SP500 vs High Dividend Yeld Global Stocks
SP500 vs High Dividend Yeld Global Stocks
I know that for US investors dividends are of problem, but for European investors they are not because we have funds that automatically reinvest the dividends without having to pay any taxes.
My question is:
Does it make sense, to own a global high dividend yeld etf that automatically reinvest the dividends but with a higher fee, than a normal SP500 etf that also reinvests dividends but with a lower fee. I mean, could a return from a high dividend yeld etf be greater than the SP500 or total us market?
My reasoning is that dividends are a great part of market returns, and I'm curious to compare the returns of these two, does anyone can tell where I can find the data or give me some insight?
Cheers
My question is:
Does it make sense, to own a global high dividend yeld etf that automatically reinvest the dividends but with a higher fee, than a normal SP500 etf that also reinvests dividends but with a lower fee. I mean, could a return from a high dividend yeld etf be greater than the SP500 or total us market?
My reasoning is that dividends are a great part of market returns, and I'm curious to compare the returns of these two, does anyone can tell where I can find the data or give me some insight?
Cheers
Re: SP500 vs High Dividend Yeld Global Stocks
You can compare historical returns of funds/ETFs here:
https://www.portfoliovisualizer.com/
Use the backrest portfolio button
https://www.portfoliovisualizer.com/
Use the backrest portfolio button
Re: SP500 vs High Dividend Yeld Global Stocks
Is it fair to compare the results from Jan 2007 to May 2017 of iSahres Core SP500 and Vanguard Dividend Appreciation ETF or SPDR S&P Dividend ETF with both reinvesting dividends ?
Re: SP500 vs High Dividend Yeld Global Stocks
If you mean do you have to reinvest the dividends to get a correct comparison, the answer is yes. If you mean is it fair to look only at one specific range of dates, the answer is no, but to whom it is unfair is random.HEAVYLIFT wrote:Is it fair to compare the results from Jan 2007 to May 2017 of iSahres Core SP500 and Vanguard Dividend Appreciation ETF or SPDR S&P Dividend ETF with both reinvesting dividends ?
Re: SP500 vs High Dividend Yeld Global Stocks
Thank you.dbr wrote:If you mean do you have to reinvest the dividends to get a correct comparison, the answer is yes. If you mean is it fair to look only at one specific range of dates, the answer is no, but to whom it is unfair is random.HEAVYLIFT wrote:Is it fair to compare the results from Jan 2007 to May 2017 of iSahres Core SP500 and Vanguard Dividend Appreciation ETF or SPDR S&P Dividend ETF with both reinvesting dividends ?
Do you have any idea if there is any good data comparing a high dividend yeld index vs SP500 ? Or a similar comparison ?
Re: SP500 vs High Dividend Yeld Global Stocks
This is not the time to be chasing dividends. We all know that interest rates have been low since the 2008-2009 financial crisis and investors have been chasing both bond yield and stock dividend yield. After eight going on nine years of yield chasing, the answer isn't to chase them even harder.HEAVYLIFT wrote:I know that for US investors dividends are of problem, but for European investors they are not because we have funds that automatically reinvest the dividends without having to pay any taxes.
My question is:
Does it make sense, to own a global high dividend yeld etf that automatically reinvest the dividends but with a higher fee, than a normal SP500 etf that also reinvests dividends but with a lower fee. I mean, could a return from a high dividend yeld etf be greater than the SP500 or total us market?
My reasoning is that dividends are a great part of market returns, and I'm curious to compare the returns of these two, does anyone can tell where I can find the data or give me some insight?
Cheers
Your strategy isn't bad, I like dividends myself. The thing is, your timing is terrible particularly now that the Federal Reserve Bank is raising short term interest rates here in the United States. My recommendation would be to hold perhaps a Global Stock Index fund instead. After interest rates have normalized and the yield chasing mania is over, that would be a better time to pursue a dividend strategy. It rarely is a good idea to chase popular strategies, you are setting yourself up for disappointment.
A fool and his money are good for business.
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Re: SP500 vs High Dividend Yeld Global Stocks
To summarize many previous discussions, dividends are not a free lunch. Dividends are an important part of the total return of the U.S. stock market, but it's not as if, other things being equal, a dividend-paying stock would be expected to have higher total return than a non-dividend payer. Dividends have to some from somewhere, and dividends that are paid out are not available to the company to grow the business. There's actually a theorem in financial economics, the Modigliani-Miller theorem, that says that under some set of not-totally-crazy assumptions you would expect that, all other things being equal, it should not make any difference in total return whether a company pays dividends or not.
If you divide the universe of stocks into any two categories--dividend-paying and non-dividend paying, large-cap and small-cap, U.S. and international, A-M and N-Z, over any specific time period they will be different in total return, and they will also be different in risk-adjusted return. In most cases there will be a coterie of investors who believe one category is generally superior to the other, and another coterie who don't.
Claims made for dividend stocks all fall in the grey area of "there might be something to it, and, then again, maybe not." For example, it is often asserted that dividend stocks provide downside protection; I once looked at an article with a title like "dividend stock ETFs that let you sleep well at night" which specifically claimed "downside protection," and yet all three of the ETFs called out by ticker symbol in the article actually fell more than the stock market as a whole in 2008-2009--only a tiny amount more, but more.
If you divide the universe of stocks into any two categories--dividend-paying and non-dividend paying, large-cap and small-cap, U.S. and international, A-M and N-Z, over any specific time period they will be different in total return, and they will also be different in risk-adjusted return. In most cases there will be a coterie of investors who believe one category is generally superior to the other, and another coterie who don't.
