Thoughts on individual dividend investing?

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jb1
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Thoughts on individual dividend investing?

Postby jb1 » Mon Jul 10, 2017 5:58 pm

Hey all, besides my 3 fund and Roth IRA, Ive been looking into individual dividend stock investing. Companies that catch my eye include BP or Coca Cola. BP give a yield of 6.99 which is amazing. Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?

Thesaints
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Re: Thoughts on individual dividend investing?

Postby Thesaints » Mon Jul 10, 2017 6:33 pm

Dividends are not some sort of magic and, above all, are no guarantee of future performance. Kodak investors enjoyed steadily increasing dividends for close to a century, only to see their stock value disappear in a bankruptcy.
What you write is certainly true, but it is also true that investing in a company that pays little, or no, dividends can also multiply your capital.
The trick is in identifying the right company, not in cashing dividends.

Nate79
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Re: Thoughts on individual dividend investing?

Postby Nate79 » Mon Jul 10, 2017 6:45 pm

I would suggest you search for one of the daily dividend threads. There is even one active thread right now that explains why your thinking is deeply flawed.

viewtopic.php?f=10&t=222746

Snowjob
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Re: Thoughts on individual dividend investing?

Postby Snowjob » Mon Jul 10, 2017 7:09 pm

the dividend investing flow chart --

Start-->Do you believe dividend investing leads to higher returns?
+No --> seek a total return approach (standard boglehead)
+Yes--> Do you believe you are better than the professional investors who are managing funds focused on the same strategy?
+++No --> Tilt you portfolio towards dividends using a cheap vehicle that closest matches your dividend objective (SCHD, VDIGX etc)
+++Yes--> Spend lots of time and energy researching companies and hope for the best.

jb1
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Re: Thoughts on individual dividend investing?

Postby jb1 » Mon Jul 10, 2017 7:14 pm

Snowjob wrote:the dividend investing flow chart --

Start-->Do you believe dividend investing leads to higher returns?
+No --> seek a total return approach (standard boglehead)
+Yes--> Do you believe you are better than the professional investors who are managing funds focused on the same strategy?
+++No --> Tilt you portfolio towards dividends using a cheap vehicle that closest matches your dividend objective (SCHD, VDIGX etc)
+++Yes--> Spend lots of time and energy researching companies and hope for the best.


Haha wow great example

jbranx
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Re: Thoughts on individual dividend investing?

Postby jbranx » Mon Jul 10, 2017 7:17 pm

jb1, the suggestions/link you already have will provide you good information to answer your question. In addition, I would suggest you look at the yield of Exxon, Chevron, Total, Royal Dutch etc. to see that the market has made a judgment on which firms have the least/most risk. BP has a high yield for a reason, remember the Gulf disaster? Check where its reserves are. In addition, note that you will pay foreign taxes on BP and on Royal Dutch unless you do the RDSB shares. VTI has all the energy companies at market cap level; VT has all the domestic ones plus all the international ones.

What I'm suggesting is that the higher yield comes with higher risk. You are taking oil risk, currency risk, sector risk, catastrophe risk, country risk in the Middle East probably and I've only thought a few seconds on this! Also, if you look at the total return of any oil company the last few years, you will see that they have not been great investments. Just thought of another while touch typing at rapid speed: You are effectively "shorting" all the US fracking companies, Elon Musk and electric cars, solar energy, and forgetting that BP stands for what used to be British Petroleum, that is now in Brexit. And you're betting that oil will soon return to well above it's current price per barrel.

Hope this makes some sense and keeps you from speculating. Best to invest in broad index funds like VTI and VXUS and enjoy the NC summer!!

Snowjob
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Re: Thoughts on individual dividend investing?

Postby Snowjob » Mon Jul 10, 2017 7:33 pm

jb1 wrote:
Snowjob wrote:the dividend investing flow chart --

Start-->Do you believe dividend investing leads to higher returns?
+No --> seek a total return approach (standard boglehead)
+Yes--> Do you believe you are better than the professional investors who are managing funds focused on the same strategy?
+++No --> Tilt you portfolio towards dividends using a cheap vehicle that closest matches your dividend objective (SCHD, VDIGX etc)
+++Yes--> Spend lots of time and energy researching companies and hope for the best.


