Income Portfolio

[Dash man]

I tend to agree, just like good stock pickers can outperform an index... but we know how that works out.

Care to share 5-10 tickers?

My core stock holdings are: ABC, ADM, ADP, AAPL, AVGO, CMI, HD, JNJ, MSFT, RPM, SBUX, SYK, UNH.

I have some others too, but not in large amounts. I also have ETFs for diversification purposes.

 

[ERD50]

Drawing broad conclusions about relative investment performance over time while considering only what I call the "Fed Era" i.e. 2008 forward, seems a bit, well, short sighted does it not?

Sure. But that's all the data we have on the div-focused funds/ETFs. What else can we do?

BTW, I did do a little more research, found a div-focused fund that goes back to 1992 - VDIGX. Did I miss that in my earlier research? No, I don't think so - the problem is, that fund's yield is currently only ~1.5%, barely above a broad market fund and probably less than a portfolio balanced with some bonds. So that hardly gets an investor a significantly greater income stream form divs-only, which seems to be what these posters are after.

And since 1992, it under-performs even a 70/30 blend of S&P500/Bonds (VTI doesn't go back that far), and the 70/30 blend has lower std dev to boot.

I don’t doubt that broad based dividend paying funds may underperform a total return fund. But I do believe selective dividend growing stocks will outperform a total return fund over the long haul. Companies that raise their dividend every year show they are healthy companies, especially those that have raised dividends for 15+ consecutive years.

Now we are getting into the "Stock Picking" sub-forum arena. Anything is possible in just about any sector with the right picks.

The far more relevant issue is, if these stocks can be selected on a basis like this, why isn't there a fund/ETF that I can buy that shows this great performance? There's a lot of competition in that space, lots of money to be made, but we see time and time again that few funds beat the broad market, and those that do are not able to hold onto their lead. Why is that?

-ERD50

 

[ncbill]

I don’t doubt that broad based dividend paying funds may underperform a total return fund. But I do believe selective dividend growing stocks will outperform a total return fund over the long haul. Companies that raise their dividend every year show they are healthy companies, especially those that have raised dividends for 15+ consecutive years.

That approach takes on significant non-market risk so your expected return would be higher...but are you properly compensated by the actual returns for taking on that extra risk?

Head on over to seeking alpha dot com & you will find plenty of fanboy articles about investments throwing off high returns, but I'd consider most "junk bonds" safer.

 

[ERD50]

What I refuse to accept are 3 things
1.) a website is responsible for human inputs
2.) The truth is not as presented comparing investments over an extended bull market
3.) I am not advocating focusing solely on dividend payers. Again....for the umpteenth time...I believe dividend payers are part of a portfolio. I also explained the exact percentage. IE the "Truth" being presented is based on a strawman / false premise. But you are welcome to keep repeating it.

I've already covered #1 & #2, I'll stop beating my head against that wall.

As for #3, as I said earlier, I agree that dividend payers should play a part of a portfolio, and by that I mean just include the dividend payers as they appear in the broad market mix. Just take what VTI or SPY has to offer.

By every measure I've seen, the div-sector under-performs the broad market without significantly reducing volatility. Bonds under-perform the broad market, but provide some stability. Why would I want to include a sector in my portfolio that just under-performs (rhetorical question - I don't)?

I can reduce Total Market volatility with some bonds, and still out-perform the Div-Sector funds. So that is what I do. I see no evidence to the contrary.

-ERD50

 

[Dash man]

Sure. But that's all the data we have on the div-focused funds/ETFs. What else can we do?



BTW, I did do a little more research, found a div-focused fund that goes back to 1992 - VDIGX. Did I miss that in my earlier research? No, I don't think so - the problem is, that fund's yield is currently only ~1.5%, barely above a broad market fund and probably less than a portfolio balanced with some bonds. So that hardly gets an investor a significantly greater income stream form divs-only, which seems to be what these posters are after.



And since 1992, it under-performs even a 70/30 blend of S&P500/Bonds (VTI doesn't go back that far), and the 70/30 blend has lower std dev to boot.







Now we are getting into the "Stock Picking" sub-forum arena. Anything is possible in just about any sector with the right picks.



The far more relevant issue is, if these stocks can be selected on a basis like this, why isn't there a fund/ETF that I can buy that shows this great performance? There's a lot of competition in that space, lots of money to be made, but we see time and time again that few funds beat the broad market, and those that do are not able to hold onto their lead. Why is that?



