Dividend Portfolio's

[modhatter]

I would like to hear comments from some of you investors out there about investing in primarily "Dividend orientented" portfolio's. You know, those paying out approx. 3% per yr. in dividends. How do you think you final yeild compares to just picking stock funds, irreguardless of dividends.

Any first hand experiences you would like to share with us?

 

[REWahoo]

Unclemick, your phone is ringing.

 

[maddythebeagle]

Better Investing issue came today. It states that over 50% of the return on the sp 500 since 1980 was from reinvested dividends.

 

[CyclingInvestor]

I am 47 and will retire in the next 0-2 years. I have a dividend-oriented
portfolio, and expect my total return will probably be about the same
as an index portfolio. However, the advantage of a dividend-oriented
portfolio is that I do not really care what the total return is - I will be
living on the dividends. As long as the companies perform well, keep
earning more money and raising dividends, I do not care what happens
to the stock price. Actually, I care a little bit - if valuations on the stocks
I like become out of balance, I will reallocate to take advantage.

In mid 1998 I switched to a 100% REIT portfolio (about 1.5 years too
early) because of the extreme undervaluation of them compared to
regular stocks (IMO). 2 months ago I rebalanced to a 30% REIT/70%
dividend-paying blue chip allocation as REITs finally became overvalued
(IMO). So far I am 2 months too early with the shift back, but I sleep
better at night.

 

[unclemick]

Hmmmm

I'm still back study - a - fying the wooden floor thread as to which way to go.

Anywise - yes I still have my DRIP dividend stocks - about half way killed off and transferring to a Vanguard brokerage account. Ballpark - I think I ran around 6-8% takeout (NOT level load) in the 1989 - 2000 period. The thing that stuck me about the period - other than dividends were higher then now was the large no. of spin-offs, cash buyouts, mergers - so when I say ballpark - I mean ballpark. I peaked between 30-40 stocks from one share up to many shares. Reinvested dividends - until I 'harvested the cash - voluntarily or involuntarily in a lot of cases. Messy business - but it was 40% of retirement income at times during my really frugal years(read cheap bastard).

The Norwegian widow mix - lots of utes(all kinds), telephone, oils, banks/insurance, REITs, drugs when their dividends were over 4-5% and even a few natural resource stocks with dividends.

I am more in the listening/learning mode at 62 - should I continue to putz with dividend stocks - reinvest dividends and smooth out the lumps when I pull the pin on a stock. Right now - planning to sweep div.'s int Prime MM and spend as needed - after I get the rest of the DRIPS killed off/or transferred?

Still a few male hormones left. AND should I cap at 15 stocks or some other number.

heh heh heh - The Norwegian widow loves her dividends - but?

 

[cute fuzzy bunny]

I simplified my port quite a bit last year, and reduced the dividends a bit. But about 40% of my taxable port is still large cap value paying ~3% dividends and a good sized chunk of my IRA is small cap value...lower dividends but still the same idea.

Dividend paying "value" stocks are, I think, good stocks to own for the long haul...in bunches...seems to me theres a lot of risk in just owning a handful but if you hand pick well (bowing to unclemick) and you're willing to keep an eye on them, thats a good way to go as well.

Tax treatment on qualified dividends from stocks is such a free lunch I cant make a case to not own them and take a good chunk of your SWR from them. If you can adjust your spending, a big bag of dividend payers can be ridden through good times and bad...

 

[unclemick]

I haven't gone looking for any recent academic curves lately but:

At some point - the number of stocks begin to approach the behavior of an index. Lots of wiggle room here - does a mixture of div stocks in various sectors perform like an index - and if so which index.

I've seen numbers as low as 8 stocks capturing the DOW performance (80-90%) thereof in the past.

I think the number varies in different decades and haven't seen any lately.

But Wall Street has been rolling out a lot of canned div products lately.

My curmudgeon alarm is going off. I don't think the basic premise is wrong - but pushing too hard for dividends right now - I suspect I might be overpaying. Perhaps time to look harder at dividend growth.

Just some random thoughts.

??

 

[wildcat]

Perhaps time to look harder at dividend growth

Agree

 

[mathjak107]

lets not forget dividends are not like getting bank interest..the price of the stock drops by an equivelent amount meaning the dividend amounts to in total return a big fat zero....its total return that counts..you could have bought the highest paying dow stocks and you would have been in a world of hurt the last few years....if a stocks worth buying than buy it dividend or no dividend

 

[maddythebeagle]

Perhaps time to look harder at dividend growth

Agree

Probably a good strategy for younger folks, anyway (for tax deferral and growth). The high dividend payers usually have lower dividend growth, too.

 

[brewer12345]

About 18 months ago I started diversifying away from my all small cap value portfolio (which continues). One of the things I have consciously been doing is buying stuff that throws off dividends and other cash. With a mostly (~85%) equity portfolio, I am now up to a portfolio yield of about 3% (and rising). I've noticed a lot less volatility, since firms that pay healthy dividends generally have reasonably strong cash flow and are not dependent on the capital markets to keep them afloat and provide capital to grow.