Haha wow great example


Tried my best =)

I've gone full circle from mutual funds, to holding individual stocks and bonds all the way back to mutual funds again. The reality is risk and return are very much two sides of the same coin. What I found is I was willing to take more risk with a smaller portfolio and yes I generated a bunch of alpha. However I don't have the stomach for taking that risk with a larger portfolio as I don't make a lot of money and I would hate to make a big mistake. Additionally I was never doing something silly like trying to hit home runs and making crazy levered bets. So for all the extra time and energy it just really wasn't worth it to continue it became a second job. At some point you become ok with average. Nothing wrong with being in love with dividends, satisfy your guilty pleasure by putting a chunk of your portfolio in a dividend focused fund then check back in 15 years. people make all sorts of tilts all the time. small caps, emerging markets etc. Your tilting to quality and lower vol. based on size and growth characteristics this should probably all wash out and you'll end up with S&P 500 like results if I were to guess. its a different type of animal and the expected returns wont be bad, they wont be exotic either. good luck!

jb1
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Re: Thoughts on individual dividend investing?

Postby jb1 » Mon Jul 10, 2017 7:48 pm

jbranx wrote:jb1, the suggestions/link you already have will provide you good information to answer your question. In addition, I would suggest you look at the yield of Exxon, Chevron, Total, Royal Dutch etc. to see that the market has made a judgment on which firms have the least/most risk. BP has a high yield for a reason, remember the Gulf disaster? Check where its reserves are. In addition, note that you will pay foreign taxes on BP and on Royal Dutch unless you do the RDSB shares. VTI has all the energy companies at market cap level; VT has all the domestic ones plus all the international ones.

What I'm suggesting is that the higher yield comes with higher risk. You are taking oil risk, currency risk, sector risk, catastrophe risk, country risk in the Middle East probably and I've only thought a few seconds on this! Also, if you look at the total return of any oil company the last few years, you will see that they have not been great investments. Just thought of another while touch typing at rapid speed: You are effectively "shorting" all the US fracking companies, Elon Musk and electric cars, solar energy, and forgetting that BP stands for what used to be British Petroleum, that is now in Brexit. And you're betting that oil will soon return to well above it's current price per barrel.

Hope this makes some sense and keeps you from speculating. Best to invest in broad index funds like VTI and VXUS and enjoy the NC summer!!


Thank you and thank you snowjob. I have my lazy 3 fund. Just being an anxious 26 year old haha.

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badbreath
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Re: Thoughts on individual dividend investing?

Postby badbreath » Mon Jul 10, 2017 8:04 pm

the only person I know who got rich off of dividend stock picks is Dividend Mantra who sold his website.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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InvestorNewb
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Re: Thoughts on individual dividend investing?

Postby InvestorNewb » Mon Jul 10, 2017 8:25 pm

badbreath wrote:the only person I know who got rich off of dividend stock picks is Dividend Mantra who sold his website.

He started a new website called Mr Free at 33. What is your definition of rich?
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

Wakefield1
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Re: Thoughts on individual dividend investing?

Postby Wakefield1 » Mon Jul 10, 2017 8:54 pm

I think the problem of picking individual stocks is just that,whether they are dividend stocks or some other kind of exotic stocks-the diversified mutual fund might be the safer way to go-(for most of your serious money that needs to work for your future) picking individual stocks vs. picking (one or more) diversified stock mutual funds not to mention asset allocation and "balance"
can anyone confirm if an initial investment in Total Stock Market,allowed to reinvest distributions and compound,tends over multiple years to show a trend of rising dividend total payout (not percentage yield) per year? (Even if no new money is added?)

Thesaints
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Re: Thoughts on individual dividend investing?

