Norwegian Widow Lifestyle

[twaddle]

The thread on portfolio survival during a depression got me thinking. How would "living off the yield" have done during the bad years?

It's not really the yield you care about, but the actual dividend amount. So assuming you retired in 1929 or 1968 and decided to forget about stock prices and simply live off your dividend checks, how would you have done?

It turns out that you would have been in a world of pain. The real dividend payment has been cut deeply a few times. About 50% from 1917-1920. From 1929-1934, it got cut by over 60%. From 1968-1978, dividends were cut about 25% in real terms.

The good news is that dividends have grown significantly faster than inflation over the long term. So as long as you make it to see the long term, you should do fine.

 

[haha]

Excellent Chart. It appears that a dividend investor should have considerable cash reserves too.Where did you find this chart?Ha

 

[twaddle]

I made it from the Shiller data:

Online Data

Edit: BTW, did anybody notice the recent steep dividend growth? And what happened historically after we had such steep growth? Yikes.

 

[haha]

I made it from the Shiller data:

Online Data

Thanks for sharing your work.

Ha

 

[FIRE'd@51]

Edit: BTW, did anybody notice the recent steep dividend growth? And what happened historically after we had such steep growth? Yikes.

Yep, and this time we have the additional problem of the Bush 2003 tax cuts sunsetting after 2010, or perhaps earlier if the Dems control all three branches of government.

 

[unclemick]

TANSTAAFL - don't matter who is in the White House and Congress - Iraq and tax cuts must be paid for - just a matter of how long and how much pain. Think the fun filled 70's stagflation after Vietnam, War on Poverty, etc. Give it 10-15 years of misery like last time and it will straighten out.

As to the Great Depression - Vanguard Wellington started in 1929 - did some dividend value stock selection and held a dollop of fixed income - did ok but I think they got creamed in 37 like the rest - 29-33 got the ameteurs and 37 got the pro's or something like that for the old cliche. Haven't read the history in a while.

heh heh heh - Target Retirement 2015 and soldier on. BTW - the Norwegian widows current yield is north of 3% - livible but not as good as er you know - psssst Wellesley!

 

[barbarus]

In any future eras of declining corporate profits, dividends are MUCH more likely to be cut than they were in the past.

Corporate management is recieving a consideribly higher level of compensation and declining profits will therefore be funneled into bolstering exec-pay. Events over the last decade have shown that the true power in business lies with the CEOs rather than the board or shareholders.

 

[figner]

Thanks for the interesting graph. I would think this data is more optimistic than many real-life situations where a person buys individual stocks instead of relying on dividends from a fund, since it doesn't account for individual stock risk. If a company goes under and S&P replaces it in the index with another company, does the price and yield of the index reflect the loss taken on the gone-under company?

I'd consider myself set if I could live off the dividends from a diversified set of index funds. But I'm not willing to accumulate enough assets to draw the approx 2% it would yield today.

Questions for Norwegian Widow style investors:
If you hold a basket of individual stocks for their dividends, how many of them would you expect to still be solvent 40 years from now? Do you have a plan for selling/replacing a stock if it no longer meets some set of criteria?

 

[twaddle]

As to the Great Depression - Vanguard Wellington started in 1929 - did some dividend value stock selection and held a dollop of fixed income - did ok but I think they got creamed in 37 like the rest - 29-33 got the ameteurs and 37 got the pro's or something like that for the old cliche.

UM, do you know where I can get long-term data for Wellington and Wellesley? I'd expect the bond component to help a bunch during a deflationary period like the depression. Not so helpful during the 1968-1981 period, I bet.

Events over the last decade have shown that the true power in business lies with the CEOs rather than the board or shareholders.

You've hit upon my Next Depression plan: get a gig as the CEO of a public company.

If a company goes under and S&P replaces it in the index with another company, does the price and yield of the index reflect the loss taken on the gone-under company?

I'd be surprised if there was ever a BK in the S&P 500. I assume they'd kick the stock out of the index and replace it before it got that bad. But even if there were a BK, that would represent roughly a 0.2% loss (1 out of 500 companies). In any case, I assume such events are reflected both in the price and dividend of the index.

