Income Portfolio

[ERD50]

One more comment on this post:

... We all have different ideas of what we want to do.

And one of the great befits of the this forum is we get to hear and share those different ideas. I've learned a lot from many different individuals here. I've become aware of things I probably would have missed otherwise.

A big "thanks" to the forum members, owners, admins and mods.

And you know what I do when I hear about some idea - I analyze it. It might be a great idea and great for me, it might be a great idea, but not applicable to me. It might be a lousy idea from some misguided individual. Only an analysis can help me determine that.

It's what I do. I'm not aware of any better methodology. It has served me well.

-ERD50

 

[Bruno]

Funny thing though, the OP singled out ERD50 as being especially helpful.

I really think that Bossman was just beng nice. If you notice he still went with Dividend paying ETF and VTI.

BIG thanks go out to another MEGA poster for backing up ERD50.

 

[pb4uski]

.... I think your enthusiasm for the argument is overrunning your logical thinking.

+1

 

[pb4uski]

...BIG thanks go out to another MEGA poster for backing up ERD50.

Not sure if RunningBum was necessarily backing up ERD50... just making a valid point that was obviously totally lost on you.

 

[ncbill]

I'm aware that some of the div-sector proponents seem to think "just living off dividends" is simpler, or some other advantage? Can you show us how this works in real life, with a div sector fund (for ease of management and better diversification than a handful of individual stocks)? I ask, because I just don't understand how a retiree would match their spending with the distributions? The distributions seem to vary over time. What do they do with any excess or shortfall? So how exactly is this implemented to provide an advantage and/or simplification?...

-ERD50

Unfortunately, "living off dividends" only increases sequence of return risk (SORR):

https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/

So I can't see it as "the safest and most conservative withdrawal strategy there is" though it may be more emotionally comforting.

Plenty of threads on dividends versus total return withdrawal strategy over on bogleheads forums, & they come to the same conclusion.

Also don't forget the negative effect of a dividend withdrawal strategy on mAGI for those pre-Medicare retirees relying on ACA subsidies.

 

[pb4uski]

....Plenty of threads on dividends versus total return withdrawal strategy over on bogleheads forums, & they come to the same conclusion. ...

And that is?

 

[qwerty3656]

Unfortunately, "living off dividends" only increases sequence of return risk (SORR):

https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/

So I can't see it as "the safest and most conservative withdrawal strategy there is" though it may be more emotionally comforting.

Plenty of threads on dividends versus total return withdrawal strategy over on bogleheads forums, & they come to the same conclusion.

Also don't forget the negative effect of a dividend withdrawal strategy on mAGI for those pre-Medicare retirees relying on ACA subsidies.

He is still assuming 40% bonds (and that seems to be the reason his scenarios fail). Dividend Growth Investors assume they generate enough income to live off of from high quality stocks.

 

[pb4uski]

.... Dividend Growth Investors assume they generate enough income to live off of from high quality stocks.

I sort of wondered how this was possible given that the average S&P 500 dividend return was only 2% but then found this list of 20 dividend paying stocks recommended by Kiplinger (who I happen to respect) that pay 3-4% or more.

https://www.kiplinger.com/investing...0-dividend-stocks-20-years-of-retirement-2021

I plugged the 20 stocks into PV compared to VTSMX and the results were interesting. Assumptions were $1 million starting portfolio with $3,333 withdrawn monthly (4% WR) adjusted for inflation and rebalanced annually.

The comparison starts at Nov 2010 due to data for PBA. The running balance is pretty comparable from Nov 2010 until Feb 2020.... for some periods the dividend portfolio is ahead and for some periods it is behind.... they last crossed (were even) sometime in Nov 2019.

They have diverged radically since the end of Mar 2020... since then the dividend portfolio increased 35% but the broad market portfolio increased 68%!

