Dividend ideas?
- Thread starter wildcat
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Calgary_Girl
Full time employment: Posting here.
Definitely!
I live in Canada so the big thing up here is Trusts, which pay consistent monthly cash distributions. There are tons of energy trusts that are currently paying 8% and above. I even have one that's paying 11% and higher.
I live in Canada so the big thing up here is Trusts, which pay consistent monthly cash distributions. There are tons of energy trusts that are currently paying 8% and above. I even have one that's paying 11% and higher.
Calgary Girl;
Some of my friends invest in these, too. Their tax treatment is odd, if I remember correctly, because some of the dividend is considered return of principal, too?
One friend is trying to raise money for a hedge fund for these now. He noted that as pipelines charging rent, their prices do not seem to move in step with energy prices. There are also some mutual funds who are now investing in these trusts -- WSJ had a piece on them about a month ago.
Curious if thre are others out there who have looked deeply into these instruments.
Some of my friends invest in these, too. Their tax treatment is odd, if I remember correctly, because some of the dividend is considered return of principal, too?
One friend is trying to raise money for a hedge fund for these now. He noted that as pipelines charging rent, their prices do not seem to move in step with energy prices. There are also some mutual funds who are now investing in these trusts -- WSJ had a piece on them about a month ago.
Curious if thre are others out there who have looked deeply into these instruments.
Calgary_Girl
Full time employment: Posting here.
ESRBob said:
Here's some background info on Income Trusts that I found:
"Sometimes income is the way to go. Even if fixed income securities are not the best performing asset, an income component belongs in virtually every portfolio. Income trusts are one way to do that.
An income trust is an equitized income product, where an equity portfolio is constructed to provide safety of principal and regular fixed income, just like a bond. The kicker is that most of the income is taxed as a capital gain.
Investment trusts burst onto the Canadian investment scene in the mid-1990s. The consistent characteristic of these trusts has been to attempt to generate a high level of tax-efficient income.
The first wave of these investments was royalty trusts, which tended to focus on the oil and gas and other natural resource sectors. More recently, the focus has moved to income trusts. These are designed to provide a high level of tax-efficient income. Most of them generate income using a covered call writing strategy.
Income trusts typically hire a portfolio manager to hold a basket of stocks and sell call options on them. The call options put a cap on how much the stock portfolio can rise but the call premiums also provide income. The portfolio manager decides at what price each call premium definitely in the hand is better than the far-from-definite potential rise in the stock's price beyond that cap.
The end result is a product that pays a fixed, monthly income and that has some limited potential for capital gains. As an added bonus, the monthly income is taxed primarily as a capital gain because that's how options premium income is taxed. The after-tax return, then, can be quite attractive.
Is the income stream safe? What is, in this life? But the typical income trust seeks to generate 8.5% to 9% in income annually, distributed monthly."
Finally, a topic that has brought me out of lurking mode.
I am 1.5 years from FIRE and am aligning my finances differently than the 4% WR that most here are doing.
I would love feedback if any, if the plan is missing elements that I have not thought of.
I am aligning myself with 25-30% income trusts that are S&P rated SR-1 (highest) with a 10yr history of greater than 8% dividends (paid monthly)
The remaing 70% are Mergent's High Dividend Achivers for Canada that consistently increase yield year by year by 10% or better. The companies are A+ rating only and provide a current yield of > 3%. If history continues, the value of shares and its paid dividends will double in 5-7 years, every 5-7 years.
I will live off the dividends only and never touch the principle. I will not care if the market has a bad year or not, as I will not worry about the share NAV price, but only that they keeps paying dividends.
The U.S. has a 100 yr history of such companys that consistantly pay dividends, every year, through wars, depression etc, so I am sure someone is using this route on this board.
Ideas, opinions are greatly encouraged.
warmest regards,
greeny
I am 1.5 years from FIRE and am aligning my finances differently than the 4% WR that most here are doing.
I would love feedback if any, if the plan is missing elements that I have not thought of.
I am aligning myself with 25-30% income trusts that are S&P rated SR-1 (highest) with a 10yr history of greater than 8% dividends (paid monthly)
The remaing 70% are Mergent's High Dividend Achivers for Canada that consistently increase yield year by year by 10% or better. The companies are A+ rating only and provide a current yield of > 3%. If history continues, the value of shares and its paid dividends will double in 5-7 years, every 5-7 years.
I will live off the dividends only and never touch the principle. I will not care if the market has a bad year or not, as I will not worry about the share NAV price, but only that they keeps paying dividends.
The U.S. has a 100 yr history of such companys that consistantly pay dividends, every year, through wars, depression etc, so I am sure someone is using this route on this board.
