Reading "Get Rich with dividends" and let me say...

[GGekkoNCo]

it's pretty inspiring. I listen to dave ramsey rants sometimes (lol) about how if you're under 40 and don't retire a millionaire you would have to be stupid (Which i kind of agree with) But what is really driving me is a potential dividend portfolio where you could literally live off the dividend (for instance a set of 4-6 stocks that pay out over the course of a year) Is it a bad idea to want to live off the dividend income? not right now but I can imagine building a portfolio that covers expenses and assuming one has no debt anymore, this would be ideal? Then again to accumulate enough shares for the dividend monthly payment to be worth it you would probably need to have 200-250K allocated to each particular stock... what do you guys think, good or bad idea to aim for?

 

[Montecfo]

it's pretty inspiring. I listen to dave ramsey rants sometimes (lol) about how if you're under 40 and don't retire a millionaire you would have to be stupid (Which i kind of agree with) But what is really driving me is a potential dividend portfolio where you could literally live off the dividend (for instance a set of 4-6 stocks that pay out over the course of a year) Is it a bad idea to want to live off the dividend income? not right now but I can imagine building a portfolio that covers expenses and assuming one has no debt anymore, this would be ideal? Then again to accumulate enough shares for the dividend monthly payment to be worth it you would probably need to have 200-250K allocated to each particular stock... what do you guys think, good or bad idea to aim for?

It is not a bad idea. But if you reach for yield and take on more interest rate risk, you could reduce your capital sharply in a downturn. Also, most companies eventually cut dividends, which then leaves less capital for a replacement. Plus that is far too few stocks.

Investing for total return and with a balanced portfolio is your best bet IMHO.

Some folks differ and swear that spending a 4% dividend is somehow different and "better" than spending a 4 pct capital gain, but that is mental gymnastics.

I'm ok with mental gymnastics if it helps people sleep at night. Just don't reach for yield.

 

[brokrken]

Regardless of the size of your portfolio, you'd be dedicating between 16.7% and 25% of your portfolio to one stock. I'd never be able to sleep with that exposure. I think you can build a nice dividend/interest paying portfolio with a mix of dividend aristocrats, preferred stocks and bonds. No need to put so many eggs in one basket.

 

[RetireBy90]

It is not a bad idea.

...

I'm ok with mental gymnastics if it helps people sleep at night. Just don't reach for yield.

I would add you would still have to watch the stocks and company performance. Stocks that have been good reliable dividend payers have stumbled and had to cut or stop dividends. Think GE and Pan Am.

 

[COcheesehead]

Check how value stocks have performed over time and what concentration risk is. Also understand what a dividend really is. Its not "free" money. It's a forced sale on a regular basis for tax purposes.

 

[carnivalday]

I retired a couple of years ago, and live on dividends and Social Security. It works for me, but I have way more than 6 stocks.

 

[GGekkoNCo]

Regardless of the size of your portfolio, you'd be dedicating between 16.7% and 25% of your portfolio to one stock. I'd never be able to sleep with that exposure. I think you can build a nice dividend/interest paying portfolio with a mix of dividend aristocrats, preferred stocks and bonds. No need to put so many eggs in one basket.

with the preferred stocks would you be aiming for capital gains throughout the year ? Ideally having 15-25% in one stock does seem a bit absurd no matter what company it is. My first goal for investing was to be able to make enough money off my passive investments (dividend stocks) to be able to live off. I do live as modest but i figure at times I would like to travel which could incur additional expenses. (Save for those trips I figure?) I'm trying to figure out where to start in regards to income in retirement which cover monthly expenses like electric, cell phone, those kind of things and then how to save for bigger expenses like medical care and/or repairs to the house I'd be living at ...that kind of thing.

 

[GGekkoNCo]

I would add you would still have to watch the stocks and company performance. Stocks that have been good reliable dividend payers have stumbled and had to cut or stop dividends. Think GE and Pan Am.

I would imagine a dividend cut would not be a good signal to the shareholders...so at that point a potential re-allocate of those funds to another stock/instrument?

 

[GGekkoNCo]

I retired a couple of years ago, and live on dividends and Social Security. It works for me, but I have way more than 6 stocks.

I'm thinking SS may not even be around when I hit the "retirement" age... But i want to retire (not work for anyone else) way before that...

 

[COcheesehead]

I would imagine a dividend cut would not be a good signal to the shareholders...so at that point a potential re-allocate of those funds to another stock/instrument?

Likely though after you have taken a hit on the stock.