Postby Thesaints » Mon Jul 10, 2017 9:03 pm

Wakefield1 wrote:can anyone confirm if an initial investment in Total Stock Market,allowed to reinvest distributions and compound,tends over multiple years to show a trend of rising dividend total payout (not percentage yield) per year? (Even if no new money is added?)


Of course, unless companies on average decide to reduce payout, as it happened in the years leading to the dot.com bust.


Snowjob
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Re: Thoughts on individual dividend investing?

Postby Snowjob » Tue Jul 11, 2017 8:48 am

Wakefield1 wrote:...can anyone confirm if an initial investment in Total Stock Market,allowed to reinvest distributions and compound,tends over multiple years to show a trend of rising dividend total payout (not percentage yield) per year? (Even if no new money is added?)


I was looking at vanguards dividend growth fund and noticed that the actual growth in income was modest over the last 8-10 years. This led me to compare it to vanguards total stock market and surprisingly the dividend growth of the index was substantially higher. 8 straight good years after a terrible recession does help favor the index for sure as weaker companies return to profitability etc.

rgs92
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Re: Thoughts on individual dividend investing?

Postby rgs92 » Tue Jul 11, 2017 9:38 am

I'll just avoid the issue of the value of dividend investing because it's controversial and certainly not part of the Boglehead philosophy and probably less profitable than the S&P long-term.

But if you want some stocks now that may be interesting now in this area, there is Verizon, AT&T, and Exxon which have lagged but seem financially stable. There is also the Preferred Stock ETF PFF. Also there is RNP, the Cohen&Steers REIT.

Except for RNP, which I'm not sure about, all of these have the advantage that the dividends are taxable at 15% in a taxable account.
They all pay about 5%.

I think if you get a dividend stock, just hold it until you die and take the dividend and ignore the stock price. Treat like a bond. It's for stable income at the price of some more risk than CDs or Treasuries. Don't expect growth.

dbr
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Re: Thoughts on individual dividend investing?

Postby dbr » Tue Jul 11, 2017 9:42 am

Over at M* there is a whole forum devoted to this: http://socialize.morningstar.com/NewSoc ... F100000098

You will probably find more expertise, more enthusiasm, and also, possibly, more misinformation there than here.

MotoTrojan
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Re: Thoughts on individual dividend investing?

Postby MotoTrojan » Tue Jul 11, 2017 9:45 am

On the contrary, your asset has a guaranteed force trying to remove ~7% of value every year :).

FootballFan5548
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Re: Thoughts on individual dividend investing?

Postby FootballFan5548 » Tue Jul 11, 2017 10:17 am

I've foolishly done the same thing in the past. I bought a bunch of Verizon thinking they had offered a very attractive dividend. Since I've bought them the stock price is down 16% and I'm out thousands of dollars....

But YAY I get $0.57 per share coming up August 1st!

Chasing dividends is risky business.

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friar1610
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Re: Thoughts on individual dividend investing?

Postby friar1610 » Tue Jul 11, 2017 10:46 am

Friar1610

aj76er
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Re: Thoughts on individual dividend investing?

Postby aj76er » Tue Jul 11, 2017 11:19 am

See the below thread which has an excellent analysis by forum member #Cruncher proving that there is no mathematical advantage to dividend focused investing. Also posted is historical performance data that further backs up the math.

viewtopic.php?f=1&t=222643
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

Grt2bOutdoors
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Re: Thoughts on individual dividend investing?

Postby Grt2bOutdoors » Tue Jul 11, 2017 11:28 am

jb1 wrote:Hey all, besides my 3 fund and Roth IRA, Ive been looking into individual dividend stock investing. Companies that catch my eye include BP or Coca Cola. BP give a yield of 6.99 which is amazing. Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?


Don't do it. Ask yourself this? Why is BP yielding 6.99% when Exxon Mobil is only paying 3.85 or 4.00%? The reason is risk, BP is considered to be much much more riskier than Exxon Mobil. If you delve further, you'll see that BP is borrowing money to pay that dividend, they are not earning enough money from operations to fund capital expenditures and dividends, thus, they are forced to borrow to pay it. Now, unless you want to be a real wildcatter - taking a gamble on the direction of oil prices and you are willing to spend hours and hours researching companies and thoroughly reading through SEC filings and other investor disclosures, my advice is to PASS.

