Question about how much dividends fall during recesssions

[Lawrence of Suburbia]

Okay, funny but doesn't address my question.

 

[ERD50]

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]

Okay, funny but doesn't address my question.

Did you try Google?

1st hit:

https://www.barrons.com/articles/vanguard-throws-in-the-towel-on-its-managed-payout-fund-51582939988

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]

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]

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]

....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]

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.

 

[Lawrence of Suburbia]

Very helpful, thanks.

Anybody else? ....

 

[pdxgal]

Thanks for asking this question, ER Eddie. I was wondering the same thing. In the first years of ER my plan is to meet spending needs primarily through rental income, supplemented with dividends and interest. My investment advisor noted that the dividend income is rather independent of the stock's price fluctuations and could be expected to remain relatively stable. She felt I was good to go for ER. That was about 2 months ago though. The answers folks have given here are generally reassuring, so for now I'm still planning to be in class of 2020. Do keep us posted with any updates on your end.

 

[BoodaGazelle]

Re: dividend investing..... Look at your portfolio as a black box, with what you put in going in one end, and what you take out coming out the other. The dial is your AA, which you can change. Still, when you die, you will have taken out so much, and have some (or none) left over.

The Boglehead strategy of index investing with steady compounding at whatever the S&P rises at, at least for all time until now (what was true may fail in the future), gives the most money at the outgoing (and remainder) end.

At least this is how I understand it. And I say this as a previous long-term dividend investor who thought the same as you stated above. It sort of comes down to TANSTAAFL. It (dividend investing) *seems* like it is too good to be true, and it is.

 

[EastWest Gal]

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

I think the oil industry will finally have to cut dividends. In the history of Standard Oil/Chevron (where dad has his career and was startled when his NW went up and up in retirement due to oil stocks), I could never find a decrease in dividends. They even INCREASED their dividend for Q1 2020. Q2 will be interesting. Stock price yesterday fell to about the same in 2009, about a 50% loss in value.

Check out the dividend chart.

https://www.chevron.com/investors/stock-information#dividendinformation

 

[ER Eddie]

The Boglehead strategy of index investing with steady compounding at whatever the S&P rises at, at least for all time until now (what was true may fail in the future), gives the most money at the outgoing (and remainder) end.

At least this is how I understand it. And I say this as a previous long-term dividend investor who thought the same as you stated above. It sort of comes down to TANSTAAFL. It (dividend investing) *seems* like it is too good to be true, and it is.

To clarify, I'm not a dividend investor in the sense of selecting specific dividend stocks. I'm an index fund investor, the kind you allude to in your first paragraph. I'm just talking about dividends thrown off by general, broad-based index funds (e.g. Total US Stock Market).

Thanks for asking this question, ER Eddie. I was wondering the same thing. In the first years of ER my plan is to meet spending needs primarily through rental income, supplemented with dividends and interest. My investment advisor noted that the dividend income is rather independent of the stock's price fluctuations and could be expected to remain relatively stable. She felt I was good to go for ER. That was about 2 months ago though. The answers folks have given here are generally reassuring, so for now I'm still planning to be in class of 2020. Do keep us posted with any updates on your end.

You're welcome. Judging by history since WWII, a 23% drop would be worst case scenario. Average drop is much less than that, an unbelievably low 4%. I'd be shocked if it was only a 4% drop. I wouldn't even notice that.

I'll keep an eye on my own dividends and try to report back. I might not really know until the end of the year, though.

 

[target2019]

The dividend drop for VTSAX Total US Stock Market may be greater than the drop of Dividend Aristocrats, I'd think. I found this chart of dividend history for VTSAX.
https://seekingalpha.com/symbol/VTSAX/dividends/history

Dividend history can also be downloaded from Yahoo.

4% drop seems very optimistic.

 

[ER Eddie]

The dividend drop for VTSAX Total US Stock Market may be greater than the drop of Dividend Aristocrats, I'd think. I found this chart of dividend history for VTSAX.
https://seekingalpha.com/symbol/VTSAX/dividends/history

Dividend history can also be downloaded from Yahoo.

4% drop seems very optimistic.

Thanks for the link. Interesting. I'll keep an eye on it. We should have data for Q1 pretty soon. Q2 will give a better indication.

I agree that a 4% drop would be too good to be true. I'm not expecting something that small. Would be nice, but nah, not this time.

 

[JAB1950]

I just keep 5 yrs of planned spending in cash (i.e. CD's) and invest the rest. I sleep well at night.