Claims made for dividend stocks all fall in the grey area of "there might be something to it, and, then again, maybe not." For example, it is often asserted that dividend stocks provide downside protection; I once looked at an article with a title like "dividend stock ETFs that let you sleep well at night" which specifically claimed "downside protection," and yet all three of the ETFs called out by ticker symbol in the article actually fell more than the stock market as a whole in 2008-2009--only a tiny amount more, but more.
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Re: SP500 vs High Dividend Yeld Global Stocks
http://myphotos.mypclinuxos.com/images/ ... ne2017.pngHEAVYLIFT wrote: Do you have any idea if there is any good data comparing a high dividend yeld index vs SP500 ? Or a similar comparison ?
The above only accounts for 10 years current. There are plenty of studies with
certain dividend indexes competing with the market portfolio quite well, suitable
for a Roth as well. Dividend Aristocrats is expected to perform well in a rising rate
market, a yield weighted high dividend index expected to perform well in other
markets. Today, with PE's so high due to unproved market optimism it seems to
be a better time to rebalance to me and stay the course with that.
S&P Dow Jones Indices - http://us.spindices.com/additional-repo ... Condition=
The above has some global dividend indexes with 10 year results and most
of them look like just average or less current performers. There are 4 tabs
with indexes.
Global Dividends is not very popular as a tilt but to check the facts never hurts.
age in bonds, buy-and-hold, 10 year business cycle
Re: SP500 vs High Dividend Yeld Global Stocks
As a couple of posters have pointed out this is a research problem rather than simply comparing data. I think the gist of the research is that there is no benefit trying to select funds on the criterion of dividends. Larry Swedroe has written a long series of articles on this which you may be able to find.HEAVYLIFT wrote:Thank you.dbr wrote:If you mean do you have to reinvest the dividends to get a correct comparison, the answer is yes. If you mean is it fair to look only at one specific range of dates, the answer is no, but to whom it is unfair is random.HEAVYLIFT wrote:Is it fair to compare the results from Jan 2007 to May 2017 of iSahres Core SP500 and Vanguard Dividend Appreciation ETF or SPDR S&P Dividend ETF with both reinvesting dividends ?
Do you have any idea if there is any good data comparing a high dividend yeld index vs SP500 ? Or a similar comparison ?
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Re: SP500 vs High Dividend Yeld Global Stocks
Here's what I don't understand. Say I have a valid, a well known in
some circles, study of stock performance in hand. This study includes
data history from reliable sources and displays that over a 50 year
period a dividend index has a total return of 12%, while the 500 index
has a total return of only 10% for the same period, just for example.
The figures vary from time to time but the dividend index usually beats
the market portfolio by close to 2% regularly, confirmed by several
different researchers performing independent studies of this.
Which advisor should I listen to ?
some circles, study of stock performance in hand. This study includes
data history from reliable sources and displays that over a 50 year
period a dividend index has a total return of 12%, while the 500 index
has a total return of only 10% for the same period, just for example.
The figures vary from time to time but the dividend index usually beats
the market portfolio by close to 2% regularly, confirmed by several
different researchers performing independent studies of this.
Which advisor should I listen to ?
age in bonds, buy-and-hold, 10 year business cycle
Re: SP500 vs High Dividend Yeld Global Stocks
You don't mean advisor. You mean should you base investment your investment decision on that data. A first answer is no because the analysis is incomplete. You didn't include the data on risk. No one doubts the same data for stocks vs bonds would show higher return for stocks, but we also know the risk is different. A second thing one would want is some understanding of why that difference exists. There is a big difference between stocks and bonds as financial instruments. The relevant area of research for dividends is factor investing where the Fama-French model shows us that higher loadings on small and value predict higher expected returns. That analysis is probably in about the class you are talking about for your example. It is the case that at some point a sufficiently long term, in-and-out-of-sample, cross market result starts to become compelling. But the F-F result is still disputed as a rationale for making investing decisions on concerns it will not persist, that the risk involved is not understood, and so on. What can be said is that if the data result really were what you moot, there would be huge attention to it as there is to factor investing in the case of "established" factors. The case with dividends is that no one can make them arise as bona-fide factors in place of those that are compelling.patrick013 wrote:Here's what I don't understand. Say I have a valid, a well known in
some circles, study of stock performance in hand. This study includes
data history from reliable sources and displays that over a 50 year
period a dividend index has a total return of 12%, while the 500 index
has a total return of only 10% for the same period, just for example.
The figures vary from time to time but the dividend index usually beats
the market portfolio by close to 2% regularly, confirmed by several
different researchers performing independent studies of this.
Which advisor should I listen to ?
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Re: SP500 vs High Dividend Yeld Global Stocks
Well I don't really follow F-F because I think it overcomplicatesdbr wrote:The case with dividends is that no one can make them arise as bona-fide factors in place of those that are compelling.
the analysis that can be presented with normal financial econometrics.
The same thing could be said about the 500. It lacks some factor or
long term proof. The large-cap dividend index should be the market
portfolio then. Or the 500 should be a "tilt" as smaller caps and dividends
are more competitive. I'm just saying 2+2=4 . With even lower beta a
proper yield weighted dividend index is not losing money. The one
methodology used in one study was the 50 highest yield stocks (large cap),
excluding utilities, and those making special dividend payments. Equal weight
and annual rebalance. Simple. You could start your own ETF.
So I tend to beleive the advisor or study that has found this data over many
decades. Nothing is incomplete or disproven and certainly spans enough
time periods. So, it's just one of those few asset categories that deserve
a tilt to me. But global, to me it's hard to get information and has more
unknowns, so results have to be excellent before I move towards that.