 

[wildcat]

Probably a good strategy for younger folks, anyway (for tax deferral and growth). The high dividend payers usually have lower dividend growth, too.

A good point. I have said before a good strategy may be to mix the two - growth and high yield. Best of both worlds which can be done via Vanguard Div Growth + Equity Income or just picking a basket of individual stocks. I keep a few dividend stocks in my tax sheltered portfolio to smooth out the bumps in my aggressive allocation.

 

[Nords]

About 18 months ago I started diversifying away from my all small cap value portfolio (which continues).  One of the things I have consciously been doing is buying stuff that throws off dividends and other cash.

I'm a fan of small-cap value and large-cap dividend payers.

 

[grumpy]

In 1995 I started investing in DRIP stocks. I found some attractive companies that offered a 1 to 5 % discount from market price for drip purchases. I focused on stocks with good dividends and reinvested them all. I eventually had 25 companies. In 2000 I tired of the hassle of dealing with the various transfer agents and consolidated all of the shares at Buy & Hold Securities. I have always kept my investment costs as low as possible. I currently own dividend paying shares in 22 companies. The shares are worth over $220K and I draw over $8200 a year in dividends. These shares represent only about 15% of my net worth. The yield calculated on my initial investment costs is over 6%. I rebalance every couple of years to boost the dividend payout. I find these dividend stocks to be a very beneficial and successful segment of my overall portolio. DRIP investing is a great, low cost way to get educated about the markets and to gradually build a significant position.

Grumpy

 

[flipstress]

Tax treatment on qualified dividends from stocks is such a free lunch I cant make a case to not own them and take a good chunk of your SWR from them. 

Would Vanguard mutual fund statements specify the amount of qualified dividends that are taxable at the 5% or 15% rate, if I owned the fund in a taxable account?

 

[cute fuzzy bunny]

Yes they do, the 1099 separates the qualified and unqualified dividends.

 

[flipstress]

Thanks, CFB. I'm not a good stock-picker so I will be moving my taxable individual stock investments to funds.

 

[grumpy]

Would Vanguard mutual fund statements specify the amount of qualified dividends that are taxable at the 5% or 15% rate, if I owned the fund in a taxable account?

I don't think the statements show that, but the 1099-DIV does.

Grumpy

 

[Yipee-Ki-O]

lets not forget dividends are not like getting bank interest..the price of the stock drops by an equivelent amount meaning the dividend amounts to in total return a big fat zero....its total return that counts..you could have bought the highest paying dow stocks and you would have been in a world of hurt the last few years....if a stocks worth buying than buy it dividend or no dividend

For a mutual fund, a dividend distribution will reduce the fund's net asset value per share by an amount equivalent to the dividend distribution on the ex-dividend date. The same does not apply to the share price of an individual stock. While there may be some market activity related to the ex-dividend date of a stock which might affect its price, the price of the stock is not reduced by the amount of the dividend. The total return for a stock at the end of a given holding period will be the sum of the dividends paid plus any share price appreciation.

 

[wildcat]

the price of the stock is not reduced by the amount of the dividend.

Yeah, it's called arbitrage.

 

[grumpy]

The same does not apply to the share price of an individual stock. While there may be some market activity related to the ex-dividend date of a stock which might affect its price, the price of the stock is not reduced by the amount of the dividend.

I do not believe that is correct. On a regular basis the Wall Street Journal will report "the Dow Jones Industrial average will be reduced today by $X due to ____ Corp. going x-dividend".

Grumpy

 

[wildcat]

It should as I said. If not it is a riskless investment - arbitrage. And if it doesn't, the institutional wolves will be all over it.

 

[cute fuzzy bunny]

Interesting question. I dont recall any of my dividend paying individual stocks dropping x% the day they paid out an x% dividend. Funds do occasionally drop the day they 'pay' dividends and then bounce back the next day when all those dividends are reinvested automatically by most fund holders.

 

[Gone4Good]

Interesting question.  I dont recall any of my dividend paying individual stocks dropping x% the day they paid out an x% dividend.  Funds do occasionally drop the day they 'pay' dividends and then bounce back the next day when all those dividends are reinvested automatically by most fund holders.

Stocks actually start trading x-dividend (without the dividend) several weeks prior to payment. The stock price will drop between the last day of trading with the dividend and the first day of trading without it. However, with an average annual dividend of 1.75% for the SPX, the 0.40% change in your stock price the day it goes x-the dividend would hardly be noticeable. Even for a 4% dividend yielding stock, the 1% change associated with the quarterly dividend gets lost in all of the other market noise.

 

[mathjak107]

Interesting question. I dont recall any of my dividend paying individual stocks dropping x% the day they paid out an x% dividend. Funds do occasionally drop the day they 'pay' dividends and then bounce back the next day when all those dividends are reinvested automatically by most fund holders.




actually right on the stock exchange website is a little bit about what happens when a stock pays a dividend.it does say the exchnge computors re-value the stock at the next days opening by dropping it the amount of the dividend payed out.thats why you never want to buy right before a dividend payout in a taxable account in a fund or a stock.its basically a non event thats taxable