But before we declare victory for the total stock portfolio, let's take PBA out ouf the mix to expand the time horizon. I took out PBA and put the 5% in VTSMX and the time horizon goes back to 1998 and the dividend portfolio blows away the total market. Looking at the rolling 60 month returns, the overperformance is principally concentrated through 2014... the dividend portfolio had much better returns through 2014. From 2014 to March 2020 the rolling 60 month returns were pretty comparable but from March 2020 onward the total market index has overperformed.

Conclusion.... I have no idea.

https://www.portfoliovisualizer.com...ation20_1=5&symbol21=VTSMX&allocation21_2=100

https://www.portfoliovisualizer.com...l21=VTSMX&allocation21_1=5&allocation21_2=100

 

[olyveoil]

Why make innuendoes? If you have a strong argument about something state it
plainly and politely. Otherwise your posts come across as combative and unhelpful to the thread topic.

I have made Puh-lenty strong arguments snd plain statements.
To address your latest worry. Post #148 is exhibit A of my statement about pyromaniacs in field of strawmen.

 

[olyveoil]

olyveoil,

I don't come to this website very often anymore for the same reasons that you are now discovering. Its pointless to try and have a discussion on here about dividend investing. Don't waste your time.

P.S. Take a look at the etf DIVO. Its become one of my favorites.

It aims to generate 2%-3% from dividends and another 2%-4% from covered calls.

It invests in blue chip S&P 100 companies.

It buys companies for dividend growth, not yield. Tries to get 10%-15% dividend growth per year on avg over 5 year periods.

It uses covered calls primarily for risk mitigation. Tries to capture 80%-90% of the upside compared to the S&P 500, while trying to limit downside to 65%-75% compared to the S&P 500.

It pays monthly.

P.P.S. For quarterly income I like SCHD and SCHY.

Thanks for the tip on DIVO.
I am already in and slowly adding to the covered call etf's. QYLD is treating me nicely.

Now. queue up the pyros to compare qyld to vti.

 

[olyveoil]

I don't see it as a distraction, I see it as important and fundamental to the question.

As an analogy, let's say a poster asked which of these magic elixirs should they buy to improve the mpg of their car with the goal of reducing total fuel costs (including the cost of the additive).

Well, if the data showed that they didn't improve mpg, and only added to their fuel cost, shouldn't that be brought to light? Is it really serving the larger community here to just tell the poster "Oh, I prefer brand XYZ magic elixir", because that answers the question?

To recommend specific div-sector funds, without analyzing if they are really meeting the goals of the investor, strikes me as having blinders on, and is not constructive. That's my view.

Oh, maybe semantics, but the "insistence that total market is superior" isn't something I "insist", the data keeps showing it. That's a bit like saying someone "insists" that 2+2=4. I'm just the messenger.

-ERD50

Again. Who here has advocated solely for div sector funds and/or div sector funds versus total market? Who?

You continue, ad nauseum debating a point that I cannot see being made.
I.E. distraction.
Maybe it is psychological for you?

 

[mikes425]

To all concerned,

I have been following the continuing discussion, but without being logged into the forum. Regardless, I did create the income portfolio as previously indicated and will be getting my first dividend payment at the end of the month.

Good luck to all and stay safe.

Awesome! Good luck to you, from a fellow investor who happily includes dividend funds such as those you mentioned and see absolutely nothing wrong with them as part of a long term B&H portfolio. PGX and SCHD are both good funds you mentioned that happen to be a part of mine.

 

[tulak]

Conclusion.... I have no idea.

Right?

That's about where I'm at. For kicks, I picked 10 dividend stocks and compared it to VFINX. I picked VFINX instead of VTSMX because there's more history and they mostly track each other. I randomly chose 10 dividend stocks that go back to the 80's from the Kiplinger article (mostly).

All I see is that the last decade has been good for broad market index funds, especially the last year. Over longer periods of time, the dividend stocks do better. It's a shame we don't have better data for dividend funds, but such is life.

