Anybody Rely Mostly on Dividend Funds? Questions

[COcheesehead]

That makes no sense to me. If my dividends pay off my last dividends, it is compounding. I don't care about share price (it's ALL speculative whereas dividends are mostly based on company profits) Please explain.

If your stock is worth $10 and they declare a $1 dividend, it drops to $9 on ex date. On pay day it goes back to $10.

 

[Lawrencewendall]

If your stock is worth $10 and they declare a $1 dividend, it drops to $9 on ex date. On pay day it goes back to $10.

And typically goes back up to $10 before next dividend date. Rinse and repeat. I generally do monthly paying funds so the price variance is not so large. How can you tell me that the 6.5k I got in April does not count as income? April was an outlier as some of my funds are quarterly payers. We're a little over a week into May and I've been paid 4k so far, reinvested into a horrible market reinvesting at a HUGE discount to the funds discounts. I'll take the dividends.

 

[ERD50]

Quote:
Originally Posted by COcheesehead View Post
If your stock is worth $10 and they declare a $1 dividend, it drops to $9 on ex date. On pay day it goes back to $10.

And typically goes back up to $10 before next dividend date. Rinse and repeat. ...

The point that is being made is that if that company didn't pay the dividend, the stock price would have gone up $1 to $11, then $12. Rinse and repeat.

The dividend, as has been pointed out many times on this forum and other places, is the equivalent of the company selling $1 of it's stock and handing it to you. The dividend comes out of the NAV.

The dividend is the company deciding when and how much of its value to sell and distribute to you. I'd rather do that on my own, and have control over the amounts and the timing.

I'd prefer that all the stocks in VTI stopped paying dividends, it would make zero difference to the value. But it would put me in control of distributions. But I'm not going to pick and chose, I'm not a sector player, and non-div payers would be a sector - I'm a total market guy.

-ERD50

 

[thod]

The point that is being made is that if that company didn't pay the dividend, the stock price would have gone up $1 to $11, then $12. Rinse and repeat.

The dividend, as has been pointed out many times on this forum and other places, is the equivalent of the company selling $1 of it's stock and handing it to you. The dividend comes out of the NAV.

The dividend is the company deciding when and how much of its value to sell and distribute to you. I'd rather do that on my own, and have control over the amounts and the timing.

I'd prefer that all the stocks in VTI stopped paying dividends, it would make zero difference to the value. But it would put me in control of distributions. But I'm not going to pick and chose, I'm not a sector player, and non-div payers would be a sector - I'm a total market guy.

-ERD50

What you are describing is just the stock prices/tax implications of a dividend.

Nothing wrong with what you said, but there is another aspect of how paying a regular dividend might affect a company's management decisions.

By not paying a dividend a company is saying 'trust us'. We know how to 'invest' that dividend within the company to get a better return on investment than an investor might get elsewhere in the market. In many cases, the prospects of what management can do might have great potential and not paying a dividend may be a good decision/investment. (Usually young and/or high growth potential companies.)

In other cases, a mature company might not be capable of growing no matter how much money they spend, because their market is mature and there is just not much growth potential. In that case, it might be best to pay a dividend and let the investors go ahead and use the money in some other opportunity.

Also having to pay a regular dividend can instill some discipline into the management decision making.

May not have explained it very well.

 

[ERD50]

...

Also having to pay a regular dividend can instill some discipline into the management decision making.

May not have explained it very well.

I think you explained it well. I think there is something to what you said, but I'm not sure it really plays out in real life. There may be as many negative offsets as positive offsets?

When I look back at the dividend-focused funds, they really don't seem to perform in the way that is described.

-ERD50

 

[COcheesehead]

And typically goes back up to $10 before next dividend date. Rinse and repeat. I generally do monthly paying funds so the price variance is not so large. How can you tell me that the 6.5k I got in April does not count as income? April was an outlier as some of my funds are quarterly payers. We're a little over a week into May and I've been paid 4k so far, reinvested into a horrible market reinvesting at a HUGE discount to the funds discounts. I'll take the dividends.

So dividend payers continuously increase in value? They are magic.

The 6.5k you got in April was buried in the stock value. Your assets did not go up by 6.5k. They went down 6.5k on ex date and on pay date you got back 6.5k.

 

[alaska55]

When I look back at the dividend-focused funds, they really don't seem to perform in the way that is described.

-ERD50[/QUOTE]

Well take a look at SCHD. It's neck and neck with VOO (S&P 500), Vti and crushing VT as of April 30th. It get worse for VOO so far in May it's down almost 5% and SCHD down less than 1%(.2). It has a Expense Ratio like a Vanguard index fund. Schd is exactly what I was hoping for, decent growth and about 3% dividends. YTD thru APR SCHD is down 5.8% vs 13% and 14% for VOO/VTI.:

 

[COcheesehead]

I own a bunch of SCHD. It has held up better than most during the recent slide. Schwab has the secret sauce with that one, but when they pay the quarterly dividend, I don’t look at it as income, it’s just chopping off and giving back to me what I already had.
I bought it for its long term performance, not for “income”.

