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Dividend vs Total Return - a stability question
Old 05-18-2020, 10:49 PM   #1
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Dividend vs Total Return - a stability question

Its easy to look up the chance that a stock fund NAV will go down x% on, say yearly, intervals.

But what is the chance that a "dividend stock" fund will cut the dividend by x% over the same interval?

If you goal is a stable payout, maybe dividend investing is superior to total value. And maybe very superior over the first N years when Bad Sequence of Returns is the biggest risk factor.

OTOH over-drawing your Dividend Stock Fund might be worse over the long haul than over-drawing a Total Return Fund.
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Old 05-19-2020, 10:19 AM   #2
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OTOH over-drawing your Dividend Stock Fund might be worse over the long haul than over-drawing a Total Return Fund.
I think you answered it yourself. If the question is which is BETTER for stability... the answer is it depends, don't want Mama Bear's Soup too Cold, Papa Bear's too Hot...want it juuuust right. YMMV to each individual investor.

IF you are going for what I will call "legacy" dough, then perhaps Total Return is a better approach? I feel that a "legacy" approach needs to support more "legs" of a stool whereas the "DIVVIE" investors look to simply preserve for a planned-for point in time...


Some don't need to plan for both scenarios, in fact most will choose one of those paths?

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Old 05-19-2020, 10:45 AM   #3
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... what is the chance that a "dividend stock" fund will cut the dividend by x% over the same interval? ...
Tough question because dividend cuts are not uncorrelated. Cuts are often due to circumstances that affect a broad array of businesses, like recessions and (now) pandemics. Also, it is psychologically easier for a company to cut when others are doing the same.

This is the sort of thing that emerged during the 2008 excitement. Ratings agencies had evaluated the probability of a mortgage default to be a stand-alone calculation when in fact defaults turned out to be highly correlated.
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Originally Posted by Bongleur View Post
Its easy to look up the chance that a stock fund NAV will go down x% on, say yearly, intervals. ...
Really? How, pray tell? I would like to buy only funds with a high probability of going up or, at least, with a low probability of going down.
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Old 05-21-2020, 12:20 AM   #4
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Really? How, pray tell? I would like to buy only funds with a high probability of going up or, at least, with a low probability of going down.
Historical data easy to find. Corresponding data for dividend cuts is not. Maybe use dividend funds and compare years of reduced dividends and time to recover...
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Old 05-21-2020, 06:55 AM   #5
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Historical data easy to find. Corresponding data for dividend cuts is not. Maybe use dividend funds and compare years of reduced dividends and time to recover...
Makes no difference. You are traveling down a dead end path. We seem to have a lot of these "dividend" threads popping up. It's an illusion, and one that is not helping you.

Focusing on dividends is wearing blinders. Total return is not an "approach", it is reality, it is arithmetic, it is all that matters.

Maybe we need a sticky on this to refer to - when a company pays dividends, it is in effect, selling some of its value. If it didn't distribute it, it would be retained and the NAV would increase by that amount.

You can do that, when and with the amount you decide. I can see no advantage to letting these companies make that decision for you.

Further, by investing only in high div payers, you are investing in a subset of the market, and that entails sector risk. I know people "feel" that div payers are more stable, but I have yet to see anyone provide actual evidence of this.

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Old 05-21-2020, 09:01 AM   #6
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Historical data easy to find. ...
True enough but, sadly, studies have consistently shown that fund history has zero predictive value. Winners in one period deliver random (or worse) results in the next. Here is one of many examples:



Any of the many semiannual S&P "Manager Persistence Report Cards" will show the same story. (Vanguard was almost certainly reporting based on S&P data.)
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