Have a good one.
age in bonds, buy-and-hold, 10 year business cycle
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Re: SP500 vs High Dividend Yeld Global Stocks
You're making the implicit assumption that the observed average annualized return of some asset over a 50-year period is a good estimate of some true underlying value. You are assuming that the observed CAGR is has a fairly tight margin of error, less than ±1%, so that if two assets have 50-year CAGRs that differ by 2%, it's very good evidence that the two assets are really different, and that the one with the higher observed CAGR is really better.patrick013 wrote:Here's what I don't understand. Say I have a valid, a well known in
some circles, study of stock performance in hand. This study includes
data history from reliable sources and displays that over a 50 year
period a dividend index has a total return of 12%, while the 500 index
has a total return of only 10% for the same period, just for example.
The figures vary from time to time but the dividend index usually beats
the market portfolio by close to 2% regularly, confirmed by several
different researchers performing independent studies of this.
Which advisor should I listen to ?
In reality, the CAGR of large-cap stocks (S&P 500 and predecessors) was 7.7% for 1929-1978 inclusive, 13.6% for 1950-1999 inclusive. The 50-year average total return of the stock market has differed by 5.9% for different fifty-year periods. The average of a fifty-year period doesn't give you the true average ±1% or even ±2%. It's apparently something close to ±3%.
So if the 500 index had a 50-year total return of 10% over time period, the "real" underlying value might be anything from 7% to 13%. If dividend stocks at a total return of 12% over that same time period, the "real" underlying value might be anything from 9% to 15%. There's a big area of overlap; it's possible that both "really" return 10%, it's possible that dividend stocks "really" return less than the market as a whole. It's not strong evidence.
Financial data fluctuates more than our intuition suggests.
If stock returns from year to year behaved like independent random samples from a normal distribution, they'd "settle down" fairly quickly and statistically a 50-year average would be very likely to be very close to the "real" intrinsic average value. If, on the other hand, they followed a Cauchy distribution, they would never settle down at all. No matter how many samples you took, you would never be sure of getting close to the real average value, because there are so many extreme values that you keep getting values so huge they can outweigh everything that's come before
As explored in Mandelbrot's The Misbehavior of Markets, real world data is not as wild as the Cauchy distribution, but not as tame as the normal distribution, either. To find that one stock category outperforms stocks as a whole by an average of 2% over 50 years falls in the big grey area: interesting, there might be something to it, but not conclusive, because you can easily get differences that big by chance alone.
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Re: SP500 vs High Dividend Yeld Global Stocks
Reinvesting dividends without being taxed on them, very interesting! You say the fees are higher, how much higher? I'm curious what this global high dividend yield ETFs ticker is? Also, if just looking at valuations, I would pick the global high dividend yield fund over 100% US.HEAVYLIFT wrote:I know that for US investors dividends are of problem, but for European investors they are not because we have funds that automatically reinvest the dividends without having to pay any taxes.
My question is:
Does it make sense, to own a global high dividend yeld etf that automatically reinvest the dividends but with a higher fee, than a normal SP500 etf that also reinvests dividends but with a lower fee. I mean, could a return from a high dividend yeld etf be greater than the SP500 or total us market?
My reasoning is that dividends are a great part of market returns, and I'm curious to compare the returns of these two, does anyone can tell where I can find the data or give me some insight?
Cheers
Many here believe in the value premium, and many of these high dividend funds put you in that territory. Two high dividend Vanguard funds that get you global coverage are certainly well within large value (VYM, Vanguard High Dividend Yield ETF and VYMI, Vanguard International High Dividend Yield ETF).
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Re: SP500 vs High Dividend Yeld Global Stocks
I would prefer to use the normal financial econometric data
as provided and proceed from there.
I've read Mandelbrot, so what, same old PE.
So I proceed with a well diversified portfolio.
as provided and proceed from there.
I've read Mandelbrot, so what, same old PE.
So I proceed with a well diversified portfolio.
age in bonds, buy-and-hold, 10 year business cycle
Re: SP500 vs High Dividend Yeld Global Stocks
I did some research.nisiprius wrote:You're making the implicit assumption that the observed average annualized return of some asset over a 50-year period is a good estimate of some true underlying value. You are assuming that the observed CAGR is has a fairly tight margin of error, less than ±1%, so that if two assets have 50-year CAGRs that differ by 2%, it's very good evidence that the two assets are really different, and that the one with the higher observed CAGR is really better.patrick013 wrote:Here's what I don't understand. Say I have a valid, a well known in
some circles, study of stock performance in hand. This study includes
data history from reliable sources and displays that over a 50 year
period a dividend index has a total return of 12%, while the 500 index
has a total return of only 10% for the same period, just for example.
The figures vary from time to time but the dividend index usually beats
the market portfolio by close to 2% regularly, confirmed by several
different researchers performing independent studies of this.
Which advisor should I listen to ?
In reality, the CAGR of large-cap stocks (S&P 500 and predecessors) was 7.7% for 1929-1978 inclusive, 13.6% for 1950-1999 inclusive. The 50-year average total return of the stock market has differed by 5.9% for different fifty-year periods. The average of a fifty-year period doesn't give you the true average ±1% or even ±2%. It's apparently something close to ±3%.
So if the 500 index had a 50-year total return of 10% over time period, the "real" underlying value might be anything from 7% to 13%. If dividend stocks at a total return of 12% over that same time period, the "real" underlying value might be anything from 9% to 15%. There's a big area of overlap; it's possible that both "really" return 10%, it's possible that dividend stocks "really" return less than the market as a whole. It's not strong evidence.
Financial data fluctuates more than our intuition suggests.
If stock returns from year to year behaved like independent random samples from a normal distribution, they'd "settle down" fairly quickly and statistically a 50-year average would be very likely to be very close to the "real" intrinsic average value. If, on the other hand, they followed a Cauchy distribution, they would never settle down at all. No matter how many samples you took, you would never be sure of getting close to the real average value, because there are so many extreme values that you keep getting values so huge they can outweigh everything that's come before
As explored in Mandelbrot's The Misbehavior of Markets, real world data is not as wild as the Cauchy distribution, but not as tame as the normal distribution, either. To find that one stock category outperforms stocks as a whole by an average of 2% over 50 years falls in the big grey area: interesting, there might be something to it, but not conclusive, because you can easily get differences that big by chance alone.