 

[nvestysly]

DW and I live off the dividends. Many years ago we focused on that strategy and it works for us. The amount of dividends generated in our total investment portfolio is greater than what we live on year to year. We live on 3% and dividends generate about 3.5%. We have way more than a handful of stocks and some are ETF's. Do we sometimes have capital gains and losses? Yes. Our thought is... money is money regardless of how it arrives in our hands - fungible as they say. From the 20,000 ft. perspective we live off the dividends.

 

[Onward]

I will say what the others are too diplomatic to say: "Living off dividends" is an antiquated notion held mostly by naive investors. It may have been suitable to Dickens characters, but probably not to you.

There are better ways to go about what you want to accomplish. Read and learn.

 

[RobbieB]

Dividends from equities are my largest income source. Followed by interest on bonds and coming up last is social security.

 

[Sunset]

OP - 6 stocks is far too high a concentration, instead think SCHD ETF
It pays 3.39% dividend, it is made of 98 securities, so if 1 company stops paying a dividend, you won't even notice.

Problem with preferred shares is: they can stop paying dividends, they can disappear just like regular stocks when a company goes bankrupt, they basically never appreciate in price (which is where most stockholders make their money).

 

[CyclingInvestor]

I am 61, retired 13 years from a programming career, and have been living off stock dividends. At first I consumed all of the dividends, but since they keep growing 7% or so each year (including the occasional cut) I now have a large cushion.

I agree - do not reach for yield! If you need high yields from low quality companies to make the numbers work you will regret it. My largest holdings are BIP and BEP.

As to whether this is a better strategy than total return, I agree that it is just a matter of what lets you sleep at night. This is what works for me.

 

[brokrken]

with the preferred stocks would you be aiming for capital gains throughout the year ?

Not really. You can get some capital gains if you buy at a discount and they get called or mature and if you're really good you can do some flipping like our friend Mulligan. However, for the most part, these are just coupon clippers.

 

[brokrken]

I would imagine a dividend cut would not be a good signal to the shareholders...so at that point a potential re-allocate of those funds to another stock/instrument?

By that time, it's too late. If a dividend cut is announced typically the stock plummets.

 

[OldShooter]

Lack of diversification is hazardous to your financial health.

Building a portfolio that concentrates on dividend payers instead of one designed to maximize total return is guaranteed to be financially suboptimal.

Other than those little details, it sounds like a great idea.

 

[target2019]

OP - 6 stocks is far too high a concentration, instead think SCHD ETF
It pays 3.39% dividend, it is made of 98 securities, so if 1 company stops paying a dividend, you won't even notice.

+1
Ditto
I'm in...
https://www.schwab.wallst.com/Prospect/Research/etfs/portfolio.asp?symbol=SCHD

What I realized is that the dividend payers I hold, and the ones I want to hold, are in that ETF.

 

[GGekkoNCo]

I will say what the others are too diplomatic to say: "Living off dividends" is an antiquated notion held mostly by naive investors. It may have been suitable to Dickens characters, but probably not to you.

There are better ways to go about what you want to accomplish. Read and learn.[/QUOTE]


any suggested reading material?

 

[GGekkoNCo]

Lack of diversification is hazardous to your financial health.

Building a portfolio that concentrates on dividend payers instead of one designed to maximize total return is guaranteed to be financially suboptimal.

Other than those little details, it sounds like a great idea.

So aim for growth then...gotcha... buy low sell high i guess lol

 

[jimbee]

Dividend investing is just a form of behavioral economics. If that's what you prefer, it can work, but it isn't necessary.

 

[Whisper66]

So aim for growth then...gotcha... buy low sell high i guess lol

Better to just buy and hold a simple portfolio as referenced here. More folks seem to do well this way rather than try to market time. But to each his own.

https://www.bogleheads.org/wiki/Lazy_portfolios

 

[OldShooter]

So aim for growth then...gotcha... buy low sell high i guess lol

Nope. Not even that complicated. The problem with selecting for dividends is that you are rejecting the majority of the market, including companies that will generate better returns than the dividend payers. They might be growth companies, small companies, value companies, ... There's no way to know. So the winning total return strategy is to buy the market. Don't "aim" for anything.

 

[W2R]

any suggested reading material?

https://www.bogleheads.org/readbooks.htm

I'd suggest picking 4-5 books off that list that interest you, and reading them slowly and carefully, thinking about everything that is said. Then decide what you want your portfolio to look like, and bounce your ideas off people here or at the Bogleheads forum .

My choices may be different from yours. But anyway, my portfolio consists of 30% Wellesley (VWIAX), and the other 70% of is mainly several very broad index funds (VTSAX, VBTLX, VFWAX). I also have SS, a mini-pension, and a paid off home, so by choice I spend less than my dividends.