Anybody Rely Mostly on Dividend Funds? Questions

[ERD50]

It’s important to not lose sight of the OPs request. Not looking for a “dividends vs no dividends” debate or portfolio market outperformance. OP is looking for a “fairly safe” way to generate dividend income to help cover monthly expenses.

Sorry, my last post crossed with yours.

IMO, it's fair to point out that the 'fairly safe' way of generating income might not be by focusing on div payers at all. I don't think we should ignore that the question itself may be flawed.

I can think of all sorts of cases where someone asks the best way to do a job with xyz, and the correct, informative, helpful, constructive answer is - "Don't -xyz is not the correct tool for that job". Or at least, explain why it's not the best tool, or the reasons why the OP thinks it is a good tool may be flawed.

To ignore that just seem like putting your head in the sand. I'd rather try to help people with the overall problem, not focus on some possibly misguided detail,

-ERD50

 

[youbet]

It’s important to not lose sight of the OPs request. Not looking for a “dividends vs no dividends” debate or portfolio market outperformance. OP is looking for a “fairly safe” way to generate dividend income to help cover monthly expenses.

+1

Excellent point Michael. It does seem that the more zealous among us seem to carry over arguments/discussions from other threads in order to keep pounding that one note piano.

 

[mrfeh]

This.

OP - go over to bogleheads.org and search for "total return" or "dividend investing" for more reading than anyone can handle.

There is nothing special about dividends, and they are probably sub-optimal.

A recent example from bogleheads, with links to other discussions/resources within:

https://www.bogleheads.org/forum/viewtopic.php?t=373879

A video from that thread that folks may be interested in:

And with that, I will leave this thread.

 

[corn18]

Sorry, my last post crossed with yours.

IMO, it's fair to point out that the 'fairly safe' way of generating income might not be by focusing on div payers at all. I don't think we should ignore that the question itself may be flawed.

I can think of all sorts of cases where someone asks the best way to do a job with xyz, and the correct, informative, helpful, constructive answer is - "Don't -xyz is not the correct tool for that job". Or at least, explain why it's not the best tool, or the reasons why the OP thinks it is a good tool may be flawed.

To ignore that just seem like putting your head in the sand. I'd rather try to help people with the overall problem, not focus on some possibly misguided detail,

-ERD50

This exact scenario happened back in 2013 when I joined my first financial forum. I just got a big bonus and wanted to know if I should pay off $100k of car loans or invest it. That's it. Just answer the question, damnit. Well, everyone kept asking me why I had $100k in car loans. I didn't think that was relevant. They were persistent, almost to the point of what I thought was being rude. After a great deal of pushing on their part and pushing back on my part, I finally relented and posted my whole financial picture. That lead to me changing my ways drastically and allowing me to retire last year.

If they had not questioned the bigger picture and just answered my question, I would still be broke and working.

 

[OldShooter]

... If they had not questioned the bigger picture and just answered my question, I would still be broke and working.

Yes. In real life and in forums often the way we phrase a question precludes finding the optimum solution to a problem. I think this happens more often than we realize.

 

[VanWinkle]

The interest payment on a bond is locked. They don’t increase when rates rise. The yield increases, because the value of the bond has decreased, but not the amount of the payment.

In a bond fund, new bonds are purchased with higher interest rates and that would increase the payment for the same $1000.00 of bond. Am I wrong about that? The new bonds would be replacing older bonds(depending on the duration) and the actual income would increase.

 

[Chuckanut]

It’s important to not lose sight of the OPs request. Not looking for a “dividends vs no dividends” debate or portfolio market outperformance. OP is looking for a “fairly safe” way to generate dividend income to help cover monthly expenses.

If income is the goal why not go with Wellesely Fund from Vanguard?

I admit a prejudice. My only medium and long term bond holdings are those in Wellesely.

 

[disneysteve]

This may have already been mentioned but remember that growth investments may pay dividends too. VTI, a commonly recommended stock fund, is paying 1.28%. If you stick 550K in there, you're going to earn $7,000/yr in dividends.

 

[alaska55]

Just for grins I plugged SCHD and VFIAX (Vanguard 500 Index Fund Admiral Shares) into Portfolio Visualizer.

Over ompou20 years, the compounded growth of SCHD was 14.54% and the cnded growth of VFIAX was 15.27%. Difference is 0.73%. Doesn't sound like much? SCHD's reported distribution yield (aka most recent dividend yield) is 2.92%. So someone collecting $1,000/year in dividends from SCHD is leaving about $250/year on the table versus buying VFIAX for better total return.

Looked at another way, you could say that SCHD's total return was about 5% less than VFIAX.

So I wouldn't say that SCHD's total return is comparable to VFIAX. I would say that it is significantly lower. That's a judgment call; YMMV, of course.
.

How numbers can change!

 

[Zathras]

…
The reason we even started thinking about dividends was because we finally met with a financial planner, and that person wants to take all her money and put it into a separately managed account that will cost her 1% per year. It focuses on dividends. She said if we did that, G wouldn't have to work at ALL.

What else did I leave out?

The bold is a huge red flag to me.
I think Dividend stocks are a wonderful tool, all of my income is generated through dividend stocks.
However, any FA that makes promises such as that, is a huge red flag IMO.

