Dividend Yield vs Total Return Income in Retirement

[Dash man]

Dividend investor portfolios don't exclude a large fraction of the market?

Being a dividend investor doesn’t have to exclude non dividend stocks. In my case I focus on companies that continuously grow their dividends each year. But I made a nice chunk of change with Amazon and Tesla in an opportunistic way. I’m out of them now except for my QQQ ETF that I’ve had for years. ~97% of my holdings are dividend payers.

 

[Dash man]

I dunno. Looks like SCHD underperforms VOO by a fair margin based on average rolling 3, 5 and 7 year returns. From Portfolio Visualizer.

......Schwab US Dividend Equity ETFVanguard S&P 500 ETF.....

Roll PeriodAverageHighLowAverageHighLow

1 year15.13%67.92%-10.88%15.48%56.46%-10.59%

3 years12.96%23.91%3.41%13.76%26.01%5.08%

5 years12.80%17.27%5.85%13.55%18.87%6.70%

7 years12.53%14.18%8.23%13.24%14.90%9.61%

10 years14.41%15.34%13.33%14.81%16.52%12.93%

And I thought we were talking stability in a down market too…
VOO is too concentrated. 25% of the ETF is made up of five companies.

 

[Al18]

Diversification is good. If you like the Dividend Aristocrats, who have grown dividends for the past 25 years or more, NOBL is the ETF you want. If you want stocks that have grown dividends for at least 10 years and have proven growth, SCHD is the ETF to own. If you want large growth stocks that may or may not pay a dividend, SPY is the ETF to own.

In a recession, I expect the NAV for all 3 to drop. However it’s likely the dividends paid on a quarterly basis for NOBL will not drop.

 

[RunningBum]

Soooo much to disagree with here. One big point I think total return investors miss is that dividend investors are not that concerned with total return. We want the income, not necessarily a valuation increase since we have no intention of selling shares ...ever.

I'm not missing that, and I doubt anyone is. I just think it's foolish to be that narrowly focused. How do you determine the viability of these dividend stocks to continue paying that dividend...for the rest of your life?

The track record of dividend aristocrats seem impressive until you realize that the stocks that used to be on that list are now out of the picture when you investigate now, but likely are still held by long term dividend investors. And today's aristocrats may not continue to stay on that list.

It's your money, do what you want, but don't try to tell others what they are missing when you have tunnel vision.

 

[MichaelB]

I think I have learned my lesson: Never, ever type the words dividends or income investing on this website. In fact they should be banned.
Too many people have dogmatic views of investing and won't accept other viewpoints or opinions. I guess this website will be best to just look for Wordle hints....

Not at all. “Active Investing, Market Strategies and Alternative Assets” (here) is the forum to discuss a particular investment strategy without the topic being challenged by those who feel a passive / total market approach is superior.

 

[CarbonaNotGlue]

Hi all. New to this forum as I'm planning on making the retirement leap at year end if inflation doesn't spiral out of control. This argument has been going on at many forums for years and clearly it will continue. As for myself, I agree more with Flyfish1 and have crafted a portfolio accordingly, which consists of quality dividend growth portfolio to complement my larger core index portfolio and much smaller bond\cash portfolio. The dividend portfolio consists of about 50 carefully selected, quality dividend growth stocks, with the main purpose of providing a decent hedge against inflation with a solid income stream to rely on if I choose not to take distributions from my other portfolios in a bear market (hedging sequence of returns risk). Yes, dividend stocks took a huge hit during the calamitous, highly deflationary period, known as the great depression. If you fear a return of deflation and think you need to immunize your portfolio against it, I guess avoiding quality dividend growth stocks makes sense. However, if you are focusing on the current period, where money supply has skyrocketed and you have studied the late 60s, 1970s and early 80s stagflationary cycle, then you would be well advised to at least research and focus on a quality dividend portfolio. You can start here - https://www.etftrends.com/model-portfolio-channel/high-dividends-for-stagflation/

And here - https://seekingalpha.com/article/19...owth-investing-when-inflation-hits-10-percent

The key is to select stocks with decent business prospects with product lines/businesses that are somewhat less impacted by inflation, that have sufficient cashflow to provide good dividend coverage. I usually buy stocks with current dividend yields of 3-5% and view any dividend higher as a red flag for further research. Sometimes those high yields are due to extrinsic factors or earnings miss overreactions significantly depressing an otherwise dividend healthy stock. These are golden buying opportunities. Most other times they are red flags for negative business factors or depressed revenue expectations, which causes me to take a pass. This may be too much work and review for some, but it is fun for me. Good dividend funds could serve as a substitute in anyone's portfolio otherwise. In a well crafted and diversified dividend portfolio, dividend cuts are inconsequential. In fact, I have had less than three in my over 30 years constructing this portfolio and all were merely cuts (not cessations) that eventually grew back to original yield, not even impacting my overall cash flow (which has all been reinvested to date).