 

[unclemick]

Questions for Norwegian Widow style investors:
If you hold a basket of individual stocks for their dividends, how many of them would you expect to still be solvent 40 years from now? Do you have a plan for selling/replacing a stock if it no longer meets some set of criteria?

- I took such a razzing on my dividend stock ladder a few years back I shall remain silent until a few other forum members post their methods.

Not that I am getting er 'sensitive' in my old age or anything - .

heh heh heh - P.S. there is a divdend forum over at Moringstar if you want to cough up $5 - but I think we are better here - not that I'm prejudiced or anything - but free is the right attitude.

 

[W2R]

BTW - the Norwegian widows current yield is north of 3% - livible but not as good as er you know - psssst Wellesley!

Speaking of which, I just got my first quarterly dividends from my recently purchased, er, you know - pssst Wellesley!! and have been on cloud nine ever since. They were way more than I expected. Amazingly, it seems that our recent stock market corrections weren't tough on Wellesley dividends. Looks like I am going to be living better than I thought in ER.

Wanted to start another "Whee!" thread but this will do.

I just love having 30% of my portfolio in Wellesley, and keep looking for the catch-22! There's got to be a catch.

 

[Zathras]

Questions for Norwegian Widow style investors:
If you hold a basket of individual stocks for their dividends, how many of them would you expect to still be solvent 40 years from now? Do you have a plan for selling/replacing a stock if it no longer meets some set of criteria?

I plan on most (80%) of mine being around in 40 years There are a few I have that probably don't have that longevity.
I do also watch for signs of weekness or a change of philosophy of the company regarding their dividends. If such a change/weakness appears I will sell the stock and buy another stock that shows greater strength.

 

[CyclingInvestor]

Questions for Norwegian Widow style investors:
If you hold a basket of individual stocks for their dividends, how many of them would you expect to still be solvent 40 years from now? Do you have a plan for selling/replacing a stock if it no longer meets some set of criteria?

I am retired, 49, living off my dividends from a 100% individual stock portfolio.
I have been retired 1.5 years, but investing this way for 14 years. I drop stocks
off my eligible list whenever certain criteria are violated - expected continuation
of long histories of increased earnings and dividends, wise capital allocation
decisions, etc. I dropped Enron off long before actual trouble appeared when they
stopped being a well-run, conservative pipeline company, sold off their pipelines
and started dreaming of energy futures and optical fiber routes. I dropped C, BAC,
and WM off a year or so ago when the credit market troubles started, long before
the big price declines.

I am also confident because I could live pretty well even on about half my current
dividends - half my current spending is on travel and entertainment. I would start
cutting back drastically if any companies I invest in start cutting dividends.

 

[FIRE'd@51]

If a company goes under and S&P replaces it in the index with another company, does the price and yield of the index reflect the loss taken on the gone-under company?

Yes.

 

[mb]

I just love having 30% of my portfolio in Wellesley, and keep looking for the catch-22! There's got to be a catch.

Taxes?

 

[megacorp-firee]

Speaking of which, I just got my first quarterly dividends from my recently purchased, er, you know - pssst Wellesley!! and have been on cloud nine ever since. They were way more than I expected. Amazingly, it seems that our recent stock market corrections weren't tough on Wellesley dividends. Looks like I am going to be living better than I thought in ER.

Wanted to start another "Whee!" thread but this will do.

I just love having 30% of my portfolio in Wellesley, and keep looking for the catch-22! There's got to be a catch.

Yes you are going to have to find something else to obsess about
Congrats W2R. Relax and enjoy the ride.

 

[W2R]

Yes you are going to have to find something else to obsess about
Congrats W2R. Relax and enjoy the ride.

thanks!

 

[W2R]

Taxes?

True, I know it will be taxed, but I was expecting that. Even after taxes it is pretty generous and with the market doing so badly, I had thought it would be down. Nope!!

