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Old 01-20-2018, 11:46 AM   #61
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I agree that in the long-term Total Return ETF's outperform Dividend ETF's. I've been well aware of that for a long time (I saw the charts as well). However, I think most of the responses to your posts are from investors who aren't using Dividend ETF's but are involved in investing in individual dividend stocks. If you hear that these individual stock investors expect they can ride out a downturn maybe it's because they are loaded up with low-beta dividend payers that have a past-record of increasing dividends in bear markets. VIG has a bit over 170 stocks in it portfolio, with a bunch with rather high betas, it would be not as stable as someone's portfolio who invests in low-beta dividend stocks.

Unfortunately, since we (I) am talking about individual portfolios and not ETF's, there probably is no evidence to back this. Individual investors have different reasons for wanting to have individual dividend stocks in their portfolios--highest total return is not a universal goal.

You have these graphs that show Dividend ETF's underperform Total Return ETF's. OK, that might only be significant if someone is planning to be in 100% Dividend ETF's. That is probably nobody.
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Old 01-20-2018, 11:54 AM   #62
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I do always enjoy the pithy discussions about differing investment strategies.
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Old 01-20-2018, 12:02 PM   #63
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Surprising this debate continues. Clearly all research points to the fact that divs shouldn’t matter. Total return is obviously the only metric that matters. In the end, it will be the stock’s or ETF’s you chose that will determine your results.

Having said that, there are certainly more insignificant topics that garner a lot of attention here. We seem willing to “debate” almost anything. It’s just that we have heard all of this several times over.
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Old 01-20-2018, 12:02 PM   #64
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Originally Posted by redduck View Post
.... If you hear that these individual stock investors expect they can ride out a downturn maybe it's because they are loaded up with low-beta dividend payers that have a past-record of increasing dividends in bear markets. VIG has a bit over 170 stocks in it portfolio, with a bunch with rather high betas, it would be not as stable as someone's portfolio who invests in low-beta dividend stocks.

Unfortunately, since we (I) am talking about individual portfolios and not ETF's, there probably is no evidence to back this. Individual investors have different reasons for wanting to have individual dividend stocks in their portfolios--highest total return is not a universal goal. ....
Right, we can't really have a meaningful, evidence-based conversation based on someone's individuals picks. But...

I would still expect to see some trend in the larger self-proclaimed "high dividend" funds/ETFs.

And if there is a guideline to follow that would get us there with a smaller number of picks, why don't we see mutual funds with say, a dozen or so of these stocks, to market to this group (lord knows we have a large number of mini-sector funds). Seems we should see something results based if it can be done?

-ERD50
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Old 01-20-2018, 12:03 PM   #65
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One final attempt to show some evidence, although I suspect everyone already knows this and the discussion is just for discussion's sake.

First, the goal is for the portfolio to provide reliable income regardless of portfolio value. This income is designed so that the portfolio need not be sold off piecemeal to fund income needs. Any capital gains attributed to the stock price is gravy.

The image below shows the dividend payouts for all time for the core DGI stocks in my portfolio. There are many other stocks like this which I don't happen to own right now.

image shown below

The Y-axis is dividend payout (for each payment, usually quarterly) in dollars.

Note that none have ever been zero at any point over their entire lifetimes, although two get mighty close and might effectively be equal to zero.

Note that there are only a few cuts and ONLY TWO COINCIDING WITH THE GREAT RECESSION (F and UL). This triggers a sell or hold decision.

Note that many have frozen their dividends at some point in time. This triggers a sell or hold decision.

The whole point of applying a portion of my portfolio to DGI is that dividends are sticky. Corporations try to maintain them for very long periods of time and freezing or cutting them is a notorious warning sign.

These are special stocks BECAUSE they maintain their dividends and many more may be found at David Fish's excellent site:
http://www.dripinvesting.org/tools/tools.asp

The difference between ERD50's analysis and this data is that DGI funds include a multitude more stocks than this and that very volume waters down the result. Focusing on Dividend Kings introduces a lot more stability. In this case a DGI ETF or mutual fund does not represent the best result possible.

If I get frisky I may compare the growth shown here to CPI to prove the income stream is inflation protected.