Over 50 years, the standard annual deviation for the S&P (total return, not adjusting for inflation) has been about 18.6%. If the standard deviation of the mean reduces volatility by 1/sqrt(#of years), over 50 years, the standard deviation of CAGR would be 18.6%*(1/sqrt(50)), or 2.63%.
Two standard deviations of the mean would show that true annual CAGR over 50 years could easily be +/- 5.26% from the long term mean of 9.3%. Thus, the value for CAGR for the next 50 years could easily be, say, 5% to 13%. If you allow for 3 standard deviations, and adjust for inflation, it is possible that one could end up losing money in real terms in stocks even over 50 years. So stocks are less risky over the long run - but still run the risk of losing money. Your point about not really knowing what the true CAGR is (and what it will be over the next 50 years is very good and helpful.
Of course, this analysis ignores the effects of non-normality, such as kurtosis risk and autocorrelation - and these effects are real and significant.
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Re: SP500 vs High Dividend Yeld Global Stocks
Nedsaid,could you elaborate on not chasing dividends. With short term rates rising, do dividend paying stock prices fall in tandem, similar to bonds, in response to the rising rates, e.g. if CVX pays 3% annually and the fed rate goes up 50bp , does the price of the stock (independent from other factors affecting price, such as oil price, etc in this case) go down to a point where the new effective dividend is 3.5% of the new price of CVX?nedsaid wrote:This is not the time to be chasing dividends. We all know that interest rates have been low since the 2008-2009 financial crisis and investors have been chasing both bond yield and stock dividend yield. After eight going on nine years of yield chasing, the answer isn't to chase them even harder.HEAVYLIFT wrote:I know that for US investors dividends are of problem, but for European investors they are not because we have funds that automatically reinvest the dividends without having to pay any taxes.
My question is:
Does it make sense, to own a global high dividend yeld etf that automatically reinvest the dividends but with a higher fee, than a normal SP500 etf that also reinvests dividends but with a lower fee. I mean, could a return from a high dividend yeld etf be greater than the SP500 or total us market?
My reasoning is that dividends are a great part of market returns, and I'm curious to compare the returns of these two, does anyone can tell where I can find the data or give me some insight?
Cheers
Your strategy isn't bad, I like dividends myself. The thing is, your timing is terrible particularly now that the Federal Reserve Bank is raising short term interest rates here in the United States. My recommendation would be to hold perhaps a Global Stock Index fund instead. After interest rates have normalized and the yield chasing mania is over, that would be a better time to pursue a dividend strategy. It rarely is a good idea to chase popular strategies, you are setting yourself up for disappointment.
If there is that relationship then I can see that stocks paying a fixed dividend (not a growing dividend) every year could suffer. Dividend growers however might do ok. Yes there is "chasing yield", but alternately, one could say that the low interest rate environment has chased investors from fixed income into growth equities , with expansion of the SP average PE, and how will that end. Will the rise in interest rates pull money out of non dividend paying "growth" equities and shift back toward fixed income investments? Will this affect growth equities more or less than dividend payers in a correction?
As a retired investor looking for income generation, I have posed the question of whether to tilt toward a dividend ETF or a total stock market ETF for income to supplement that coming from fixed income bonds, and the recommendation seems to always be that it is more efficient to go with a non-dividend focused ETF (such as total stock market), and to extract that needed income by selling portions of the ETF instead of getting the same income from qualified dividends. But if the market corrects, I can see that this strategy would force me to sell equities that are down to meet a monthly income need, vs. with a dividend strategy, the underlying stock prices would drop, but I would still receive the income.
Am I missing something here? For long term growth investors it may be different, but for targeting a reasonably predictable income monthly from a portfolio, seems to me that a dividend ETF would be less volatile in that stream of payments,not forcing me to sell shares at the wrong time.
Any thoughts really welcome on this.
Rob
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Re: SP500 vs High Dividend Yeld Global Stocks
If the two funds are equal, ie all else being equal, the higher dividends simply take more of the total return from the fund. There would be no difference in the final balance of the two funds if selling shares to make up for the dividend shortfall on the total market fund. Even during a recession.4nwestsaylng wrote: Am I missing something here? For long term growth investors it may be different, but for targeting a reasonably predictable income monthly from a portfolio, seems to me that a dividend ETF would be less volatile in that stream of payments,not forcing me to sell shares at the wrong time.
Any thoughts really welcome on this.
Rob
I would like to think that since there is a value tilt to the dividend strategy, possibly over the next number of decades I could take the dividends from both funds, yet have the net asset value of both funds end up fairly close to each other, or at least not off by the amount the high dividend fund pays more in dividends.
Over the short time period we have to look at on portfolio visualizer, you can see how close it has been so far with dividends reinvested, thus providing a nice argument for simply selling shares when extra income is needed: https://www.portfoliovisualizer.com/bac ... ion2_2=100
Re: SP500 vs High Dividend Yeld Global Stocks
The ETF's that i'm looking at are these ones:Longtermgrowth wrote:Reinvesting dividends without being taxed on them, very interesting! You say the fees are higher, how much higher? I'm curious what this global high dividend yield ETFs ticker is? Also, if just looking at valuations, I would pick the global high dividend yield fund over 100% US.
Many here believe in the value premium, and many of these high dividend funds put you in that territory. Two high dividend Vanguard funds that get you global coverage are certainly well within large value (VYM, Vanguard High Dividend Yield ETF and VYMI, Vanguard International High Dividend Yield ETF).
