Question about how much dividends fall during recesssions

[ER Eddie]

I got my Q1 statements from Vanguard and Fidelity, so I can compare last years dividends to this year's.

Dividends for Q1 2019: 4808.
Dividends for Q1 2020: 4996.

So they actually went up a bit.

I expect it to drop significantly in Q2. I'm surprised there was no drop in Q1.

 

[ER Eddie]

Update to the thread, now that I have Q2 results:

My dividends dropped 3.7% in Q2. Nothing to worry about. That's close to the average of 4% for dividend drops during recessions and bear markets (see OP). It's nowhere near the outlier of a 23% drop in 2008-2009.

To clarify for those who don't want to read back in the thread, I'm referring to the dividends generated by general Vanguard index funds, not to specific dividend funds. I'm a general index fund investor; I don't try to pick specific dividend stocks.

 

[kaneohe]

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.

This number is consistent w/ my data for 2009 which was for a mishmash of fund of the month recs from Money Mag, etc so not exclusively S&P500.
The number was even larger for the 2001 recession. Yet the numbers so far for 2020 don't show much of a dip. The largest dividends so far are for VG index funds & they seem similar to last yr. .........so I'm confused about what to use for this yrs forecast. Right now I'm assuming no change so that I don't get caught short for estimated taxes.

 

[ER Eddie]

Just got my Fidelity statement. Q2 dividends dropped 3.8%, compared to Q2 in 2019. As you'd expect, that's very close to the 3.7% drop in Vanguard dividends.

That's good news to me. I'm living off dividends, and a 3.7% drop is really nothing to me. I was concerned about a possible outlier scenario like in 2009, with 23% drops or worse -- but no sign of that so far.

 

[ERD50]

I'm still waiting on my quarterly dividend statements from Vanguard and Fidelity. They ought to be coming out soon. I can compare this year's Q1 dividends with 2019's.

Originally Posted by ERD50 View Post
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.

Re. bolded: It doesn't make a difference on their end, but it does make a difference on mine. If I sold stock instead of taking dividends, I would be locking in losses.

That's the main reason I like taking dividends. It allows me to avoid selling stock during a bear market.

Sorry, I missed this 3 month old reply.

But this is the myth that keeps getting repeated, which does not make it any truer. Are you 100% equities? That's not typical. The typical retiree is more like 60/40.

At 60/40, you will very, very, very likely never sell stocks during a bear market. A conservative retiree is likely at < 3.5% WR, and a 60/40 AA ought to kick out at least 2.5% in divs, So that 40% fixed will be available to sell/rebalance, and will provide many, many, many years of 1% withdrawals ( the delta of 3.5% withdraw and the 2.5% in divs).

So try again.

-ERD50

 

[ER Eddie]

Sorry, I missed this 3 month old reply.

But this is the myth that keeps getting repeated, which does not make it any truer. Are you 100% equities? That's not typical. The typical retiree is more like 60/40.

At 60/40, you will very, very, very likely never sell stocks during a bear market. A conservative retiree is likely at < 3.5% WR, and a 60/40 AA ought to kick out at least 2.5% in divs, So that 40% fixed will be available to sell/rebalance, and will provide many, many, many years of 1% withdrawals ( the delta of 3.5% withdraw and the 2.5% in divs).

So try again.

-ERD50

Ok, I'll "try again." You're a bit condescending, you know? You already spent a fair amount of ink earlier in the thread lecturing about what turned out to be a misunderstanding on your part, which I patiently dealt with. Now you're doing it again. I'll take responsibility for this misunderstanding, but I'd ask that you talk to me with respect, and drop the condescending, know-it-all attitude.

Here's my part of the responsibility. I said I didn't have to "sell stocks." However, I was using "stocks" as a shorthand term for my whole portfolio. That's how I think of my portfolio -- it's a bunch of stocks. I'm a lay investor, a KIS type guy, so I use terms loosely sometimes.

To say it more precisely and clearly, by living off dividends, I don't have to sell any part of my portfolio -- equities or securities, stocks or bonds. I like it that way.

My dividend yields run about 2%. My expenses run about 1.75%. So I'm able to avoid selling anything during a recession. If my expenses were in the 4% range, I would have to sell chunks of my portfolio in a recession, to make up the other half. I would start with the bonds, of course. It would be silly to sell equities first.

Fortunately, though, dividends cover my spending nicely, and so I don't have to sell anything. I like that. I don't feel like my hand is forced by economic conditions.

Ok, hopefully that is clear now.

 

[mrfeh]

Ok, I'll "try again." I said I didn't have to "sell stocks," but I should've been more precise in my language. I tend to use "stocks" as a shorthand term for my whole portfolio. But to say it more precisely, I meant that by living off dividends, I don't have to sell any part of my portfolio, equities or securities, stocks or bonds.

My dividend yields run about 2%. My expenses run about 1.75%. So I'm able to avoid selling anything during a recession. If my expenses were in the 4% range, I'd have to be selling chunks of my portfolio in a recession, to make up the other half. I would start with the bonds, of course. It would be silly to sell equities first.

Fortunately, though, dividends cover my spending nicely, and so I don't have to sell anything. I like that. I don't feel like my hand is forced by economic conditions.

Every time you receive a dividend, you are effectively selling, whether you realize it or not.

 

[ERD50]

Ok, I'll "try again." You're a bit condescending, you know? ...

I went back and skimmed the thread, I don't see how anything I've said could/should be taken as "condescending", it sure wasn't meant that way.

I'm just trying to clear up some of what I see as common misconceptions about dividends sector portfolios.

...

Fortunately, though, dividends cover my spending nicely, and so I don't have to sell anything. I like that. I don't feel like my hand is forced by economic conditions.

Ok, hopefully that is clear now.

The words are clear, but to me, it's all based on a foundation that just doesn't make any sense, a distinction w/o a difference as it were. mrfeh just put it concisely, so I'll leave it at that:

Every time you receive a dividend, you are effectively selling, whether you realize it or not.

-ERD50

 

[Gavin60]

FWIW,
I have a few different utility stocks, not as flashy and the fast climbing rocket ships of the stock market but a pretty reliable income stream of just over 4%
Right now they are DRIP accounts but at 62 I will draw that quarterly dividend.

 

[ER Eddie]

I went back and skimmed the thread, I don't see how anything I've said could/should be taken as "condescending", it sure wasn't meant that way.

Try again.

I'm just trying to clear up some of what I see as common misconceptions about dividends sector portfolios.

I don't have a dividend sector portfolio.

The words are clear, but to me, it's all based on a foundation that just doesn't make any sense, a distinction w/o a difference as it were.

We covered that earlier in the thread. I understand what you're saying -- basically that dividends aren't magic money that appears from nowhere; it comes out of a company's overall budget and therefore its overall value. I get that. I never thought dividends were some kind of magic money growing on trees.

I don't agree with your statement that I am selling shares whether I think I'm selling them or not. There's a difference between selling shares and refraining from buying more shares. I don't want to beat a dead horse, though, and it was pretty well handled earlier in the thread, so I don't want to repeat.

Let's just say we have different perspectives and leave it at that.