These stocks pay between 2% and 5% now, although my yield on cost (YOC) is much higher, because I bought them carefully.
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Old 01-20-2018, 12:35 PM   #66
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Originally Posted by ERD50 View Post
...why don't we see mutual funds with say, a dozen or so of these stocks...
-ERD50
I believe the funds are restricted to owning 10% or less of an issue. This restricts the size and NAV of the fund and, consequently, the number of investors in the fund. To the point where the fund is not viable as a mass-market offering.
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Old 01-20-2018, 01:15 PM   #67
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I never sell anything, unless it loses some or all of its' ability to produce income or there is a much better asset to trade it for.

Dividends are paid out of income, not assets. It's all part of the capital allocation decisions...
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Old 01-20-2018, 01:22 PM   #68
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The Schwab exchange-traded fund Schwab US Dividend Equity (SCHD) has been a good performer over the last several years. Yield is 2.63%; expenses are 0.07%.
Of course it's been a good performer with the markets rallying higher and interest rates going lower over the last several years.

What will be more interesting to see is how it will perform going forward, as interest rates rise.

I would not buy any stock or fund using 2.63% yield as any kind of justification to myself...I can buy 5 year CDs today that pay 2.75% and are guaranteed not to lose value. I believe that between now and year end, as the continuing interest rate hikes come, these types of funds will stop their upward rise in share price and feel some pressure to have the yield higher via companies increasing payouts or share prices dipping lower. My mother has been contributing monthly faithfully for many years (and continues to) into Fidelity Growth and Income (FGRIX) which looks the same as SCHD and just this week I redeemed about 15% of it for her and will actively redeem more should it continue higher at the rate which it has recently.
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Old 01-20-2018, 01:23 PM   #69
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I believe the funds are restricted to owning 10% or less of an issue. This restricts the size and NAV of the fund and, consequently, the number of investors in the fund. To the point where the fund is not viable as a mass-market offering.
So they could still construct a fund from as few as 11 stocks. There is a DOW 30 fund. Your chart shows ~ 14 holdings - shouldn't be a problem, even if they had to 'water it down' a bit with some lower div payers, or bonds (you could adjust your AA in other areas)?


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Originally Posted by Bruceski44 View Post
... First, the goal is for the portfolio to provide reliable income regardless of portfolio value. ....
And part of what some us are trying to get across, is that this an objectively silly and unhelpful way to view an investment.

If that is your stated goal, then an investor looking in hindsight at an investment choice of:

A) One that kicks off 10% divs a year, and is down 50% in market value at the end of 10 years , and

B) One that has only 2% divs, but after selling ~ 8% each year for 10 years to provide the same cash flow, has a market value that is up 50%.

would chose "A". Yes, that's an extreme hypothetical, but it fits your "goal", so clearly that goal is not helpful.


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Originally Posted by Bruceski44 View Post
.... The image below shows the dividend payouts for all time for the core DGI stocks in my portfolio. There are many other stocks like this which I don't happen to own right now.


These are special stocks BECAUSE they maintain their dividends and many more may be found at David Fish's excellent site:
The DRiP Investing Resource Center - DRiP Information, Tools, And Forms

...

These stocks pay between 2% and 5% now, although my yield on cost (YOC) is much higher, because I bought them carefully.
YOC is another non-useful measurement. Money is fungible. The current value could be moved to another investment. The future outlook of a stock is not changed because one person bought it @ $10, and another bought it @ $50.

So I plugged that stock list into the portfolio analyzer (yes, I'm a sick puppy! ), and the results were very impressive.

But that leads me to two questions:

Were these stocks picked in 2001 (as far back as the analysis went), or are they current picks based on current results (survivor bias)?

If they were 2001 picks, then I have to ask again, if this is something that can be defined by an algorithm, then why don't we see mutual funds ETFs with this kind of performance (even watered down would be fine)? And if it can't be condensed to a reliable, repeatable algorithm, it is a moot point for others. IOW, is there any public, forward looking data based on a high-dividend 'system' that shows performance of picks made years ago?

https://www.portfoliovisualizer.com/...location24_3=8

-ERD50
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Old 01-20-2018, 01:29 PM   #70
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FWIW, VIG has done very well for me. I've had it about 10 years, always reinvesting dividends.