North America:
https://www.justetf.com/de-en/etf-profi ... 00BH361H73
http://www.morningstar.co.uk/uk/etf/sna ... 0P000127P9
Or one from wisdomtree, they have US equity income, US quality dividend growth, and US small cap dividend
Global Quality Dividend Growth:
https://www.wisdomtree.eu/en-gb/etfs/qu ... tf-usd-acc
Emerging Markets:
https://www.wisdomtree.eu/en-gb/etfs/eq ... ts-etf-acc
Europe:
https://www.wisdomtree.eu/en-gb/etfs/eq ... ts-etf-acc
The fee's are all in the range of 0,3% to 0,4%, which I don't know if they are worth. Other question is how good these wisdomtree funds are.
If I decide to invest in some of these ETF's, it would be only with ~5% of my equity portfolio.
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Re: SP500 vs High Dividend Yeld Global Stocks
You're missing something. Total return is total return. You don't care what the source of that return is. The growth chart, including dividends and capital appreciation, is the whole story, there isn't anything else.4nwestsaylng wrote:...For long term growth investors it may be different, but for targeting a reasonably predictable income monthly from a portfolio, seems to me that a dividend ETF would be less volatile in that stream of payments,not forcing me to sell shares at the wrong time...
If you take a hypothetical situation which is very close to a real-world example, let's suppose you have two investors that invest in funds A and B, A being a traditional cap-weighted index fund and B being a high-dividend fund. Let's suppose first that the two investors reinvest dividends and make no withdrawals. Assume that each fund has exactly the same total return each month, so that month by month the two investors always see the same number of dollars in their accounts. In the case of investor A, each month's dollar increase is coming mostly from capital appreciation, the gain in share prices of the stocks in the index. In the case of investor B, the stocks grow much more slowly in price, but pay out much higher dividends, but the dollars each month are the same. So the growth chart will be identical.
Now, we assume that the two investors decide to make monthly withdrawals from their account. It's just math and logic: if the two investors both withdraw the same amount in January, then they both withdraw the same amount in February, then again in March, and so forth, their two balances will continue to be exactly the same at the end of each month.
Now, consider the case where investor B "spends the dividends," turns off reinvestment. Obviously it does not make any difference whether the fund simply pays out a dividend of $100, or whether the investor leaves reinvestment on but looks up the dividend and withdraws an amount equal to the dividend. So: suppose investor B spends the dividends, and investor A sees what the dividend is and withdraws/sells exactly that amount from the non-dividend-oriented fund. Investor A and B will receive and spend exactly the same amount each month, and will continue to see the same balance in their account each month.
There is no magic. The arithmetic does not know whether a $100 return in a mutual fund is coming from dividends or capital appreciation.
Of course there could be differences in taxation etc. but for most purposes, two funds with the same growth chart are equally good for the same purpose. The fact that the two funds differ in how much of that growth is from reinvested dividends and how much is from capital appreciation doesn't matter.
To believe that dividend-oriented funds are better, you have to believe that dividends mean something different about company management and that you are picking better-run companies and that even if the growth chart is the same now, the dividend fund will diverge and do better later. Maybe. But as long as the growth charts are the same, the two funds are equally good. During the lifetime of the Vanguard High Dividend Yield Index Fund (orange), there's been nothing very different between it and the Vanguard Total Stock Market Return fund (blue).
If, over that time period, two investors chose to let both funds accumulate, they would have gotten the same accumulation.
If two investors both choose to withdraw exactly $20/month every month, they would have gotten the same statement totals month by month.
If two investors both choose to withdraw money equal to the dividend distributions of VHDYX, they would have gotten the same statement totals month by month.
It is also possible to believe that because company management makes judgements about dividend sustainability, the dividend payments from a dividend stock are somehow "the right amount" to withdraw. In this case, spending the dividends from a dividend fund could be one kind of "safe withdrawal" system. From this point of view, understanding that withdrawing that same "right amount" from Total Stock would work just as well, you could still prefer the automatic nature of "spending the dividends" from VHDYX.
Source
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: SP500 vs High Dividend Yeld Global Stocks
That chart is a perfect example that dividend stocks are no more safe than the market as a whole in a down turn.nisiprius wrote:You're missing something. Total return is total return. You don't care what the source of that return is. The growth chart, including dividends and capital appreciation, is the whole story, there isn't anything else.4nwestsaylng wrote:...For long term growth investors it may be different, but for targeting a reasonably predictable income monthly from a portfolio, seems to me that a dividend ETF would be less volatile in that stream of payments,not forcing me to sell shares at the wrong time...
If you take a hypothetical situation which is very close to a real-world example, let's suppose you have two investors that invest in funds A and B, A being a traditional cap-weighted index fund and B being a high-dividend fund. Let's suppose first that the two investors reinvest dividends and make no withdrawals. Assume that each fund has exactly the same total return each month, so that month by month the two investors always see the same number of dollars in their accounts. In the case of investor A, each month's dollar increase is coming mostly from capital appreciation, the gain in share prices of the stocks in the index. In the case of investor B, the stocks grow much more slowly in price, but pay out much higher dividends, but the dollars each month are the same. So the growth chart will be identical.
Now, we assume that the two investors decide to make monthly withdrawals from their account. It's just math and logic: if the two investors both withdraw the same amount in January, then they both withdraw the same amount in February, then again in March, and so forth, their two balances will continue to be exactly the same at the end of each month.
Now, consider the case where investor B "spends the dividends," turns off reinvestment. Obviously it does not make any difference whether the fund simply pays out a dividend of $100, or whether the investor leaves reinvestment on but looks up the dividend and withdraws an amount equal to the dividend. So: suppose investor B spends the dividends, and investor A sees what the dividend is and withdraws/sells exactly that amount from the non-dividend-oriented fund. Investor A and B will receive and spend exactly the same amount each month, and will continue to see the same balance in their account each month.
