Question about how much dividends fall during recesssions

[NW-Bound]

Please, people. The OP was asking about the dividend of the S&P.

Some indexers live on dividend+cap gain of the S&P. The OP is counting only the divvies. Is that wrong?

I am withdrawing even less than the dividend. The cap gain is for me to feel rich. Am I even more wrong?

[Sunset]

Quote:

Originally Posted by audreyh1 Thank you! Now I have a good reference. I use that site all the time, but hadn’t paid much attention to their dividend data. So, an investor should be prepared for a 23% haircut after a big bear market, and that it could take several years to get back to get back to a peak.

I believe that big dividend cut back in 2009 was (IMHO) the banks, which cut their dividends to about 1 cent.

I remember this, as I had wanted to buy something safe, and what could be safer than buying a bank .

[pb4uski]

Quote:

Originally Posted by NW-Bound Please, people. The OP was asking about the dividend of the S&P. Some indexers live on dividend+cap gain of the S&P. The OP is counting only the divvies. Is that wrong? I am withdrawing even less than the dividend. The cap gain is for me to feel rich. Am I even more wrong?

No, not wrong. You just may have worked longer than you needed to but not at all wrong.

[NW-Bound]

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Originally Posted by pb4uski No, not wrong. You just may have worked longer than you needed to but not at all wrong.

Nah.

During the 2007-2009 Great Recession, I still had two children in college. Could not stop working my part-time contract work then. Wife already quit.

I finally fully retired in 2012, and the bull market propelled my stash up, while my expenses declined even more than I thought, despite long travels and still having two homes. And my wife started her SS.

Nope, I feel no need to blow any dough to be happy. Maybe later when I run across a nice, nice class B motorhome for sale.

[ER Eddie]

Quote:

Originally Posted by ERD50 It was more of a general comment, you were a bit vague about your positions, so I'm not sure if it applied directly to you or not. So you are saying you are in broad-based index funds (SPY or Total Market and Total Bond market)? OK, that's good, sector funds by definition limit your diversification. I got the (apparently mistaken) impression (but wasn't sure) that you concentrated on dividend paying funds.

Yes, that's right -- I'm in broad-based index funds like Total Market, Total Bond, SP500, etc.. My expenses run a little less than 2% of my total investment pool, so I'm covering that with the dividends that these general index funds throw off.

I'm not a "dividend investor" in the sense of concentrating on dividend stocks. I just take what the general, broad-based index funds throw off.

Quote:

So if you are in broad-based index funds, and want to only use the divs, that's your decision, nothing right/wrong about it. But what I am saying is that it is a totally artificial restriction. A dividend is just a distribution of some of the value of the stock. It makes absolutely no difference (outside of tax implications) whether that company distributed some of their value to you in the form of a dividend, or if you sold some of their stock to obtain that value. If the company didn't distribute that dividend, it would be retained and reflected in their stock price, You could then sell it, when and in the amount you choose.

Okay, I get that. If the company didn't issue the dividend, the company would be worth more, which would be reflected in its stock price. So in some sense, the company is trading its stock value for dividends -- and so are we, when we take dividends.

That makes sense. The money for dividends has to come from somewhere, after all -- i.e., out of the company's value in some way.

Quote:

Some div paying fans will say the dividend doesn't affect the stock price. To cut to the chase, they are wrong. That's getting into "magic". We've gone over it before. 2+2 = 4 ; 3+1 = 4. The money comes from somewhere, it doesn't appear magically.

Sure. Of course. Dividends don't grow on trees.

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I just don't see the point of restricting myself to whatever a BOD decides to distribute. If history says I can safely take a 3.5% inflation adjusted amount, and I decide to add a little buffer in case the future is worse than the worst of the past, then it is totally irrelevant as to whether that amount comes from divs or sales or a combination. My safety factor is the same. What is your AA? That does factor into your safety. Does that help?

Yes, thanks for explaining.

My AA is 65/35 -- or at least it was, lol.

[ERD50]

Quote:

Originally Posted by ER Eddie Yes, that's right -- I'm in broad-based index funds like Total Market, Total Bond, SP500, etc.. My expenses run a little less than 2% of my total investment pool, so I'm covering that with the dividends that these general index funds throw off. I'm not a "dividend investor" in the sense of concentrating on dividend stocks. I just take what the general, broad-based index funds throw off. Okay, I get that. If the company didn't issue the dividend, the company would be worth more, which would be reflected in its stock price. So in some sense, the company is trading its stock value for dividends -- and so are we, when we take dividends. That makes sense. The money for dividends has to come from somewhere, after all -- i.e., out of the company's value in some way. Sure. Of course. Dividends don't grow on trees. Yes, thanks for explaining. My AA is 65/35 -- or at least it was, lol.

Sounds like we are on the same page.

So if your divs do drop below what you desire for your chosen lifestyle, and the market is still down, you would still have plenty on the fixed side to draw from to cover any small div shortfall. So there is no selling of stocks at a low anyhow, at least not for a very long time.

I'm glad you understood there is no magic to dividends, some people have argued that (and will probably continue) and just won't accept it, but how can it be otherwise (excluding 'magic')?

-ERD50

[Lawrence of Suburbia]

I wonder how the current turmoil will affect "managed payout"-type funds.

[MichaelB]

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Originally Posted by Lawrence of Suburbia I wonder how the current turmoil will affect "managed payout"-type funds.

I’m sure they’ll manage.

[audreyh1]

Quote:

Originally Posted by Sunset I believe that big dividend cut back in 2009 was (IMHO) the banks, which cut their dividends to about 1 cent. I remember this, as I had wanted to buy something safe, and what could be safer than buying a bank .