It's a fallacy to believe that dividends increase the value of the investment when they are paid out in cash. A cash dividend is a reduction in stockholders equity. Assets less liabilities equals stockholders equity. If the value of assets is declining because either cash is being paid out and/or the company is borrowing money to pay the cash dividend thereby increasing liabilities, then the underlying value of the company is being ERODED. So, ask yourself this, why would you invest your money in a company whose value is declining each time they pay you a cash dividend? You do realize, you are simply receiving a return of capital? You also realize, you can do the same by simply selling shares in your mutual fund and instead of paying ordinary income taxes, you instead pay long term capital gain tax rates if you are careful and select that option when you click "SELL"?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Thoughts on individual dividend investing?

Postby Grt2bOutdoors » Tue Jul 11, 2017 11:31 am

rgs92 wrote:I

I think if you get a dividend stock, just hold it until you die and take the dividend and ignore the stock price. Treat like a bond. It's for stable income at the price of some more risk than CDs or Treasuries. Don't expect growth.


Most investment grade bonds don't cut their coupon nor default on final repayment of principal and accrued interest. Equity is risk, not even close to a bond. You will see that show up with the VIX climbs, dividend or no dividend, chances are the price of equity is going to go up and down faster than you can spin a yo-yo.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

BigMoneyNoWhammies
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Re: Thoughts on individual dividend investing?

Postby BigMoneyNoWhammies » Tue Jul 11, 2017 12:12 pm

Depending on your chosen source, historically dividends account for roughly half the oft quoted 7% annualized return of the market over the past 100 years, so investing in them individually can seem attractive prima facie, but a great many individual factors alter whether a stock is a good pick beyond yield. As others have mentioned, high yield can be actually be a drastic warning sign of weakness in a company's fundamentals. Also keep in mind that every dollar in dividends paid out by a company to you the investor is a dollar that isn't going towards growing the company. There is nothing wrong with owning a portfolio of dividend paying stocks, but picking them individually can be a tough task. If you really want yield, why not invest in an indexed fund with a value or dividend growth tilt? I personally own both VTI and some value/dividend tilted ETFs from wisdomtree because they are commission free in my IRA, and VTI has vastly outperformed the other funds over the past few years. Buying a total market fund like VTI isn't going to give you a 7% yield like an individual stock may, but you're far more likely to reap the benefits of growth while also benefiting from those companies in the market that do have a dividend. Below is a good overview of what to look at when investing for dividends.

https://seekingalpha.com/article/396076 ... y-surprise

rgs92
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Re: Thoughts on individual dividend investing?

Postby rgs92 » Tue Jul 11, 2017 12:26 pm

FootballFan5548 wrote:I've foolishly done the same thing in the past. I bought a bunch of Verizon thinking they had offered a very attractive dividend. Since I've bought them the stock price is down 16% and I'm out thousands of dollars....

But YAY I get $0.57 per share coming up August 1st!

Chasing dividends is risky business.

Yep it's tough. I have some VZ with a 4 year loss of 6%, but I got over 20% in dividends, so although I could have gotten more in the S&P500, I'm not upset, and this is the worst of my dividend stocks. Beats cash. Ha ha, falling knife now. I know people at VZ who have their whole 401K in it and are really stuck. It's amazing how many people do this all-in-company stock thing. And some have ESPPs along with it to add insult to injury.

But, (big maybe) you're buying low of course. Maybe it's a nice Dogs of the Dow thing.

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Re: Thoughts on individual dividend investing?