Ideas, opinions are greatly encouraged.
warmest regards,
greeny
youbet
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greeny:
Are you building in annual increases in dividend income to account for inflation? If not, you'll soon stumble onto the falicy of "living off the interest/dividends and not touching the principal."
youbet
Are you building in annual increases in dividend income to account for inflation? If not, you'll soon stumble onto the falicy of "living off the interest/dividends and not touching the principal."
youbet
Mr._johngalt
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youbet said:
It's not a fallacy, We intend to do it. Requires some thinking.
In our case we can cope with expected setbacks by cutting back.
Plus, although I don't have a very well thought out CD or bond ladder,
we do have a nicely spaced Social Security benefits ladder
JG
Mr._johngalt
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Hello greeny. I don't own any div. paying stocks presently, but I
think your plan is just fine. Watch out for that old bugbear
inflation though.
JG
think your plan is just fine. Watch out for that old bugbear
inflation though.
JG
Calgary_Girl
Full time employment: Posting here.
Hi Greeny!
Have you read Derek Foster's book? He's 36 and retired at 35 using the strategy that you described. His book is titled "Stop Working! Here's How You Can - Using the Strategy of Canada's Youngest Retiree".
As for others' comments regarding inflation, my experience with income trusts has been that the cash distributions increase over time so inflation it appears is not much of an issue. I have one income trust that has increased its cash distributions by 21% over a 4 year period. In addition, the underlying price of the trust has increased by 70% compared to what I bought it for in 2001
Have you read Derek Foster's book? He's 36 and retired at 35 using the strategy that you described. His book is titled "Stop Working! Here's How You Can - Using the Strategy of Canada's Youngest Retiree".
As for others' comments regarding inflation, my experience with income trusts has been that the cash distributions increase over time so inflation it appears is not much of an issue. I have one income trust that has increased its cash distributions by 21% over a 4 year period. In addition, the underlying price of the trust has increased by 70% compared to what I bought it for in 2001
Early this year there were RE discussions of dividend paying stocks - when I looked, I noticed that many of the stocks were priced at all time highs which convinced me not to go there. Then I read that Pfizer was priced at a 7 year low, so, I thought "this is my kind of opportunity".
In Feb I bought 1000 shares below $25 through a DRIP. It is now just below $28 and has announced a 0.19/share quarterly dividend. So it has been up about 12%+ in under 3 months. All time high was $50 in early 1999 so I am continuing to invest monthly. I think that there is still some headroom with Pfizer.
JohnP
In Feb I bought 1000 shares below $25 through a DRIP. It is now just below $28 and has announced a 0.19/share quarterly dividend. So it has been up about 12%+ in under 3 months. All time high was $50 in early 1999 so I am continuing to invest monthly. I think that there is still some headroom with Pfizer.
JohnP
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Pfizer, Inc.
Rank 59. Ten yr. div. growth 15.48%. 35 yrs of div growth.
2003 ed. Mergent's Dividend Achievers. At $45 a pop for the summer ed. - I'm down to ordering once every two years.
Two file cabinet's, 56 DRIPs. Putzing since about 1989. Heavy putzing since ER - 1993.
Sans mimi Roth conversions - 40% of taxable income in ER.
SS this year may change that.
I own Lilly and Glaxo - bought circa 1994. Looking at Pfzer and Merck.
Rank 59. Ten yr. div. growth 15.48%. 35 yrs of div growth.
2003 ed. Mergent's Dividend Achievers. At $45 a pop for the summer ed. - I'm down to ordering once every two years.
Two file cabinet's, 56 DRIPs. Putzing since about 1989. Heavy putzing since ER - 1993.
Sans mimi Roth conversions - 40% of taxable income in ER.
SS this year may change that.
I own Lilly and Glaxo - bought circa 1994. Looking at Pfzer and Merck.
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
BTY - the single biggest trap I personally fell into was looking at current yield when buying dividend stocks/funds. In 1993 - I bought Gabelli closed end Convertible Bond(GCV) - about 12 - 16% depending on look back yr. and discount to NAV.
I was able to let div.s reinvest and get 16% based on $ put in - but LT it ran around 8%. Had I needed to take money out - I would have really got hosed inflation wise.
In contrast went in Lilly(circa 1994) at 4% - divs grew 8% over ten years and hope to grow in future - a better deal ala inflation.
I was able to let div.s reinvest and get 16% based on $ put in - but LT it ran around 8%. Had I needed to take money out - I would have really got hosed inflation wise.
In contrast went in Lilly(circa 1994) at 4% - divs grew 8% over ten years and hope to grow in future - a better deal ala inflation.
