we know that 5 years from now it may be retail that drags us down, or manufacturing, or whatever.



These backward looking comparisons seem dangerous to me since they assume we can predict the future as accurately as we can predict the past.

Dividends have an extremely solid history of not being as volatile as the market. Even during the recession, as the article states, most dividends actually kept increasing. Yes, financials took a serious hit, so if you only got your dividends from financials you took serious losses to your dividend rates.

While it is true that the past will not determine the future, it does give you some indications. If you push a button on a remote 10 times and something turns on, odds are good it will happen the 11th. Guaranteed? No, but quite likely.

 

[clifp]

its all about having a working plan and a portfolio that meets your goals and risk tolerance.

im very much invested in dividend paying funds. but im also careful to make sure i leave at least a 15 year time frame before i count on selling them so odds are ill never sell into a downturn. thats death to a portfolio when spending down..

my plan works just fine with 7 years of withdrawls in cash instruments and eventually an immeadiate annuity, another 7 years in fixed income and the rest growing long term in equities..

why 15 years? because 15 years is the shortest time frame where we always had at least some point where equities could be sold at a gain.

my dividends are reinvested and are never used as cash . they are reinvested to keep that stock bucket growing.......

the income stream is not dependant on what stocks and dividends do in the short term. the cash flow is pretty steady and can be sustained up to 15 years out if need be.

thats only my plan, there are loads of plans,methods an ideas out there. you have to find what works best for you.

what doesnt work is what many retirees have done and that is blindly did away with the income buckets and loaded up on dividend paying stocks instead.

its for them im posting what i did above

Any plan including stuffing the money in your mattress and taking it out as needs works if you have a low enough withdrawal rate. A 15 year cash, annuity, and fixed income ladders. Means either you have <2% WR or you have very low expectations for inflation. Have you looked at the impact of high inflation period like 1975 to 1990 where your 50K in income turns in 20K? Dividends, real estate (and I guess gold/commodities) are the only conceivable hedges against inflation now that TIPs have 0% real return. Fixed income and annuities will be absolutely crushed.

But what the heck does HaHa know with 20+ years of retirement without a pension.

 

[REWahoo]

But what the heck does HaHa know with 20+ years of retirement without a pension.

How to tango?

 

[clifp]

How to tango?

I always pictured HaHa as more of Salsa kinda of guy, since I bet he gave up break dancing when it stopped being trendy.

 

[MichaelB]

How to tango?

I always pictured HaHa as more of Salsa kinda of guy, since I bet he gave up break dancing when it stopped being trendy.

My money says HaHa is a "Bolero" master on the dance floor, and probably does a mean "pasodoble" as well. And sips brandy when he's not dancing.

 

[JPatrick]

This explains a lot. Thank you.
So you are taking one example of a REIT, which is not the same thing as a Stock, which was at least poorly managed and possibly guilty of illegal activities. You then use as an example people that were using dividends from this one source.
You then extrapolate this one REIT out to all other companies and funds that behave legally? And to all people even if they have a good diversified portfolio?

I agree with you that what happened is crummy, possibly criminal. But I think just about everyone here would agree that relying on investments in a single company is very risky. Doesn't matter if it is a REIT, stock, bond or something else.

+1
That's really about it..
If the revenue stream, or a major share of it, is going to come from a single source, that source should never be a single, uninsured REIT, equity, etc.

 

[mathjak107]

the reit i mentioned was only a very tiny part of what i own. the comments i made above were not really pertaining to the reit. i just mentioned that in passing.

my comments were my feeling about trying to live off of income from stocks of any type directly if they account for the major part of your income. its okay to supplement with those dividends providing the major source of funds isnt from them.

some may be succesful at it but i caution most retirees with no real working plan for attempting to trade those income investments for equities of any type chasing yield.

i see it done daily in so many financial forums by folks who have no clue the damage they can sustain.