 

[target2019]

Olive Garden (DRI) has suspended its dividend. Even worse, stock price is down almost 70%.
https://www.marketwatch.com/story/o...e-to-coronavirus-2020-03-19?mod=mw_latestnews

Darden Restaurants Inc. (DRI) is part of the S&P 500.
https://markets.businessinsider.com/index/components/s&p_500

 

[ERD50]

Olive Garden (DRI) has suspended its dividend. Even worse, stock price is down almost 70%.
https://www.marketwatch.com/story/o...e-to-coronavirus-2020-03-19?mod=mw_latestnews

Darden Restaurants Inc. (DRI) is part of the S&P 500.
https://markets.businessinsider.com/index/components/s&p_500

And they had a very steady and mostly rising dividend for almost 25 years. Looks like a little pull-back and leveling ~ 2007, but that was after they boosted it by 5x.

If the CV happened a year or two later, it looks like DRI would have been eligible (or close) for inclusion in that Dividend Aristocrat list? And now it is a zero div and a near 70% drop? I'll stick to my diversified portfolio, thanks.

Date Div*
01/09/20 0.880
10/09/19 0.880
07/09/19 0.880
04/09/19 0.750
01/09/19 0.750
10/09/18 0.750
07/09/18 0.750
04/09/18 0.630
01/09/18 0.630
10/06/17 0.630
07/06/17 0.630
04/06/17 0.560
01/06/17 0.560
10/05/16 0.560
07/07/16 0.560
04/07/16 0.500
01/06/16 0.500
10/07/15 0.492
07/08/15 0.492
04/08/15 0.492
01/07/15 0.492
10/08/14 0.492
07/08/14 0.492
04/08/14 0.492
01/08/14 0.492
10/08/13 0.492
07/08/13 0.492
04/08/13 0.447
01/08/13 0.447
10/05/12 0.447
07/06/12 0.447
04/05/12 0.384
01/06/12 0.384
10/06/11 0.384
07/07/11 0.384
04/06/11 0.286
01/06/11 0.286
10/06/10 0.286
07/07/10 0.286
04/07/10 0.223
01/06/10 0.223
10/07/09 0.223
07/08/09 0.223
04/07/09 0.179
01/07/09 0.179
10/08/08 0.179
07/08/08 0.179
04/08/08 0.161
01/08/08 0.161
10/05/07 0.161
07/06/07 0.161
04/05/07 0.206
04/06/06 0.179
10/05/05 0.179 << ~5x boost
04/06/05 0.036
10/06/04 0.036
04/06/04 0.036
10/08/03 0.036
04/08/03 0.036
10/08/02 0.036
04/08/02 0.024
10/05/01 0.024
04/06/01 0.024
10/05/00 0.024
04/06/00 0.024
10/06/99 0.024
04/07/99 0.012
10/07/98 0.024
04/07/98 0.024
10/08/97 0.024
04/08/97 0.024
10/08/96 0.024
04/08/96 0.012
10/05/95 0.024

https://www.dividendchannel.com/symbol/dri/

-ERD50

 

[Zathras]

That’s why diversification is important.
While some sector’s dividends will be cut, others won’t.

And while some dividends will be cut, a well diversified set of dividends won’t drop nearly as much as the stocks themselves. At least, that is the goal

 

[bloom2708]

Ford dividend gone.

https://www.zerohedge.com/markets/f...own-15bn-credit-line-fully-withdraws-guidance

 

[ERD50]

That’s why diversification is important.
While some sector’s dividends will be cut, others won’t.

And while some dividends will be cut, a well diversified set of dividends won’t drop nearly as much as the stocks themselves. At least, that is the goal

But it is a tunnel vision, and unhelpful (to your financial health) goal to focus only on the dividends versus the total value of the stocks plus dividends.

I'll put diversification ahead of that, I'll invest in the broad index and not limit myself to whether a stock pays high/mid/low/no divs. It's the balance sheet of you portfolio that counts. You can always create cash flow if needed, as needed, by deciding when and how much to sell, rather than having these div payers decide for you (a dividend is essentially a sell off of the stock).

-ERD50

 

[Starsky]

i won't be surprised if companies that take money from the government will not be able to pay stock dividends based on the wording in the legislation. Bailouts will probably come with strings attached. It sounds like shareholders will be at the end of the line in this disaster. At this juncture, it only seems fair...

Corporations have been the biggest buyers of stock in the Bull market. The consumers are the ones who have been propping up this behavior for so long [with never-ending tax breaks and low interest giveaways]. Corporations are addicted to the cheap money and now comes the withdrawal pains of not having easy access to credit because the value of all their [repurchased] shares is upside-down. Their corporate cultures are too. Some have become truly dangerous to their customers and have to go. The "Walking Dead" - Wells Fargo, Uber and Boeing - would be great places to start. As a taxpayer, I don't want them getting a dime of my bailout money. Someone else can assimilate them in BK and turn them around.

 

[ER Eddie]

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.

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.