There is no magic. The arithmetic does not know whether a $100 return in a mutual fund is coming from dividends or capital appreciation.
Of course there could be differences in taxation etc. but for most purposes, two funds with the same growth chart are equally good for the same purpose. The fact that the two funds differ in how much of that growth is from reinvested dividends and how much is from capital appreciation doesn't matter.
To believe that dividend-oriented funds are better, you have to believe that dividends mean something different about company management and that you are picking better-run companies and that even if the growth chart is the same now, the dividend fund will diverge and do better later. Maybe. But as long as the growth charts are the same, the two funds are equally good. During the lifetime of the Vanguard High Dividend Yield Index Fund (orange), there's been nothing very different between it and the Vanguard Total Stock Market Return fund (blue).
If, over that time period, two investors chose to let both funds accumulate, they would have gotten the same accumulation.
If two investors both choose to withdraw exactly $20/month every month, they would have gotten the same statement totals month by month.
If two investors both choose to withdraw money equal to the dividend distributions of VHDYX, they would have gotten the same statement totals month by month.
It is also possible to believe that because company management makes judgements about dividend sustainability, the dividend payments from a dividend stock are somehow "the right amount" to withdraw. In this case, spending the dividends from a dividend fund could be one kind of "safe withdrawal" system. From this point of view, understanding that withdrawing that same "right amount" from Total Stock would work just as well, you could still prefer the automatic nature of "spending the dividends" from VHDYX.
Source
Re: SP500 vs High Dividend Yeld Global Stocks
While it may be true at the level of an individual security (ignoring the option of buybacks for a minute), that the amount returned to shareholders is the right amount based on the firms investment opportunities and projected return on capital - it doesn't make sense from the perspective of withdrawing from the portfolio on the whole as that it wholly unrelated to the alternative investment opportunities in any individual security. That withdrawal rate is driven by the individual's need to spend, otherwise it should be reinvested into other securities in the portfolio.nisiprius wrote: It is also possible to believe that because company management makes judgements about dividend sustainability, the dividend payments from a dividend stock are somehow "the right amount" to withdraw. In this case, spending the dividends from a dividend fund could be one kind of "safe withdrawal" system. From this point of view, understanding that withdrawing that same "right amount" from Total Stock would work just as well, you could still prefer the automatic nature of "spending the dividends" from VHDYX.
Re: SP500 vs High Dividend Yeld Global Stocks
4nwestsaylng wrote:Nedsaid,could you elaborate on not chasing dividends. With short term rates rising, do dividend paying stock prices fall in tandem, similar to bonds, in response to the rising rates, e.g. if CVX pays 3% annually and the fed rate goes up 50bp , does the price of the stock (independent from other factors affecting price, such as oil price, etc in this case) go down to a point where the new effective dividend is 3.5% of the new price of CVX?nedsaid wrote: This is not the time to be chasing dividends. We all know that interest rates have been low since the 2008-2009 financial crisis and investors have been chasing both bond yield and stock dividend yield. After eight going on nine years of yield chasing, the answer isn't to chase them even harder.
Your strategy isn't bad, I like dividends myself. The thing is, your timing is terrible particularly now that the Federal Reserve Bank is raising short term interest rates here in the United States. My recommendation would be to hold perhaps a Global Stock Index fund instead. After interest rates have normalized and the yield chasing mania is over, that would be a better time to pursue a dividend strategy. It rarely is a good idea to chase popular strategies, you are setting yourself up for disappointment.
If there is that relationship then I can see that stocks paying a fixed dividend (not a growing dividend) every year could suffer. Dividend growers however might do ok. Yes there is "chasing yield", but alternately, one could say that the low interest rate environment has chased investors from fixed income into growth equities , with expansion of the SP average PE, and how will that end. Will the rise in interest rates pull money out of non dividend paying "growth" equities and shift back toward fixed income investments? Will this affect growth equities more or less than dividend payers in a correction?
Nedsaid: What happens is that as bond yields increase, bonds provide more competition for bond substitutes. If what you want is yield and if bonds can give you the same yield for less volatility than bond substitutes, why continue to be in the more volatile bond substitutes? I would expect that High Dividend stocks would be most vulnerable in a rising interest rate environment, Dividend Growth stocks less so.
There are people out there, particularly older investors, who are what I call income investors. Their focus is on yield, both bond yield and dividend yield on stocks. They view selling shares of their mutual funds as dipping into the principal. These are the people most prone to yield chasing. Sometimes they get so obsessed with yield that they forget that share price or net asset value keeps dropping. Sometimes high yield investments have, in effect, return of capital cleverly hidden in their yield. High Yield Bond Funds, Preferred Stock, certain Master Limited Partnerships, and even stocks whose dividends are greater than earnings can exhibit this phenomenon.
In answer to your other question is yes, at some point if interest rates get high enough, investors could pull money out of non dividend paying "growth" equities and shift those monies towards bonds. Stocks can continue to rise in a rising interest rate environment if the market perceives that the economy is seeing faster economic growth. But I would say that Growth stocks would be less vulnerable to rising interest rates than slow Growth stocks with high dividend yields.
There are people who invest in stocks that have different objectives. Growth, Growth and Income, Income and Growth, and Income. The folks who invest for Income and secondarily for Growth and those who are invested for just income are most sensitive to the bonds versus stocks competition described above. The growth investors are much less concerned about yield so bonds in their view offer much less competition to the stocks they own. Again, at some point when investors realize that they can get stock like returns simply from bond yield, bonds will be competition even for growth stocks. I can remember when you could get zero coupon bonds based on Treasuries that had an eight percent coupon built into the price. It would be awfully tempting for an investor to load up on these, let the bonds mature, and effortlessly scoop up eight percent returns guaranteed. These bonds paid no interest and sold at a big discount, maturing at face value. Hardly anyone talks about these anymore.
