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Dividend stock vs bonds
Old 05-07-2020, 04:01 PM   #1
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Dividend stock vs bonds

Ok. I know the difference between stocks and bonds and total return vs dividend investing.
I see the low low yields on fixed income and I have an extremely low stock allocation anyway.
My question is what is the negative about buying a quality dividend etf like SCHD or fund VEIPX in taxable and just taking the dividends for income. We are in the 12 pct bracket so no taxes on the dividends.
Also very happy to keep very long term and add to my stock allocation.
I am thinking 100K which would provide 300 plus a month to spend and over the long haul also provide a decent return.
No interest in selling shares every month. Just want to keep it simple for my wife as well in case something happens to me.
Very content with the holdings on both SCHD and VEIPX.
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Old 05-07-2020, 04:37 PM   #2
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Welcome to my world. However it's not that easy. I own both of your mentioned funds plus a few. I have been living on divies and CD interest. Both are dropping at an alarming rate. Do not fall for the current yield rates on stock funds. The NAV's have fallen which raised trailing rates while the dividends are sure to fall in the future. Personally I am holding VEIRX, SCHD, HDV, SPYD and few others for the dividends in our tIRA's. However our Roths' are leaning toward more total stock market holdings.

Asset allocation is also a major consideration. DW and I are overall 40/60 equity/ fixed income with the fixed representing 25-30 years of our future expenses.

Everybody's situation is different. Personally I like to diversify and keep a little in divy income, CD income and draw a little from the CD principal if all else fails. Good luck to us all.
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Old 05-07-2020, 04:57 PM   #3
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The dividend yield should return as the market gradually recovers I would imagine. I am fine if the yield is 3 pct instead of the newly stated 4 or so. I seriously doubt that SCHD’s yield will be cut in half.
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Old 05-07-2020, 05:01 PM   #4
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If your stock allocation is lower than you want, then nothing wrong with increasing it.

I'd much rather go with an etf like SCHD , or VTI than a single stock, as should a single stock be the choice you are at tremendous exposure for a dividend cut effect if it happens. With an ETF, even if 10 companies cut their dividend to zero, you are still going to get something.

I'm in the opposite position, too high on stocks.

One advantage of bonds over stocks, (at least treasury bonds), is that should the stock market pull a Great Depression , the bond fond won't lose 95% of it's value.

So the question is: Do you feel lucky..
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Old 05-07-2020, 05:09 PM   #5
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I am not concerned about massive long term losses. I am looking at it more like a collection of 100 long term quality Corp bonds.Collect the interest for years and eventually get your principal back.Hopefully make a decent return.
I understand the difference but that is my mindset.If SCHD is down 50 pct the next 10 years we all will be in a world of hurt.
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Old 05-07-2020, 06:02 PM   #6
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Equities don’t have a par value like bonds do. No guarantee you will get back to your original investment.
If SCHD goes down 50%, your bonds may actually appreciate.
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Old 05-07-2020, 07:57 PM   #7
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Equities don’t have a par value like bonds do. No guarantee you will get back to your original investment.
If SCHD goes down 50%, your bonds may actually appreciate.
I realize that.
Goal is simply 3000 to 4000 per year in dividends to spend and when I go to the great beyond hopefully leave well more than 100K to someone.
In 20 years it might be 200,000. Who knows. The ETF is as safe as the SP 500 in my opinion in terms of bad outcomes.
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Old 05-08-2020, 08:03 AM   #8
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Ok. I know the difference between stocks and bonds and total return vs dividend investing.
....

My question is what is the negative about buying a quality dividend etf like SCHD or fund VEIPX in taxable and just taking the dividends for income. ....
False premise.

There is no difference between total return vs dividend investing. Money is fungible. A stock either distributes some of its worth as a dividend, or that worth is retained as part of the stock price. You own that value either way.

The only difference between you selling some stock for income, and the company issuing you a dividend, is that when the company does it you have no control over the amount or timing.