OP
OP
wildcat
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Unclemick -
Not to say run out and buy or anything but Merck has a very good vaccine in the works & it is very likely to be approved. HPV is the most common STD and can lead to cervical cancer. Merck has developed a vaccine and there is a very good chance it will be administered to every female b/c it is so common. They should make good money off the vaccine in the US & my doctor friend told me they may try it on males (also common carriers) as well. Again I hate to reco stocks based on a promising drug or vaccine but I thought I would share what I know.
Not to say run out and buy or anything but Merck has a very good vaccine in the works & it is very likely to be approved. HPV is the most common STD and can lead to cervical cancer. Merck has developed a vaccine and there is a very good chance it will be administered to every female b/c it is so common. They should make good money off the vaccine in the US & my doctor friend told me they may try it on males (also common carriers) as well. Again I hate to reco stocks based on a promising drug or vaccine but I thought I would share what I know.
cute fuzzy bunny
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Or you can take the lazy route.
Vanguard Wellesley; pays your 4% SWR in dividends and historically the gains have exceeded inflation. Under .20% management fee for admiral shares. High dividend stocks and bonds. If you just like the equities, the equity income fund uses the same value/high dividend stock picking schemes, costs are similar, yield is lower. Or wellington for something in the middle.
Vanguard Wellesley; pays your 4% SWR in dividends and historically the gains have exceeded inflation. Under .20% management fee for admiral shares. High dividend stocks and bonds. If you just like the equities, the equity income fund uses the same value/high dividend stock picking schemes, costs are similar, yield is lower. Or wellington for something in the middle.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well lets see, wellington has been around since 1928 and wellesley has been there since 1970.
I'm betting they're still around 74 years from now. Common targets for "old money"; you put it in wellington when you're accumulating and move it to wellesley when you retire. Or split your money 50/50 between them and fahgetabouddit.
I'm betting they're still around 74 years from now. Common targets for "old money"; you put it in wellington when you're accumulating and move it to wellesley when you retire. Or split your money 50/50 between them and fahgetabouddit.
Well, I was only concerned that they would "close" the funds or some other thing that hoses me. But I worry too much. I'm in Wellington and Vanguard index fund now, with a side of international and small cap. But Wellesly is on the short list for post ER investment.
wabmester
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Don't worry about Vanguard closing funds. There's nothing magic about Wellington or Wellesley -- they are both simply balanced funds (I think one is 60/40 while the other is 40/60). You can easily replicate the same results with your own balanced portfolio. I'm not aware of any evidence that either of those funds performed better than balanced index funds, but hopefully somebody will correct me if I'm wrong.
cute fuzzy bunny
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I hate to do it too...
Wellesley and Wellington have better 1, 5 and 10 year returns than the vanguard balanced index fund while also producing a higher yield, although you will pay a few basis points more for the value tilted, actively managed wellington and wellesley.
Wellington is 60/40, wellesley is 35/65.
The 5 year numbers are particularly striking: 9.9% for wellesley and 7.41% for wellington...a whopping 1.9% for the balanced fund.
Wellesley and Wellington have better 1, 5 and 10 year returns than the vanguard balanced index fund while also producing a higher yield, although you will pay a few basis points more for the value tilted, actively managed wellington and wellesley.
Wellington is 60/40, wellesley is 35/65.
The 5 year numbers are particularly striking: 9.9% for wellesley and 7.41% for wellington...a whopping 1.9% for the balanced fund.
wabmester
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th said:
TH, you should have been in marketing. Oh wait, you were.
That's exactly how funds market their returns -- by selecting the one term where they outperformed and ignoring all others. As Cut-Throat and Bernstein would say, the long-term results are the only that matter. How did those two funds compare with an equivalent 30-year balanced index approach?
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hard to say without doing more looking; the vanguard balanced fund has only been around for 12 years.
However over the past 35 years Wellesley has only trailed the S&P500 by ~1% per year while putting out more than twice the dividend and with far less volatility.
And I wasnt picking 'one term'; the wellesley and wellington funds outperformed the balanced index fund in EVERY term. All of them.
Going back to 1928, Wellington also produced more than a 4% SWR plus average inflation on an annualized basis...going back to 1970, wellesley has done better than that...you could have taken about 7% annually from a wellesley investment and still kept up with inflation.
However over the past 35 years Wellesley has only trailed the S&P500 by ~1% per year while putting out more than twice the dividend and with far less volatility.
And I wasnt picking 'one term'; the wellesley and wellington funds outperformed the balanced index fund in EVERY term. All of them.
Going back to 1928, Wellington also produced more than a 4% SWR plus average inflation on an annualized basis...going back to 1970, wellesley has done better than that...you could have taken about 7% annually from a wellesley investment and still kept up with inflation.