 

[ERD50]

When I look back at the dividend-focused funds, they really don't seem to perform in the way that is described.

-ERD50

Well take a look at SCHD. It's neck and neck with VOO (S&P 500), Vti and crushing VT as of April 30th. It get worse for VOO so far in May it's down almost 5% and SCHD down less than 1%(.2). It has a Expense Ratio like a Vanguard index fund. Schd is exactly what I was hoping for, decent growth and about 3% dividends. YTD thru APR SCHD is down 5.8% vs 13% and 14% for VOO/VTI.:

Yes, SCHD has held up well recently. But that's one fund, and one time period. We can expect just about any sector to do better in some time periods (and worse in others).

If you look back at this post:

https://www.early-retirement.org/forums/f28/income-portfolio-109307-2.html#post2611187

I took the 7 most popular/recommended div-focused funds that I could find that had a fairly long track record. I didn't include SCHD as it cut the time frame from looking back to JULY2007, to NOV2011 - missing that important 2008-2009 test.

I redid this, including SCHD (and adjusting VTI to 82/18 bonds, to bring sdev in line), and things look a bit better for the div payers, but not great (and remember that this removes the 2008-209 test). Note that during the 2020 test, the div payers dropped more than VTI. And it looks like SCHD alone dropped about as much as VTI/bonds, maybe a little more.

https://tinyurl.com/y2negeyo


I think a group like this is a better test of what div-sector funds have to offer. Picking just one, well, who knows?


Of course, if you are happy with SCHD in your portfolio, your choice.



-ERD50

 

[bmcgonig]

With today's market, tell me WHAT's NOT down. Don't care about portfolio value. Keep paying me the monthly dividends. Don't ever need to sell shares to fund current lifestyle. Pay me the monthly dividends. Forward projections say 63k this/next year. Do I care of the portfolio value? Pay me the monthly money.

Berkshire isn’t down. Up 4% ytd. One could take 4% that as a dividend and still be even on the year.

 

[ESRwannabe]

I haven't visited these message boards in a while, but took a look tonight. I see not much has changed....

OP, if you are still reading this, I would suggest taking advantage of the fact that these investments are in a 401k/IRA.

I would look into an ETF that generates money not just from dividends but also from selling covered calls, which should do well during a declining or stagnate market. Two good ones are DIVO and JEPI.

For dividend income, IMHO your best bang for the buck is the etf SCHD. This etf works great in a taxable account for generating reliably growing tax efficient income.

Now lastly I am going to suggest a fund that is having a real hard time right now, but IMHO now is a great time to buy it. Its going through a perfect storm right now because both stocks and bonds are facing issues. Its rare for both to happen at the same time like this.

Anyway, I also like the fund PSLDX which is a fund that achieves 100% exposure to both bonds (actively managed by PIMCO) and the S&P 500 using futures contracts.

In a taxable account you can achieve something similar using etf NTSX. This will get you exposure of 90% equities and 60% bonds.

I also like the idea of putting a small amount into some 3x leveraged etfs as a long term hold. Yes, there is some "decay" but IMHO its not a bid deal. A very small amount, say 1% each in TQQQ, and UPRO, then just leave it alone and come back in ten years and those two have the potential to grow as large as the rest of your entire portfolio over that time. Think of them as lottery tickets.

 

[dixonge]

I think the OP has figured out a strategy and moved on. Her last post was March 24. Two months later and the forum is still here, debating investment theory and completely oblivious to the actual investor in question and their needs/mental state/risk profile.

 

[VanWinkle]

I think the OP has figured out a strategy and moved on. Her last post was March 24. Two months later and the forum is still here, debating investment theory and completely oblivious to the actual investor in question and their needs/mental state/risk profile.

+1

 

[robls]

Very informative video discussing dividend yield vs. P/E ratio vs. shareholder yield vs. EBIT/EV yield vs. Buffett yield.

 

[Lawrencewendall]

I would have thought that dividend investing would at least hold its own, NOT lead the pack. I'll stick with it.

 

[ERD50]

I think the OP has figured out a strategy and moved on. Her last post was March 24. Two months later and the forum is still here, debating investment theory and completely oblivious to the actual investor in question and their needs/mental state/risk profile.

Does it matter? Why can't the discussion go on among those who are interested in the topic?

-ERD50

 

[MichaelB]

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[Lawrencewendall]

+1