-ERD50

That’s why I don’t buy funds and select individual stocks. I do buy some ETFs for diversification purposes, but mostly stocks. There’s nothing wrong with stock picking and I don’t typically pick high risk stocks. Occasionally I’ve had some fun with AMZN and TSLA playing the momentum angle, but my core holdings are rock solid companies that increase their dividends each year along with growth in price. I’m not saying you should change your investment style. But mine works pretty well.

 

[Montecfo]

Sure. But that's all the data we have on the div-focused funds/ETFs. What else can we do?

-ERD50

Perhaps I misunderstood. I thought your premise was that high quality dividend paying stocks underperform the broad market.

If you were making the much narrower point that dividend paying stocks as represented by certain dividend focused ETFs have underperformed the market during the "Fed Era", then I think there is less room for disagreement.

 

[ERD50]

That’s why I don’t buy funds and select individual stocks. I do buy some ETFs for diversification purposes, but mostly stocks. There’s nothing wrong with stock picking and I don’t typically pick high risk stocks. Occasionally I’ve had some fun with AMZN and TSLA playing the momentum angle, but my core holdings are rock solid companies that increase their dividends each year along with growth in price. I’m not saying you should change your investment style. But mine works pretty well.

I don't understand how this is a response to my post? What am I missing?

My post was about not buying sector funds/ETFs versus just buying the broad market index funds/ETFs. I'm not following how this leads to picking individual stocks.

-ERD50

 

[target2019]

Time to play the card.

 

[olyveoil]

I've already covered #1 & #2, I'll stop beating my head against that wall.

As for #3, as I said earlier, I agree that dividend payers should play a part of a portfolio, and by that I mean just include the dividend payers as they appear in the broad market mix. Just take what VTI or SPY has to offer.

By every measure I've seen, the div-sector under-performs the broad market without significantly reducing volatility. Bonds under-perform the broad market, but provide some stability. Why would I want to include a sector in my portfolio that just under-performs (rhetorical question - I don't)?

I can reduce Total Market volatility with some bonds, and still out-perform the Div-Sector funds. So that is what I do. I see no evidence to the contrary.

-ERD50

#1 and #2 were "covered" by blaming a website for human inputs. I get it. You can only find a finite funds to use on that website. Hence, treating output from that website is, by definition, suspect at best as it is very limited.
By the way, why limit to just funds?
Or, you can just keep displaying that chart as if it proves something beyond your very limited inputs during an extended bull market.

I nor the OP agrees with how to use dividend payers. And that is OK. What is not Ok is trying to portray Dividend focus only to total return only as that is not what I presented.

My advice to you: don't included dividend payers as part of your portfolio.

 

[olyveoil]

I don't understand how this is a response to my post? What am I missing?

My post was about not buying sector funds/ETFs versus just buying the broad market index funds/ETFs. I'm not following how this leads to picking individual stocks.

-ERD50

Tell us.....who here advocated buying dividend focused sector solely over total market? Besides you?

 

[ERD50]

Perhaps I misunderstood. I thought your premise was that high quality dividend paying stocks underperform the broad market.

If you were making the much narrower point that dividend paying stocks as represented by certain dividend focused ETFs have underperformed the market during the "Fed Era", then I think there is less room for disagreement.

Second part first: Well, that is what the data shows. I paid no attention to whether the time frame of existence for those funds/ETFs coincided with the "Fed Era" or not, I just reported the data that was available.

So while Fed actions may have had an impact on how the market worked in that time period, I'm not sure I see how that changes anything for the personal investor. We have no (direct) control over what the Fed does, so the market did what it did, under that Fed influence.

Bottom line for me is, if someone had the belief that div-focused funds were better than the broad market, and did that when those funds became available, they would not have been served well. Are you saying avoid div-payers during certain times of Fed activity? Is that predictable? Sounds like sector-based market timing to me, not something I have any faith in. I'll take what the broad market provides.

First part second: Do high quality dividend paying stocks over or under perform the broad market? I'm sure some do, and some don't (really went out on a limb there, didn't I? . But again, if they can be identified, and perform better, why isn't that reflected in the div-sector funds/ETFs?

-ERD50

 

[Montecfo]

Second part first: Well, that is what the data shows. I paid no attention to whether the time frame of existence for those funds/ETFs coincided with the "Fed Era" or not, I just reported the data that was available.

So while Fed actions may have had an impact on how the market worked in that time period, I'm not sure I see how that changes anything for the personal investor. We have no (direct) control over what the Fed does, so the market did what it did, under that Fed influence.

Bottom line for me is, if someone had the belief that div-focused funds were better than the broad market, and did that when those funds became available, they would not have been served well. Are you saying avoid div-payers during certain times of Fed activity? Is that predictable? Sounds like sector-based market timing to me, not something I have any faith in. I'll take what the broad market provides.