For example, 2009 - 2021, 100% VFINX did best and 80/20 still beat the dividend stocks. But change the dates to 2008 - 2021 and the dividend stocks did as well as 80/20, but worse than 100% VFINX. Exclude 2020/2021, and the dividend stocks did slightly better. And over longer periods of time, the dividend stocks always do better.

Oh well. The problem for me with dividend stocks is that I have to do more work. I can either buy broad market index funds and be content with what it gives me, which may or may not be more than dividend stocks. If I go the dividend route, I either have to buy a fund or individual stocks. More work required. And depending on how it goes, it might do better or worse than a lazy portfolio with index funds.

So yeah, no idea.

Staring at the charts some more, it's interesting that in the 2000 and 2008 drops, dividend stocks didn't drop as much and then surpassed the broad market index. That's different than what happened in 2020, where the broad market index did much better. It also makes me wonder if the recent outperformance of total market will cause it to return less going forward.

 

[ERD50]

I sort of wondered how this was possible given that the average S&P 500 dividend return was only 2% but then found this list of 20 dividend paying stocks recommended by Kiplinger (who I happen to respect) that pay 3-4% or more. ...

But before we declare victory for the total stock portfolio, let's take PBA out ouf the mix to expand the time horizon. I took out PBA and put the 5% in VTSMX and the time horizon goes back to 1998 and the dividend portfolio blows away the total market. ...

Conclusion.... I have no idea. ...

Quote:
Conclusion.... I have no idea.

Right?

That's about where I'm at. ...

Well, I have an idea, and I'm going to go out on a limb and post it before I've had a chance to investigate further.

Here's a hint - what div-paying stocks was Kiplinger's recommending in 1998?

When I see such stunning out-performance, (and that is stunning, the div-payers end up at $7,830,925, the Total Market at $1,769,396. Wowsers!), I'm reminded of Carl Sagan - "Extraordinary claims require extraordinary evidence".

I recall someone posting a few years back, a similar chart of the div-payers providing extra-ordinary returns. Hey, if this is true, I want in! After a little investigation, it came to light that the picks were made in the rear view mirror. It's the Will Rogers approach, go back over the past, find div-payers that have excelled for the past 25 years, and buy them. If they didn't excel, don't buy them.

I'm certain that if I selected 20 zero/low-div stocks on the basis of their past performance, they'd blow away that chart as well. How will the y do over the next 25 years? If I had to bet, I'd say below average (reversion to the mean). But I wouldn't bet unless forced.

So, am I right (not just to be right, but to illustrate the possible shenanigans in a report like this).

Oh, and I hope some posters noted and credit pb4uski for that post. Did you notice that after finding data that went against his general premise, he still published it, insted of burying it? Compare that to some posters here who have presented zero data.

Anyway, what div-paying stocks was Kiplinger's recommending in 1998?

-ERD50

 

[UnrealizedPotential]

I have made Puh-lenty strong arguments snd plain statements.
To address your latest worry. Post #148 is exhibit A of my statement about pyromaniacs in field of strawmen.

I will not pass judgement on if you have provided any strong arguments in your statements. However, can you honestly say you have been polite in your arguments toward other forum members?

 

[ERD50]

... Staring at the charts some more, it's interesting that in the 2000 and 2008 drops, dividend stocks didn't drop as much ...

And what is even more interesting to me is, when we look at the div-sector funds/ETFs, they did drop as much in 2008. So how come Kiplinger's picks didn't drop as much?

Occam is whispering in my ear. He says "Check to see if Kiplinger recommended those stocks to buy before 2008 to hold for the next 12 years or so."


I always listen to Occam. He may not always be right, but he's a pretty good guide. He's pretty sharp.

-ERD50

 

[rayvt]

Yield on cost is key to me.

This is why you got the *sigh*. Yield on cost is a nonsensical concept.

Plenty of us have gotten tired of trying to explain the fallacy of YOC to true believers.