You might say you can have a dividend withdrawal strategy, but I I don't see that as helpful at all. It just clouds the issue with a meaningless term instead of providing clarity. Money is fungible - it's all money, dividends or stock value.

Or you might say you have decided to invest in a specific sector (stocks with certain dividend criteria) - but that's just sector investing, and you need to ask yourself if this (or any) sector provides enough advantage to take the risk of less diversity in your holdings (and why that would ever be the case in general).

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Old 05-08-2020, 09:03 AM   #9
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If one has taxable account, then of course one will buy tax-efficient equities for the taxable account instead of bonds. It is practically impossible to buy any broad market index funds that do not pay dividends.

The negative of dividends for me is that I cannot control my adjusted gross income: I get the dividends no matter what. I prefer to control my AGI and taxable income by the amount of capital gains I realize and the amount of Roth conversions I make. I like non-taxed, non-reported return of capital the most.

There is no way I would put bonds in my taxable account at this point in my life.

As for keeping it simple every month: That's what automated withdrawals from a mutual fund are for. If you die, they will keep happening.
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Old 05-08-2020, 09:16 AM   #10
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@ERD50, OP is ahead of you on this one. He sees a functiona/operational difference between a total return and a divdend strategy:
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... No interest in selling shares every month. ...
@LOL! is right, of course, that there are other ways to skin that cat and other/tax issues, but the OP seems to have a pretty clear view of the fundamentals.
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Old 05-08-2020, 09:20 AM   #11
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False premise.

There is no difference between total return vs dividend investing. Money is fungible. A stock either distributes some of its worth as a dividend, or that worth is retained as part of the stock price. You own that value either way.

The only difference between you selling some stock for income, and the company issuing you a dividend, is that when the company does it you have no control over the amount or timing.

You might say you can have a dividend withdrawal strategy, but I I don't see that as helpful at all. It just clouds the issue with a meaningless term instead of providing clarity. Money is fungible - it's all money, dividends or stock value.

Or you might say you have decided to invest in a specific sector (stocks with certain dividend criteria) - but that's just sector investing, and you need to ask yourself if this (or any) sector provides enough advantage to take the risk of less diversity in your holdings (and why that would ever be the case in general).

-ERD50
Well if there is no difference what is the big deal if I want a dividend to be deposited in my checking account like clockwork without having to think about it?
It makes no difference if the amount varies some or the timing is a few days off. This is not pay the electric bill money. I am also very content with the quality and the diversity of the holdings.
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Old 05-08-2020, 09:35 AM   #12
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Well if there is no difference what is the big deal if I want a dividend to be deposited in my checking account like clockwork without having to think about it? ...
Not to argue, but to answer your question:

There is a difference. With a dividend strategy you minimize non-dividend-payers in your portfolio. Non-dividend-payers are arguably where a lot of growth is, because they are reinvesting their profits in the business instead of distributing them. So your total return will probably suffer.

In a nutshell that is the argument against a dividend-only strategy but, hey, it's your money and your strategy so you get to decide. You are not naive about this IMO.
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Old 05-08-2020, 10:21 AM   #13
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Not to argue, but to answer your question:

There is a difference. With a dividend strategy you minimize non-dividend-payers in your portfolio. Non-dividend-payers are arguably where a lot of growth is, because they are reinvesting their profits in the business instead of distributing them. So your total return will probably suffer.

In a nutshell that is the argument against a dividend-only strategy but, hey, it's your money and your strategy so you get to decide. You are not naive about this IMO.
Thank you. I am not naive. I realize that SCHD will probably return less than say the SP500. There is also an excellent chance the difference will be very small.
It will not change my life either way.
On the other hand, I see a likely scenario of having a much better long term return than I would if I leave it in fixed income.
I retired 2 years ago with almost zero stocks and 95 pct tax free diversified income of about 45K but a lot of those CDís will start to mature in 2 years. One large one is maturing next week however.
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Old 05-08-2020, 10:37 AM   #14
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Thank you. I am not naive. I realize that SCHD will probably return less than say the SP500. There is also an excellent chance the difference will be very small.
It will not change my life either way.
On the other hand, I see a likely scenario of having a much better long term return than I would if I leave it in fixed income.
I retired 2 years ago with almost zero stocks and 95 pct tax free diversified income of about 45K but a lot of those CDís will start to mature in 2 years. One large one is maturing next week however.
We are on the cruise ship SCHD as well.
Take care.
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Old 05-08-2020, 10:38 AM   #15
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... I realize that SCHD will probably return less than say the SP500. There is also an excellent chance the difference will be very small. ...
Do you know this site: https://www.portfoliovisualizer.com/backtest-portfolio I just ran SCHD versus SPY and the difference from 2012 to current was about 10%. Given the current collapse of many dividends I don't know how indicative that might be going forward, but you get to decide that too as well as what "very small" means.