First part second: Do high quality dividend paying stocks over or under perform the broad market? I'm sure some do, and some don't (really went out on a limb there, didn't I? . But again, if they can be identified, and perform better, why isn't that reflected in the div-sector funds/ETFs?

-ERD50

It sounds like you are making the latter point and using it as both a proxy for all historical periods and also the future, as evidenced by your final sentence.

If you notice, what I am calling the Fed Era is essentially one type of market conditions: exceedingly low interest rates and massive Fed support. That is, very recent conditions not typical of history.

So I think if we are remaining fact-based here, I think your conclusions begin and end with the Fed Era.

 

[ERD50]

Tell us.....who here advocated buying dividend focused sector solely over total market? Besides you?

You keep throwing extra words in there or changing my words. Please stop that. I never said you or anyone else were "buying dividend focused sector solely over total market".

Look at the direct quote from me that you referenced:

Why would I want to include a sector in my portfolio that just under-performs (rhetorical question - I don't)?

This time, I'll add emphasis:

Why would I want to include a sector in my portfolio that just under-performs (rhetorical question - I don't)?

The word "include" does not mean to the exclusion of everything else. I didn't say "replace", did I? So my point is/was, that I see no reason to include a div-focused sector fund as any part of my portfolio at all. I see no advantage to them, so I would not want even a little bit of that exclusive sector in my portfolio.

I accept the diversification of div-payers and non-div-payers alike in the broad market index fund/ETFs that I buy.

-ERD50

 

[ERD50]

It sounds like you are making the latter point and using it as both a proxy for all historical periods and also the future, as evidenced by your final sentence. ...

You are reading too much into what I said. I can only go by the data I have. It may or may not be indicative of the past or the future, I have no idea.

But if they under-performed in that environment, what makes me think they will out-perform in some other environment (they may or may not - I don't know)?

Some people claim the div-payers hold up better in dips. Well, they didn't hold up better in those dips. So that's not something I can count on.

No one seems to be able to present data for any other long term period. So I go with what I have, accepting that it is still limited.

... So I think if we are remaining fact-based here, I think your conclusions begin and end with the Fed Era.

I never said otherwise, it represents the dates provided. Why would anyone think otherwise? Again, can someone provide data from other periods? I'm all eyes.

-ERD50

 

[flintnational]

After reading this thread, I am left with the impression there are at least two dividend camps.

1) Mom, baseball, apple pie and dividend payers

2) Bigfoot, Santa Claus, the tooth fairy and dividend payers


Its a joke, just a joke.

 

[olyveoil]

You keep throwing extra words in there or changing my words. Please stop that. I never said you or anyone else were "buying dividend focused sector solely over total market".



-ERD50

You certainly implied and outright stated. You are the one that keeps mentioning dividend only vs total return via your charts and in your words. I am not inserting anything. I am quoting you.

I will make it easy for you:

Post #5. Almost the entirety of this post is comparing two div paying ETFs to VTI/SPY ONLY.
"I'm not a fan of sector funds, these High Dividend funds, by definition, invest in a sector of the market to get those dividends. The data shows you are best served by a more diversified portfolio, like VTI (Total Market) or SPY."
"If you invested $100,000 in VTI and SPHD at SPHD inception (NOV 2012), VTI would have grown to $352,979, SPHD lagged and would be worth only $246,574. A $106,405 delta is nothing to sneeze at. And, you'd likely pay less taxes with VTI/SPY."

Post #26
"But I don't like the idea of investing only in div payers, that is making it harder to be as diversified as the Total US Market, and I've seen no evidence of any advantage (on the contrary, my research into div payers show they under-perform by all meaningful measures, including volatility)."

"Show us some data - how can someone on this forum easily invest in a diversified group of div payers that show a historical advantage over VTI?"

Post #28
"A dividend paying portfolio has MORE volatility than a 100% Total Market portfolio (which is why I say more than 100% psychological). There just is no factual basis (that I've ever seen), that a dividend paying portfolio will provide more stability in downturns than a Total Market portfolio."


Post #51
"Those 100% div paying portfolios are *not* less volatile than VTI, so it isn't a fair comparison at all to weigh VTI down with bonds, and not the div payers. "


Post #57 (essentially all of it)
"Updated links, the first is VTI (Total US Market) versus a blend of 7 div-paying funds. Asset allocation of 100%, and an annual, inflation adjusted withdrawal of 3.5% (there's your income) "
The portfolio of VTI went from $1,000,000 initial investment to $2,224,170.
The portfolio of div-payers ended up at $1,630,526.