 

[imnontrad]

You know, if you have a taxable portfolio of equities without any dividend that increases by 4% per year (and that's low, I believe the average is 8%/year), you could sell off 4% each year and have lower capital gains taxes.

 

[tulak]

Here's a hint - what div-paying stocks was Kiplinger's recommending in 1998?

Does it matter? What if they picked stocks that did better? Does that mean they were right?

And odds are if you are buying individual stocks, you're actively managing your portfolio. So what you owned in 1998 might not be what you own in 2021. It's completely different, which makes apples to apples comparisons difficult.

Edit to add: yeah, it's always easy to pick stocks in hindsight. I wish we had better dividend fund data, but unfortunately those funds are too new.

 

[rayvt]

I'm surprised no one has put together a broad market index excluding the dividend payers. Would perform so much better without that, you know, drag.

No, that's not it. It's just that dividends don't matter any more than which side of the street the headquarters building is on.

 

[ERD50]

Does it matter? What if they picked stocks that did better? Does that mean they were right?

And odds are if you are buying individual stocks, you're actively managing your portfolio. So what you owned in 1998 might not be what you own in 2021. It's completely different, which makes apples to apples comparisons difficult.

Edit to add: yeah, it's always easy to pick stocks in hindsight. I wish we had better dividend fund data, but unfortunately those funds are too new.

Yes, but the title of that article is "20 Dividend Stocks to Fund 20 Years of Retirement". And that is what pb4uski's chart showed - buy & hold.

And you are right, if their picks from 20 years ago did well, it could be due to chance. I'd like to see 20 years of 20 year picks.

I can do it easily. Buy the Total Market every year, and hold for 20 years. You will be extremely close to matching the benchmark (minus a small amount in fees). The choices would be more limited int he 80's and 90's, and fees higher, but still close.

-ERD50

 

[olyveoil]

I will not pass judgement on if you have provided any strong arguments in your statements. However, can you honestly say you have been polite in your arguments toward other forum members?

I can honestly say I have treated other posters the same or better than they have treated me/others.

How about you?

 

[olyveoil]

This is why you got the *sigh*. Yield on cost is a nonsensical concept.

Plenty of us have gotten tired of trying to explain the fallacy of YOC to true believers.

Ok.
Then don't buy dividend stocks.
Yoc IS.IS.IS a metric for some stocks. What is untrue about the math, the metric?

 

[UnrealizedPotential]

I can honestly say I have treated other posters the same or better than they have treated me/others.

How about you?

I would love to know what your definition of politeness is then. It surely differs from mine and the dictionaries.

 

[ERD50]

Quote:
Originally Posted by olyveoil View Post
Yield on cost is key to me.

This is why you got the *sigh*. Yield on cost is a nonsensical concept.

Plenty of us have gotten tired of trying to explain the fallacy of YOC to true believers.

I haven't given Yield on Cost much thought. Let's see if I have this right?

I buy stock A for $100, it pays a $5 annual div. That is 5% a year - nice.

Stock A increases its div each year, and 10 years later, the annual div is $10, but the stock is still at $100. My Yield on Cost is now 10% right? Wow, 10% sounds really good!


I also bought stock B for $100, it pays a $5 annual div. That is 5% a year - nice.

Stock B never increases its div, and 10 years later, the stock has dropped to $50. My Yield on Cost is now 10% right? Wow, 10% sounds really good! Same as the above scenario!

Wait, "Yield on Cost is key"? But that number is the same for a stock that doubled its dividend, and for a stock that didn't increase its dividend, and has dropped in half? Did I get that right?

[MOD EDIT]

The following correction was inserted on 6/1/21 at the request of the poster:

Upon review of my own post, I realized that I did not get it right. "Stock B" would still have a YOC of 5% (I should have calculated it on the original cost, not the current cost), so I wanted to clarify that for anyone looking back at this thread. But that still leaves YOC as a pretty meaningless metric, as rayvt showed, and the same investor could sell and buy back that stock, changing the YOC number, but not changing anything about their portfolio performance.