Moreover, as for me, the shock test of 2022 was most informative. During the worst phase of this bear cycle earlier this year, the S&p 500 was down about 22% and my total portfolio was up 2%, solely because of and kept afloat by my dividend portfolio, which has performed quite well (as of yesterday, even though the S&P has clawed back somewhat, this performance disparity has grown even wider) while giving me a solid annual dividend cash flow. This cashflow (which I intend to take rather than reinvest in retirement) combined with my expected pension more than covers my current expenses without having to tap 401ks and the index bucket of my portfolio. But as others on this board have said, YMMV

I'm only posting this to give others researching this issue a different perspective to chew on. Good luck to all figuring out your own path to FIRE however and whatever that may be or whether that includes quality dividend growth stocks or not.

 

[pb4uski]

And I thought we were talking stability in a down market too…
VOO is too concentrated. 25% of the ETF is made up of five companies.

I only used VOO because YOU did in post #46, the post that I was responding too. VTSMX... Vanguard Total Stock... also has better 3, 5 and 7 year rolling average returns than SCHD, albeit by narrower margins than VOO.. by 28 to 39 bps. The point was that dividend focused portfolios and funds often slightly underperform broad based stock funds.

OTOH, SCHD is a very slightly smoother ride than VOO and VTSMX.

 

[Dash man]

I'm not missing that, and I doubt anyone is. I just think it's foolish to be that narrowly focused. How do you determine the viability of these dividend stocks to continue paying that dividend...for the rest of your life?

The track record of dividend aristocrats seem impressive until you realize that the stocks that used to be on that list are now out of the picture when you investigate now, but likely are still held by long term dividend investors. And today's aristocrats may not continue to stay on that list.

And how is this different than growth stocks? They’ve also been known to fail or degrade in quality in stock price. Of course all individual stock purchases need to be monitored and reevaluated regularly. Dividend payers or not, they should not be forgotten. That’s the major reason I’m slowly converting my individual stocks to ETFs, in case my faculties decline and to make things simpler for DW and eventually our sons.

 

[mathjak107]

I'm not missing that, and I doubt anyone is. I just think it's foolish to be that narrowly focused. How do you determine the viability of these dividend stocks to continue paying that dividend...for the rest of your life?

The track record of dividend aristocrats seem impressive until you realize that the stocks that used to be on that list are now out of the picture when you investigate now, but likely are still held by long term dividend investors. And today's aristocrats may not continue to stay on that list.

It's your money, do what you want, but don't try to tell others what they are missing when you have tunnel vision.

Exactly …

The so called dividend aristocrats are only on the list until they aren’t .

I did some looking in to them many years ago .

you keep seeing just invest in this group and call it a day .

however what constitutes this group changes all the time so get ready for lots of selling trying to keep up as they get bumped and replaced AFTER THE FACT THEY DID NOT LIVE UP TO EXPECTATIONS . you could be behind the curve here very easily .

these dividend aristocrats are not somehow immune to all the things that effect company's and stocks . Just like other companies, their outcomes change.

in 2009 there were 52 stocks that met the group’s strict criteria.

As of 2012, there were 51.

But of those 51, 13 were different than the original set. So over the course of just 3 years, there was a 27% change in the group’s composition.

in fact going back to 1989's list :

Of those 26, seven are still on the list today, ten were removed because they either cut or froze their dividend, four were removed for an unknown reason, and the remainder were aquired at some point. So at least ten of the 26 had an outcome that is different from the assumption of dividend growth every year through thick and thin.

 

[Dash man]

Exactly …



The so called dividend aristocrats are only on the list until they aren’t .



I did some looking in to them many years ago .



you keep seeing just invest in this group and call it a day .



however what constitutes this group changes all the time so get ready for lots of selling trying to keep up as they get bumped and replaced AFTER THE FACT THEY DID NOT LIVE UP TO EXPECTATIONS . you could be behind the curve here very easily .



these dividend aristocrats are not somehow immune to all the things that effect company's and stocks . Just like other companies, their outcomes change.



in 2009 there were 52 stocks that met the group’s strict criteria.



As of 2012, there were 51.



But of those 51, 13 were different than the original set. So over the course of just 3 years, there was a 27% change in the group’s composition.



in fact going back to 1989's list :



Of those 26, seven are still on the list today, ten were removed because they either cut or froze their dividend, four were removed for an unknown reason, and the remainder were aquired at some point. So at least ten of the 26 had an outcome that is different from the assumption of dividend growth every year through thick and thin.