 

[Lawrencewendall]

For what it's worth. I have $535k in dividend funds and am making 3.8k a month in dividends. I'm on the aggressive side so it's not for everyone.

 

[disneysteve]

For what it's worth. I have $535k in dividend funds and am making 3.8k a month in dividends. I'm on the aggressive side so it's not for everyone.

What fund has an 8.5% yield?

 

[Lawrencewendall]

What fund has an 8.5% yield?

AGNC (11.75)
BRSP (9.02)
BRW (13.95)
CGBD (8.89)
CLM (20.15)
DX (9.6)
ECC (13.14)
GNL (12.03)
GLP (9.42)
HQH(10.79)
HRZN (9.92)
IVR (21.56)
JRI (8.5)
LIFZF (15.55)
MFV (9.1)
NEWT (10.44)
NRZ (9.22)
OPP (16.12)
ORC (18.4)
OXLC (13.55)
PDI (11.64)
PHT (10.25)
PSEC (9.86)
RIV (14.69)
RVT (9.86)
XFLT (10.61)
YYY (10.73)

These future dividends is based on TODAY's prices and TODAY's dividends. The 3.8k monthly was last years monthly dividends paid and is NOT speculative. My crystal ball is out for repair.

I've had some that bombed (bankruptcy). 2020 (covid) was a little harsh. Some reduced/suspended dividends but most of them recovered.

 

[corn18]

AGNC (11.75)
BRSP (9.02)
BRW (13.95)
CGBD (8.89)
CLM (20.15)
DX (9.6)
ECC (13.14)
GNL (12.03)
GLP (9.42)
HQH(10.79)
HRZN (9.92)
IVR (21.56)
JRI (8.5)
LIFZF (15.55)
MFV (9.1)
NEWT (10.44)
NRZ (9.22)
OPP (16.12)
ORC (18.4)
OXLC (13.55)
PDI (11.64)
PHT (10.25)
PSEC (9.86)
RIV (14.69)
RVT (9.86)
XFLT (10.61)
YYY (10.73)

These future dividends is based on TODAY's prices and TODAY's dividends. The 3.8k monthly was last years monthly dividends paid and is NOT speculative. My crystal ball is out for repair.

And you are comfortable with the total value of these stocks being down 28% in the last 52 weeks on average? One is down 64%. I guess the 8.5% yield offsets that, but still doing worse than a 60/40 portfolio.

And they are true dogs from their all time highs. Down an average of 68%. Not for the feint of heart.

 

[Lawrencewendall]

And you are comfortable with the total value of these stocks being down 28% on average? One is down 64%. I guess the 8.5% yield offsets that, but still doing worse than a 60/40 portfolio.

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.

 

[SecondCor521]

Do I care of the portfolio value? Pay me the monthly money.

You imply you care about the latter and not the former. Some might suggest that the two are interconnected to a noticeable degree.

 

[Sunset]

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.

We have some IEP (thankfully in an IRA) and a small amount as it's really a partnership and I don't want complexity added to my tax return.
We only have 200 shares.

I had bought it as I though Icann was smart like Buffet so figured I'd follow him a bit.
It pays 14.65% right now, and has steadily paid the same $8 per share for years.
I think it's pretty reliable, so I get the dividend paying part, even if the price does not go up.

 

[corn18]

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.

I had $1M. Now I have $320,000 (68% loss). I can't get past that no matter how much the dividend is.

 

[Lawrencewendall]

And you are comfortable with the total value of these stocks being down 28% in the last 52 weeks on average? One is down 64%. I guess the 8.5% yield offsets that, but still doing worse than a 60/40 portfolio.

And they are true dogs from their all time highs. Down an average of 68%. Not for the feint of heart.

I had $1M. Now I have $320,000 (68% loss). I can't get past that no matter how much the dividend is.

 

[COcheesehead]

Dividends are a taxation event, not an income event. When I get a dividend my net worth increases by…zero.

 

[Lawrencewendall]

Dividends are a taxation event, not an income event. When I get a dividend my net worth increases by…zero.

IMHO
1. Networth is a worthless benchmark.
2. Taxation is only relevant in standard brokerage account (don't care in Roth's or IRA's).
3. Dividends and their reinvestments increases my number of shares to gather MORE reinvestments. How does your dividends NOT increase your "net worth"?
Compounding is the eighth wonder of the world?

You do you.

 

[COcheesehead]

IMHO
1. Networth is a worthless benchmark.
2. Taxation is only relevant in standard brokerage account (don't care in Roth's or IRA's).
3. Dividends and their reinvestments increases my number of shares to gather MORE reinvestments. How does your dividends NOT increase your "net worth"?
Compounding is the eighth wonder of the world?

You do you.

The share price includes the dividend. There is zero compounding. Interest on the other hand is additive.

 

[Lawrencewendall]

The share price includes the dividend. There is zero compounding. Interest on the other hand is additive.

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.

 

[COcheesehead]

That makes no sense to me

My point exactly.

 

[Sunset]

I had $1M. Now I have $320,000 (68% loss). I can't get past that no matter how much the dividend is.

Is this hypothetical or actually happened to you