Sometimes people look for stocks that have less price volatility than the market as a whole, and we call these low volatility stocks. There is quite a bit of overlap between low volatility and dividend stocks. There often is quite a bit of overlap between low volatility, dividend stocks, and Value; particularly when you consider High Dividend. So for example, consumer staples stocks, the classic low volatility stocks which are also good dividend payers, and which often hit the Value screens, actually are more expensive than the market itself. I do remember the same phenomenon with High Dividend stocks. So High Dividend and Low Volatility got chased so hard that their P/E ratios were higher than for the US Stock Market as a whole. The "safe" stocks are not so safe.
This is why I often posted that the place to be might to plain old boring Large Cap Value. In other words, buy Large Value Stocks without regard to dividend yield. Large Value has been underperforming the market since the 2008-2009 financial crisis except for High Dividend which almost matched the S&P 500. Plain old boring Large Value got left in the dust by High Dividend which almost matched the S&P 500. Dividend Growth beat the S&P 500 a bit.
It has been a while since I looked at all of this. But look at Morningstar and compare such things as Vanguard High Yield Index, Vanguard Dividend Growth, Large Value funds in general, and the S&P 500. Also look at the Consumer Staples ETFs and the Low Volatility ETFs. You will see what I mean.
As a retired investor looking for income generation, I have posed the question of whether to tilt toward a dividend ETF or a total stock market ETF for income to supplement that coming from fixed income bonds, and the recommendation seems to always be that it is more efficient to go with a non-dividend focused ETF (such as total stock market), and to extract that needed income by selling portions of the ETF instead of getting the same income from qualified dividends. But if the market corrects, I can see that this strategy would force me to sell equities that are down to meet a monthly income need, vs. with a dividend strategy, the underlying stock prices would drop, but I would still receive the income.
Nedsaid: Dividends are pretty reliable but they can be cut. We saw this during the 2008-2009 financial crisis. Dividends, particularly for financial companies, in many cases got cut.
Your ideas aren't bad. You have just picked a bad time. As I said, the market chased High Dividend and Low Volatility to the point where these type of stocks were in aggregate more expensive than the market itself. Just look at the valuation of such stocks as Coke and Proctor and Gamble. Again, look at the valuation of the Consumer Staples ETF. These have been bid up in price.
An idea to consider is to tilt towards Large Value which has trailed the market since the 2008-2009 financial crisis except for 2016. You will get higher dividends than the market but less dividends than Vanguard High Dividend. Large Value also trades cheaper than the market itself. You avoid Low Volatility being more expensive than the market itself. Right now High Dividend trades at almost 18 future P/E compared to almost 20 for the market. Vanguard Value Index trades at a forward P/E of 17. Dividend yield of High Dividend is 3.03%, Value Index 2.50%, and US Total Stock Market Index 1.87%. Looks to me that Value Index is cheaper than Total Market Index and High Dividend. Almost no one is talking about this but if you want contrarian thinking, this is the way to go. I would strongly consider Vanguard Value Index.
Rob, I would also consider Real Estate Investment Trusts, REITs, to be a victim of yield chasing. These are also expensive and I would not chase these. Last I looked, returns above inflation were projected to be 2% above inflation compared to projects of 4% real returns for stocks in general. I would not pile into REITs now.
Am I missing something here? For long term growth investors it may be different, but for targeting a reasonably predictable income monthly from a portfolio, seems to me that a dividend ETF would be less volatile in that stream of payments,not forcing me to sell shares at the wrong time.
Any thoughts really welcome on this.
Rob
A fool and his money are good for business.
Re: SP500 vs High Dividend Yeld Global Stocks
Hi Rob:
What you are facing is the classic debate of should I try to live off of the income generated by my portfolio or should also live off of capital gains generated by the portfolio? People also talk about creating your own dividend by selling shares of your stock funds. I call this an income approach vs. the total return approach. Most Bogleheads favor the Total Return or the "creating your own dividend" approach. The Income approach is based on the desire to not touch the principal of their investments.
Another problem you face is what happens if the stock market crashes? The old sequence of returns problem and near retirees and recent retirees are most vulnerable to this.
These two issues are tough to deal with and entire forests have been leveled to produce the paper upon which possible solutions are printed on. Many, many threads that have covered these two topics.
Unless your portfolio is very large, you will probably have to take a total return approach in retirement. Most of us will need 3% to 5% withdrawals from our portfolios every year to live on and yields are just not high enough to sustain this. If your needs were more like 2% of your portfolio a year, an income approach would work.
The famous Trinity studies suggested that a 4% withdrawal rate is sustainable. In light of very low interest rates, new studies have suggested that a sustainable withdrawal rate might be 3.5% or even 3%. Low interest rates have thrown a kink in the best laid retirement plans.
As far as the sequence of returns problem, a possible answer is to take your withdrawals from bonds during bad stock market years and to take your withdrawals from stocks during years when stocks do well. Some favor buying a Single Premium Immediate Annuity with a portion of your portfolio in retirement thus taking pressure off the remaining portfolio. Many discussions on this too.
What you are facing is the classic debate of should I try to live off of the income generated by my portfolio or should also live off of capital gains generated by the portfolio? People also talk about creating your own dividend by selling shares of your stock funds. I call this an income approach vs. the total return approach. Most Bogleheads favor the Total Return or the "creating your own dividend" approach. The Income approach is based on the desire to not touch the principal of their investments.
Another problem you face is what happens if the stock market crashes? The old sequence of returns problem and near retirees and recent retirees are most vulnerable to this.
These two issues are tough to deal with and entire forests have been leveled to produce the paper upon which possible solutions are printed on. Many, many threads that have covered these two topics.