Compared to fixed income, of course, history says you are right to he headed into equities. Good luck!
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Old 05-09-2020, 10:29 AM   #16
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Do you know this site: https://www.portfoliovisualizer.com/backtest-portfolio I just ran SCHD versus SPY and the difference from 2012 to current was about 10%. Given the current collapse of many dividends I don't know how indicative that might be going forward, but you get to decide that too as well as what "very small" means.

Compared to fixed income, of course, history says you are right to he headed into equities. Good luck!
Thanks. Yes I do know the site. Who knows if growth stocks will continue on the tear they have been on. I am fine with a more value oriented etf .
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Old 05-09-2020, 11:33 AM   #17
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Thanks. Yes I do know the site. Who knows if growth stocks will continue on the tear they have been on. I am fine with a more value oriented etf .
SPY isn't exactly "growth stocks". It's pretty broadly diversified.

You can go with VTI to capture more of the market, and its performance was just a hair behind SPY since SCHD inception, and still outperformed SCHD.

Again, money is money. Take a fixed amount each month/quarter/year from each for living expenses, and you'd b ahead with SPY or VTI over SCHD.

DVY is a similar dividend-focused fund with a longer history, and has done worse than VTI/SPY in that time, and has dropped more than either in this current drop.


https://bit.ly/3dsS708 <<< short link to comparison

-ERD50
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Old 05-09-2020, 11:47 AM   #18
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SPY isn't exactly "growth stocks". It's pretty broadly diversified.

You can go with VTI to capture more of the market, and its performance was just a hair behind SPY since SCHD inception, and still outperformed SCHD.

Again, money is money. Take a fixed amount each month/quarter/year from each for living expenses, and you'd b ahead with SPY or VTI over SCHD.

DVY is a similar dividend-focused fund with a longer history, and has done worse than VTI/SPY in that time, and has dropped more than either in this current drop.


https://bit.ly/3dsS708 <<< short link to comparison

-ERD50
Yes but is dominated by growth stocks. I understand the situation and realize I probably would be leaving some money on the table. Thank you for your feedback
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Old 05-09-2020, 06:12 PM   #19
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Yes but is dominated by growth stocks. I understand the situation and realize I probably would be leaving some money on the table. Thank you for your feedback
But in this case, what is the point of leaving money on the table? What is the trade-off that makes it worthwhile?

As an example, most of decide to hold some of our portfolio in bonds, even though we realize that in the long run, we are probably leaving some money on the table. The trade-off is diversification, lower volatility, and the ability to pull money when the market is down w/o having to sell low.

But I've never seen this demonstrated with the high-dividend sector. In bear markets, they seem to drop as much/more than the broad market, and lag it in bull markets.

I fail to see the attraction.

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Old 05-09-2020, 06:21 PM   #20
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But in this case, what is the point of leaving money on the table? What is the trade-off that makes it worthwhile?

As an example, most of decide to hold some of our portfolio in bonds, even though we realize that in the long run, we are probably leaving some money on the table. The trade-off is diversification, lower volatility, and the ability to pull money when the market is down w/o having to sell low.

But I've never seen this demonstrated with the high-dividend sector. In bear markets, they seem to drop as much/more than the broad market, and lag it in bull markets.

I fail to see the attraction.

-ERD50
Yep.
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