But I also own a lot more in market index funds.
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Old 01-20-2018, 01:35 PM   #71
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Originally Posted by njhowie View Post
Quote:
Originally Posted by Mr._Graybeard
The Schwab exchange-traded fund Schwab US Dividend Equity (SCHD) has been a good performer over the last several years. Yield is 2.63%; expenses are 0.07%.
Of course it's been a good performer with the markets rallying higher and interest rates going lower over the last several years. ....
And not even that. Looks to be neck and neck with the market. Nothing special at all.

https://www.portfoliovisualizer.com/...ocation4_2=100

cross posted:

Quote:
Originally Posted by explanade View Post
FWIW, VIG has done very well for me. I've had it about 10 years, always reinvesting dividends.

But I also own a lot more in market index funds.
VIG has done well the past 10 years, but not as well as "the market". So what's the point?

https://www.portfoliovisualizer.com/...ocation5_3=100

-ERD50
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Old 01-20-2018, 01:51 PM   #72
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https://www.marketwatch.com/story/di...016-2016-09-06

I may be missing something, but I can't find it yet. Seems legit... looks at total return, which should include dividends from both.

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Old 01-20-2018, 01:53 PM   #73
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And part of what some us are trying to get across, is that this an objectively silly and unhelpful way to view an investment.
-ERD50
Here's the crux of it. I'm having a lot of trouble understanding how my goal could be silly and unhelpful. What could be less silly and more helpful than getting my required income, through thick and thin, without touching the principal? But if that's the way you feel, then nothing I say is likely to change your mind or even be considered a valid point. I understand your point: you sell a little of your portfolio when needed, counting on LT growth to bring it back. I considered that approach and after considering projections for slow overall growth and inevitable corrections and crashes, decided it wasn't reliable enough for me. I'm guessing 10% of my dividend income may be at risk in the next recession, but I can survive that.

I agree YOC is not a helpful benchmark because it cannot be replicated at the current prices. But the fact that my YOC is higher than current yields represents a capital gain due to price appreciation. This should not be glossed over, but it's not the primary goal. Unloading part or all of an appreciated asset (cyclical for example) is wise and can increase portfolio yield.

For the benefit of others, there's no secret sauce here, and no fund that I'm aware of. I do own VDIGX as it provides exposure to some large-cap dividend payers I don't own, but I'm not bragging about VDIGX with its 2% payout. A solid DGI portfolio can be created by anyone willing to consult the DRIP investing website I referenced earlier and doing their own due diligence to determine entry points and diversification.
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Old 01-20-2018, 01:56 PM   #74
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...I would not buy any stock or fund using 2.63% yield as any kind of justification to myself...I can buy 5 year CDs today that pay 2.75% and are guaranteed not to lose value...
I am not sure I follow that. The CD would be worth the issue price + the 2.75% each year. The fund would be paying dividends of 2.63% + hopefully have growth in the share price of maybe 5% or so per year, right
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Old 01-20-2018, 02:03 PM   #75
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+ hopefully have growth in the share price of maybe 5% or so per year, right
Bingo!

My favorite saying...Hope is not an investment thesis.

The problem we have today is that nobody considers what if there a loss of 5%, 10%, 20% or more...maybe for an extended number of years.

The 2.75% CD has no risk, you will get it all back at maturity. What guarantees have you got with the fund?
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Old 01-20-2018, 02:12 PM   #76
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I've read several thread comments about investing in stocks that provide consistent dividends. The commenters often mention withdrawing the dividend payouts as an annual income stream.

These comments usually involve listing some of the best dividend paying stocks.

I prefer to avoid purchasing individual stocks. Are there mutual funds that focus on dividend paying stocks? Does Vanguard possibly offer something like this?

- As long as I'm bringing this topic up, is this a good idea?
- What are the pros and cons of buying stock in companies that provide consistent annual dividends?
- Could this be used as an alternative to some of my bond holdings?

Thanks,
JP
I'll try to address some of your questions the best I can:

1. The easiest one first: Yes, Vanguard has both ETF's and mutual funds made up of dividend paying stocks (already answered in another member's previous post, but I thought I'd address it anyway because I want to get one right for sure).