Some major economic sector always seems to get creamed now and then. Dividends are cut.

[target2019]

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Originally Posted by Lawrence of Suburbia I wonder how the current turmoil will affect "managed payout"-type funds.

Quote:

Originally Posted by MichaelB I’m sure they’ll manage.

Ok, I'm laughing out loud!

[Lawrence of Suburbia]

Okay, funny but doesn't address my question.

[ERD50]

Quote:

Originally Posted by Lawrence of Suburbia Okay, funny but doesn't address my question.

But it was funny! Better than a response that doesn't address the question, and doesn't provide some humor (something we all could use right now!).

So to address the question (well, sort of), I haven't analyzed the managed payout funds in any sort of depth at all. But I know TANSTAAFL, they can't just make money appear from nowhere. So unless their expenses were so high (and/or they under-performed in general) such that they could afford protective puts (or other hedge) during all the good times as well to be able to make it through these times, I suspect there may be some 'adjustments'.

-ERD50

[Zathras]

To the OP.
Our dividend portfolio held up very nicely in the 2008-2009 recession.
We had one big dividend cut, many ‘holds’ and a few increases. Overall our dividend payouts dropped by less than 3% while out portfolio dropped over 30%.

Since then, our portfolio recovered nicely. Our dividends also recovered nicely to, and beyond, our pre-recession levels.

We haven’t lost any sleep over anything the market has thrown at us. The stability of our income stream has been very comforting.
Oh, and don’t listen to anyone telling you to spend more money. If you are happy and comfortable, you don’t need to spend any more.

We like individual stocks, not funds. Do your research, don’t chase yields

[ERD50]

Quote:

Originally Posted by Lawrence of Suburbia Okay, funny but doesn't address my question.

Did you try Google?

1st hit:

https://www.barrons.com/articles/van...nd-51582939988

Quote:

A mutual fund that can produce monthly retirement income for decades—the opposite of a target-date fund—has long been the moonshot of asset management. But after 12 years of trying, Vanguard is throwing in the towel. ... Vanguard Managed Payout has returned capital as part of its monthly distributions for years. Its two monthly distributions this year included 90% return of capital. But the fund also had performance issues that made it tough to hit distribution targets. As Barron’s reported last February, Vanguard cut its 2019 target payout by 8% after the portfolio took a hit the previous year. .... One hurdle: Managed payout funds have long had trouble hitting their income targets without dipping into capital—simply giving investors part of their money back. .... “Managed payout funds failed,” he said in an interview. “They tried to give you monthly income but they weren’t able to increase the dividends much, if ever. You would have done much better in a fund like Vanguard Wellington (VWENX).”

TANSTAAFL

-ERD50

[Lawrence of Suburbia]

Thanks for that (I'd read it, was looking for other viewpoints.) I almost went for VPGDX, but went with AMJVX instead when I retired last year. So far, so good.

NOW I gotta Google Tanstaafl ...

Edit: yup. No such thing. Although, Costco still serves a magnificent $1.50 hot dog ...

If only VWELX or VWINX had a 5% payout ...

[ERD50]

Quote:

Originally Posted by Lawrence of Suburbia Thanks for that (I'd read it, was looking for other viewpoints.) I almost went for VPGDX, but went with AMJVX instead when I retired last year. So far, so good. .... If only VWELX or VWINX had a 5% payout ...

WADR, I believe you are fooling yourself.

Over the long run, AMJVX has terribly under-performed SPY, VWELX or VWINX.

Plug them in here:

ttps://stockcharts.com/freecharts/perf.php?SPY,AMJVX,VPGDX,VWINX,VWELX

or here:

www.portfoliovisualizer.com/backtest-portfolio

You can get a 5% payout from VWELX or VWINX or SPY or VTI. Just take it. It's easy, on any time frame you choose, just sell 5% - divs (all annualized to your chosen time frame). That's all your managed funds are doing, there is no magic. DIY, and you are in control.

-ERD50

[Lawrence of Suburbia]

Yup, AMJVX down about 20%. VWINX down about 8% ... crikey!

Were one to switch, should one wait 'til the AMJVX shares have recovered, or switch now to the better-performing VWINX? ...

[ERD50]

Quote:

Originally Posted by lawrence of suburbia yup, amjvx down about 20%. Vwinx down about 8% ... Crikey! Were one to switch, should one wait 'til the amjvx shares have recovered, or switch now to the better-performing vwinx? ...

- erd50

[pb4uski]

Quote:

Originally Posted by ERD50 ....You can get a 5% payout from VWELX or VWINX or SPY or VTI. Just take it. It's easy, on any time frame you choose, just sell 5% - divs (all annualized to your chosen time frame). That's all your managed funds are doing, there is no magic. DIY, and you are in control. -ERD50

+1 We did that with BIL's mom. She had a Voya fixed annuity that wasn't paying her very much so we withdrew the balance in two different years to spread out the tax impact so the mom didn't pay any taxes on the annuity distributions... the first in December and the remainder in January... we put the proceeds into Wellesley with dividends reinvested and with an automatic sale/withdrawal of $x per month. So it was really like an annuity but with upside for her heirs offset by a remote possibility of that the account might exhaust itself.

In fact, when she needed to go into a nursing home about 5 years later it caused a bit of confusion because the family thought it was an annuity when it was really just a taxable mutual fund account with an automatic withdrawal.

[Sunset]

Quote:

Originally Posted by audreyh1 Some major economic sector always seems to get creamed now and then. Dividends are cut.

Yep, this time it will be the travel industry cutting divs.