So the div-paying funds are down $593,644, after both portfolios provided an inflation adjusted 3.5% WR. And the VTI portfolio would have saved you some taxes to boot."

Reminder---the above are your words. You are unequivocally comparing dividend only to total market. More than once. Further, your next move is to try and argue against a point that you are making (OP nor I are claiming what you are arguing against)

 

[olyveoil]

So my point is/was, that I see no reason to include a div-focused sector fund as any part of my portfolio at all. I see no advantage to them, so I would not want even a little bit of that exclusive sector in my portfolio.

I accept the diversification of div-payers and non-div-payers alike in the broad market index fund/ETFs that I buy.

-ERD50

Then don't buy them. Simple as that.
Also, don't try to pawn off very limited input data as the end all/be all of what data is used to decide on relative merits of dividend payers.

 

[OldShooter]

Then don't buy them. Simple as that.
Also, don't try to pawn off very limited input data as the end all/be all of what data is used to decide on relative merits of dividend payers.

Just curious -- what exactly are you trying to accomplish here?

ERD50 is basically offering settled science. Anyone who wants to bias an equity tranche towards dividend-payers is free to do so of course, but hopefully they will understand that they are almost certainly trading some return for whatever benefit they get from their chosen strategy.

 

[olyveoil]

Just curious -- what exactly are you trying to accomplish here?

ERD50 is basically offering settled science. Anyone who wants to bias an equity tranche towards dividend-payers is free to do so of course, but hopefully they will understand that they are almost certainly trading some return for whatever benefit they get from their chosen strategy.

"settled Science" - funny.
Science is not settled on very limited data inputs.

I was trying to reply to the OP, here.

What are you trying to accomplish?

 

[Golden sunsets]

"settled Science" - funny.
Science is not settled on very limited data inputs.

I was trying to reply to the OP, here.

What are you trying to accomplish?

 

[braumeister]

I was trying to reply to the OP, here.

FWIW, the OP made his decision, thanked everyone, and logged off a week ago. Hasn't been back since.

 

[Montecfo]

You are reading too much into what I said. I can only go by the data I have. It may or may not be indicative of the past or the future, I have no idea.

But if they under-performed in that environment, what makes me think they will out-perform in some other environment (they may or may not - I don't know)?

Some people claim the div-payers hold up better in dips. Well, they didn't hold up better in those dips. So that's not something I can count on.

No one seems to be able to present data for any other long term period. So I go with what I have, accepting that it is still limited.




I never said otherwise, it represents the dates provided. Why would anyone think otherwise? Again, can someone provide data from other periods? I'm all eyes.

-ERD50

Now we are getting somewhere. I think we are now both saying the same thing, that the Fed Era has little to say about prior or future periods, and that you are using a very limited data set.

There is little to conclude from this relatively short, homogenous window, and it may have little to no predictive value.

 

[ERD50]

You certainly implied and outright stated. You are the one that keeps mentioning dividend only vs total return via your charts and in your words. I am not inserting anything. I am quoting you. ...

Yes, for the comparisons, I compare the div-sector to total market. That's how to compare them. If I buried them as 15% of a portfolio (or whatever), it would be hard to see if there was a difference. There's no benefit to that in trying to eek out differences.

If a sector under-performs, it under-performs. If that sector was 15% of the portfolio, 15% of the portfolio would under-perform. Makes no difference to the comparison. That doesn't help the portfolio, it hurts, just to a lesser degree.

Now, if the div-sector was relatively uncorrelated to the Total Market, it might help along with re-balancing (like bonds can). But we see very high correlation in those charts.

So run those charts with a mix, and see if an X% allocation to those div-sector funds/ETFs boost performance. I don't see how it can, but I await your data.

-ERD50

 

[racy]

FWIW, the OP made his decision, thanked everyone, and logged off a week ago. Hasn't been back since.

LOL. You beat me to it!

 

[Montecfo]

Yes, for the comparisons, I compare the div-sector to total market. That's how to compare them. If I buried them as 15% of a portfolio (or whatever), it would be hard to see if there was a difference. There's no benefit to that in trying to eek out differences.

If a sector under-performs, it under-performs. If that sector was 15% of the portfolio, 15% of the portfolio would under-perform. Makes no difference to the comparison. That doesn't help the portfolio, it hurts, just to a lesser degree.

Now, if the div-sector was relatively uncorrelated to the Total Market, it might help along with re-balancing (like bonds can). But we see very high correlation in those charts.

So run those charts with a mix, and see if an X% allocation to those div-sector funds/ETFs boost performance. I don't see how it can, but I await your data.

-ERD50

I'm surprised no one has put together a broad market index excluding the dividend payers. Would perform so much better without that, you know, drag.