 

[twaddle]

True, I know it will be taxed, but I was expecting that. Even after taxes it is pretty generous and with the market doing so badly, I had thought it would be down. Nope!!

Could you elaborate? Wellesley is 65% bonds. What would cause the distribution to go down? Are you worried about bond defaults? I wouldn't worry about that with Wellesley. My only concerns would be taxes and inflation.

 

[W2R]

Could you elaborate? Wellesley is 65% bonds. What would cause the distribution to go down? Are you worried about bond defaults? I wouldn't worry about that with Wellesley. My only concerns would be taxes and inflation.

The 10 year performance curve for Wellesley, is at the bottom of this webpage:

https://personal.vanguard.com/us/funds/performance?FundId=0027&FundIntExt=INT&DisplayBarChart=false

It took a dip in late 1999 or early 2000, as you can see. Recently it has taken a smaller dip that you also can see on the plot, and I assume that is due to the drop we have experienced in equities recently. But this chart reflects both share prices and dividends. My question until receiving these dividends, was, how much of these dips correspond to a drop in dividends, and how much to a drop in share price? Apparently this time, the recent dip only caused a drop in share prices and did not affect dividends. They are the same size as dividends last September, and (as might be expected from the curve) larger than March, 2007 dividends. I think that's worth a smile!

I am not staying up late at night worrying about inflation. Wellesley has managed to more or less keep pace with inflation over the long term, but little more and inflation is why I have chosen to put only 30% in Wellesley. My stock indices are behaving like everyone else's this winter and spring, but should provide a buffer against inflation in the long run. Dividends of this sort from Wellesley by themselves will provide more income than I will need from my portfolio. So, I won't need any income from the stocks and can leave them alone, other than to rebalance periodically.

 

[twaddle]

My question until receiving these dividends, was, how much of these dips correspond to a drop in dividends, and how much to a drop in share price?

You can find a distribution history here:

VWINX: Historical Prices for VANGUARD WELLESLEY INCOME FUND - Yahoo! Finance

Since Wellesley is mostly bonds, the distributions are primarily a function of the coupons on the bonds they hold, not on the economic effects on stock dividends. I summed up all of the distributions in a spreadsheet at one point, and the distribution from the fund is pretty erratic. It actually peaked back in 1997.

The dividends from the stock component should be pretty steady, except in periods of extreme economic stress (see my graph).

 

[W2R]

You can find a distribution history here:

VWINX: Historical Prices for VANGUARD WELLESLEY INCOME FUND - Yahoo! Finance

Since Wellesley is mostly bonds, the distributions are primarily a function of the coupons on the bonds they hold, not on the economic effects on stock dividends. I summed up all of the distributions in a spreadsheet at one point, and the distribution from the fund is pretty erratic. It actually peaked back in 1997.

The dividends from the stock component should be pretty steady, except in periods of extreme economic stress (see my graph).

That's nice to know. Thanks for the cool link. I wonder why it shows a September 27, 2006 dividend of $0.00 immediately after a September 22, 2006 dividend of $0.23? Odd.

Going to bed. Have fun...

 

[FIRE'd@51]

The "dividends" shown on Yahoo include all distributions, including ST and LT capital gains, so you really should look here to get the breakdown:

Wellesley Distributions

What Vanguard calls a "dividend", includes stock dividends and bond interest (but not cap gains). Your 1099 form will indicate what portion of the dividend is qualified for the 15% rate.

 

[figner]

If a company goes under and S&P replaces it in the index with another company, does the price and yield of the index reflect the loss taken on the gone-under company?

Thanks for the replies - while searching around for the answer after I posted the above, I ran across this description of how the S&P indices are calculated. Most of the examples use the S&P 500:

http://www2.standardandpoors.com/spf/pdf/index/Index_Mathematics_Methodology_Web.pdf

To summarize, the answer to my question is "yes," as some of you already posted, but I like to look at references.

twaddle, I agree it's more likely a company will be dropped before it goes BK, so I guess I'm really more interested in how any loss/replacement is reflected in the index.