What’s the big deal? The S&P500 gets updated too as does any index. Monitor your holdings and sell when you need to. Same with non dividend stocks.

 

[mathjak107]

The S&P is an index …it is not expected to be a forever list of the same stocks

On the other hand stocks that are known as the aristocrats are interpreted by the misinformed to be some how golden and exempt from all the the things stocks are subject to

 

[Dash man]

The S&P is an index …it is not expected to be a forever list of the same stocks

On the other hand stocks that are known as the aristocrats are interpreted by the misinformed to be some how golden and exempt from all the the things stocks are subject to

Why do you believe that? I have never heard it described like that.

 

[mathjak107]

Because that is the way they are usually referred to .

Like they are in some special class of stock and it’s only true until it isn’t

 

[Dash man]

Because that is the way they are usually referred to .



Like they are in some special class of stock and it’s only true until it isn’t

I think that’s a preconceived notion you have. I’ve never heard of it. Who “usually” refers to them that way?

 

[Flyfish1]

I'm not missing that, and I doubt anyone is. I just think it's foolish to be that narrowly focused. How do you determine the viability of these dividend stocks to continue paying that dividend...for the rest of your life?

The track record of dividend aristocrats seem impressive until you realize that the stocks that used to be on that list are now out of the picture when you investigate now, but likely are still held by long term dividend investors. And today's aristocrats may not continue to stay on that list.

It's your money, do what you want, but don't try to tell others what they are missing when you have tunnel vision.

First of all - if you read my full post you would have noted that I use dividends AND a passive index buy and hold strategy. ( last sentence) In addition, I have holdings outside of the market thus providing an entire different level of diversification - so tunnel vision ...hardly.

Second of all it's really funny that you accuse me of trying to tell others what to do after the majority of responses on this thread are directly attacking the dividend approach. Go for a run...

 

[mathjak107]

I think that’s a preconceived notion you have. I’ve never heard of it. Who “usually” refers to them that way?

Pretty much every article on them

 

[Dash man]

Pretty much every article on them

Then, like I said, you have a preconceived notion of that perspective and read that into the article. Dividend investors are not ignorant and don’t follow “aristocrats” blindly. Personally, I’ve never gone to the list to just pick a stock. I do my due diligence before my purchases and review them regularly. Try to be more open minded so you aren’t missing some good buying opportunities.
I’m done with this conversation.

 

[mathjak107]

I don’t buy individual stocks

 

[RunningBum]

And how is this different than growth stocks? They’ve also been known to fail or degrade in quality in stock price. Of course all individual stock purchases need to be monitored and reevaluated regularly. Dividend payers or not, they should not be forgotten. That’s the major reason I’m slowly converting my individual stocks to ETFs, in case my faculties decline and to make things simpler for DW and eventually our sons.

Total return does not (necessarily) mean growth stocks.

Yes, I totally agree all stocks should be reevaluated regularly. Which means you might sell off one that does not meet your criteria. Which means you SHOULD care about the share price, because you may sell. The post I quoted said they had no intention to sell...ever. Sounds like no reevaluation is being done there.

I don't do individual stocks either these days, not for quite awhile.

 

[mathjak107]

My draw each year is based on my portfolio value each jan 1 ..

Total return is all that matters , dividends or not ….

That portfolio value is what matters.

How that balance is comprised is irrelevant

 

[Flyfish1]

Sounds like no reevaluation is being done there.

King of Assumptions.

 

[Gumby]

Moderator note: If you guys are going to continue being pissy with each other, do it by PM. Otherwise the thread is likely to be closed, and some may find it of interest.

 

[milford]

I'm an advocate of a small chunk of your portfolio being dividend focused etf during retirement. They are great as a stream of steady income during retirement, especially during a bear market. You don't have to worry about when to sell, how much to sell, and if its qualified dividends its icing on the cake with the favorable tax treatment. Just know that it isn't "free money", besides that you can decide for yourself if its right for your situation.

 

[mathjak107]

There is no difference between the company selling off a piece of your investment value and giving it back to you or you doing it off your portfolio…

A 4% dividend as an example is the same as the same dollars off a non div payer or portfolio assuming total return is the same

Income and balances will be the same.

Dividends are very tax inefficient.

The whole dividend gets taxed where if you create your own equivalent cash flow you only get taxed on the gain portion.

 

[UnrealizedPotential]

What I do for income is I have some bond funds . Every single dollar I do not need for income I put in the SP500 for growth. As for the topic, I do not know the answer to it, but I do enjoy reading the comments from other posters.