2. Lots of pros and cons and graphs in owning Dividend ETF or Dividend mutual funds.

a. Big con: the dividend funds will not outperform total return funds.

b. Big con: the dividend funds will not offer much more protection in a downturn. I know this firsthand as I owned VIG during the Great Recession and was shocked at its very poor performance (my bad). If you need evidence, ERD50 has a graph he will be willing to show you (:

c. . Big pro?: You will be able to post with a modicum of authority when the next Dividend thread comes along.


3. Could this be used as an alternative to some of my bond holdings?

As another poster has stated it's not a good idea. NO. Not a good idea. If you need further evidence that it's a bad idea, I am doing something like that with individual dividend stocks. When the next downturn hits, we will see just how a poor an idea this is. The whimpering you will be hearing will be me. The graph you will be seeing will be ERD50's validating his assumption (:

Good luck!
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Old 01-20-2018, 02:26 PM   #77
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So I plugged that stock list into the portfolio analyzer (yes, I'm a sick puppy! ), and the results were very impressive.


https://www.portfoliovisualizer.com/...location24_3=8

-ERD50

Why, on that PV webpage, are the entries made for Portfolios 1 & 3, but the charts compare Portfolios 1 & 2?
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Old 01-20-2018, 02:37 PM   #78
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Here's the crux of it. I'm having a lot of trouble understanding how my goal could be silly and unhelpful. What could be less silly and more helpful than getting my required income, through thick and thin, without touching the principal? ....
But that is not what you said and not what I responded to. I responded to you saying (literal quote here) " regardless of portfolio value.". Not the same thing at all.

And as I have demonstrated, touching the principal or not isn't necessarily a telltale sign of anything at all.


Quote:
But if that's the way you feel, then nothing I say is likely to change your mind or even be considered a valid point. I understand your point: you sell a little of your portfolio when needed, counting on LT growth to bring it back. I considered that approach and after considering projections for slow overall growth and inevitable corrections and crashes, decided it wasn't reliable enough for me.
Understood, but when I look at the data, is doesn't confirm what you are saying.


Quote:
... A solid DGI portfolio can be created by anyone willing to consult the DRIP investing website I referenced earlier and doing their own due diligence to determine entry points and diversification.
Well, I've put in some effort with graphs and sources, how about you show us the picks that were made back in 2000, 2001, 2002, etc (or whatever time-frames you have), and lets see how they did going forward from the date they were made. I may have missed it, but a quick skim of that site didn't show a history of how their selections did over the following 10 or so years.

-ERD50
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Old 01-20-2018, 02:43 PM   #79
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Why, on that PV webpage, are the entries made for Portfolios 1 & 3, but the charts compare Portfolios 1 & 2?
Yes, I was using that for other comparisons, and I just cleared the entries for P#2 - it just skips it, and assigned the entries in P#3 as comparison #2. IOW, #3 is the second portfolio in the comparison, and all the references match that.

-ERD50
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Old 01-20-2018, 02:49 PM   #80
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But that is not what you said and not what I responded to. I responded to you saying (literal quote here) " regardless of portfolio value.". Not the same thing at all.

And as I have demonstrated, touching the principal or not isn't necessarily a telltale sign of anything at all.

Understood, but when I look at the data, is doesn't confirm what you are saying.

Well, I've put in some effort with graphs and sources, how about you show us the picks that were made back in 2000, 2001, 2002, etc (or whatever time-frames you have), and lets see how they did going forward from the date they were made. I may have missed it, but a quick skim of that site didn't show a history of how their selections did over the following 10 or so years.

-ERD50
If I don't have to touch the principal then why would I care what its value is? Portfolio loses 50% in the next GFC? I don't care as long as my DI holds up! I think most people can easily relate the two thoughts -- if they are not being obstinate.

It seems like your mind is wrapped around the axle of portfolio value. I just took an hour to collate and post the all time dividend payment reliability of a few DGI stocks. That's all I care about! Will the dividend payments hold up in the next whatever? I'm not sure what else I need to show you, so I wish you well and am out.
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