Unless your portfolio is very large, you will probably have to take a total return approach in retirement. Most of us will need 3% to 5% withdrawals from our portfolios every year to live on and yields are just not high enough to sustain this. If your needs were more like 2% of your portfolio a year, an income approach would work.
The famous Trinity studies suggested that a 4% withdrawal rate is sustainable. In light of very low interest rates, new studies have suggested that a sustainable withdrawal rate might be 3.5% or even 3%. Low interest rates have thrown a kink in the best laid retirement plans.
As far as the sequence of returns problem, a possible answer is to take your withdrawals from bonds during bad stock market years and to take your withdrawals from stocks during years when stocks do well. Some favor buying a Single Premium Immediate Annuity with a portion of your portfolio in retirement thus taking pressure off the remaining portfolio. Many discussions on this too.
A fool and his money are good for business.
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Re: SP500 vs High Dividend Yeld Global Stocks
Nedsaid, thanks for your thoughtful analysis. I appreciate your pointing out Large Cap Value and will look at this further.
I certainly do not have a large enough portfolio to live off income generation alone, and will have to look at a total return approach. With high longevity in my family history,I may have a 25 year retirement which started this year, so it is a challenge.
I certainly do not have a large enough portfolio to live off income generation alone, and will have to look at a total return approach. With high longevity in my family history,I may have a 25 year retirement which started this year, so it is a challenge.
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Re: SP500 vs High Dividend Yeld Global Stocks
Thanks for the reply. I hold a few WisdomTree smallcap funds, but attempting to look through those funds you linked, doubt I have anything of value to add regarding them. I hope some others that are familiar with these funds can give you some feedback.HEAVYLIFT wrote:The ETF's that i'm looking at are these ones:Longtermgrowth wrote:Reinvesting dividends without being taxed on them, very interesting! You say the fees are higher, how much higher? I'm curious what this global high dividend yield ETFs ticker is? Also, if just looking at valuations, I would pick the global high dividend yield fund over 100% US.
Many here believe in the value premium, and many of these high dividend funds put you in that territory. Two high dividend Vanguard funds that get you global coverage are certainly well within large value (VYM, Vanguard High Dividend Yield ETF and VYMI, Vanguard International High Dividend Yield ETF).
North America:
https://www.justetf.com/de-en/etf-profi ... 00BH361H73
http://www.morningstar.co.uk/uk/etf/sna ... 0P000127P9
Or one from wisdomtree, they have US equity income, US quality dividend growth, and US small cap dividend
Global Quality Dividend Growth:
https://www.wisdomtree.eu/en-gb/etfs/qu ... tf-usd-acc
Emerging Markets:
https://www.wisdomtree.eu/en-gb/etfs/eq ... ts-etf-acc
Europe:
https://www.wisdomtree.eu/en-gb/etfs/eq ... ts-etf-acc
The fee's are all in the range of 0,3% to 0,4%, which I don't know if they are worth. Other question is how good these wisdomtree funds are.
If I decide to invest in some of these ETF's, it would be only with ~5% of my equity portfolio.
I do remember seeing some very smart posters here mention that for small percentages of the portfolio, it may not be worth complicating things deviating from your core holdings at all. Of course around here core holdings for most are total market funds
Re: SP500 vs High Dividend Yeld Global Stocks
So is a 25 year retirement a problem? It is a very nice problem and hopefully the money will be there to finance all of that.4nwestsaylng wrote:Nedsaid, thanks for your thoughtful analysis. I appreciate your pointing out Large Cap Value and will look at this further.
I certainly do not have a large enough portfolio to live off income generation alone, and will have to look at a total return approach. With high longevity in my family history,I may have a 25 year retirement which started this year, so it is a challenge.
As far as my Large Value recommendation, it is pretty much an exercise in contrarian thinking. The academics have been shouting about Small Value for years now. Dividends, particularly High Dividend, has been chased really hard. People have piled into low volatility to where these stocks are now more expensive than the market! The market has been in a growth phase since the 2008-2009 financial crisis except for 2016 but seems to have resumed again in 2017. So Large Growth is out.
So pretty much, what is left? I would say plain old boring Large Cap Value. The wallflower got a dance in 2016 only to be left alone on the dance room floor in 2017. Large Value thought she was going to be the Belle of the Ball but the market went back to Large Growth in 2017. Briefly courted and then dumped again. Maybe a few tears shed but at some point Large Value will start outperforming again. Just a matter of time.
A fool and his money are good for business.
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Re: SP500 vs High Dividend Yeld Global Stocks
VTV (Vanguard Value ETF) does tilt slightly more towards value than VYM (Vanguard High Div Yield ETF), but both are solidly in value territory and a decent bit cheaper than the market. I've seen VYM recommended over VTV before, considering the slightly lower volatility and possibly less variation in dividend income. Interesting to compare the funds top holdings on Morningstar, and check their overlap here: http://www.etfresearchcenter.com/tools/ ... vym&f2=vtv
If you're looking at selling shares even after taking the 3% dividend from VYM, by all means be prepared to endure tracking error. In other words, value could underperform the market for an extended period of time, as stated above. You need to really believe in the value premium to hold these funds through their possible long periods of underperformance. Also, due to the higher volatility, it may be wise to hold a slightly higher percentage in bonds than you would otherwise hold if substituting a Total Stock Market fund for Value.
If you're looking at selling shares even after taking the 3% dividend from VYM, by all means be prepared to endure tracking error. In other words, value could underperform the market for an extended period of time, as stated above. You need to really believe in the value premium to hold these funds through their possible long periods of underperformance. Also, due to the higher volatility, it may be wise to hold a slightly higher percentage in bonds than you would otherwise hold if substituting a Total Stock Market fund for Value.