Postby RAchip » Tue Jul 11, 2017 7:31 pm

I have a pretty significant buy-and-hold portfolio of individual blue chip "dividend" stocks that produces about $250k in dividend income for me annually. And there is a significant unrealized capital gain in my portfolio as well which is largely irrelevant to me because I have no plans to sell. My view is that a portfolio of 15-25 blue chip "dividend" stocks is a perfectly reasonable and viable strategy. Perhaps it will turn out that it would have been better to just invest in an S&P 500 index fund but I'm going to continue with my approach. I like owning individual companies who send me part of their profits.

Thesaints
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Re: Thoughts on individual dividend investing?

Postby Thesaints » Tue Jul 11, 2017 8:26 pm

The point is not really in being reasonable, or unreasonable, but in maximizing total return, or not.
Personally, I like a lot more companies which don't periodically return me part of my invested capital, but instead keep it and make it grow even more.
The day I do need money to spend, I will sell shares and cash in exactly how much I need, when I need it, and with the most advantageous tax implications.
The day I think I can invest money better than a certain company's management, I will sell all the shares I have in that company, if any.

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arcticpineapplecorp.
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Re: Thoughts on individual dividend investing?

Postby arcticpineapplecorp. » Tue Jul 11, 2017 8:32 pm

jb1 wrote:Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?

Q. What do you think happens to the price of your stock after the dividend is paid?

A. The price of the stock drops in exactly the same amount of the dividend received.

Q. Where do you end up?

A. The same place you started.

You buy 1 share of stock at $100. It pays a 6% dividend. 6% dividend (assume paid once, not in reality) would be $6 on a $100 investment right? So you think you have $100 principle and $6 dividend = $106? That's not how it works.

Instead, when you receive the $6 dividend, what happens to the stock price? It drops to $94. You have 1 share now worth $94 plus the $6 dividend you receive = $100. Right where you started. Unfortunately, dividends are taxable at your ordinary tax rate.

While dividends are taxed as ordinary income, long term capital gains are usually taxed at a lower rate. So why do you want dividends rather than capital gains?

Regardless, Larry Swedroe has written very eloquently about the fact that whether you get dividends or not makes no difference to the total return. The dividends are part of the income the company generates. If they reinvested it the stock price would grow instead of it falling because it was paid out. So you end up with the same result but you have higher taxes to pay on the dividends (usually) then if the company reinvested the dividends to grow the company (and ultimately the stock price). Here's the article:

viewtopic.php?t=113457

Finally, I strongly suggest you read the following thread "What's so great about dividends? A lot of misinformation":

viewtopic.php?t=46454

It was a link (on the right side of the page) at the following page about dividends on the wiki:

https://www.bogleheads.org/wiki/Dividend
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

trueblueky
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Re: Thoughts on individual dividend investing?

Postby trueblueky » Tue Jul 11, 2017 10:10 pm

arcticpineapplecorp. wrote:
jb1 wrote:Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?

Q. What do you think happens to the price of your stock after the dividend is paid?

A. The price of the stock drops in exactly the same amount of the dividend received.

Q. Where do you end up?

A. The same place you started.

You buy 1 share of stock at $100. It pays a 6% dividend. 6% dividend (assume paid once, not in reality) would be $6 on a $100 investment right? So you think you have $100 principle and $6 dividend = $106? That's not how it works.

Instead, when you receive the $6 dividend, what happens to the stock price? It drops to $94. You have 1 share now worth $94 plus the $6 dividend you receive = $100. Right where you started. Unfortunately, dividends are taxable at your ordinary tax rate.

While dividends are taxed as ordinary income, long term capital gains are usually taxed at a lower rate. So why do you want dividends rather than capital gains?

Regardless, Larry Swedroe has written very eloquently about the fact that whether you get dividends or not makes no difference to the total return. The dividends are part of the income the company generates. If they reinvested it the stock price would grow instead of it falling because it was paid out. So you end up with the same result but you have higher taxes to pay on the dividends (usually) then if the company reinvested the dividends to grow the company (and ultimately the stock price). Here's the article:

viewtopic.php?t=113457

Finally, I strongly suggest you read the following thread "What's so great about dividends? A lot of misinformation":

viewtopic.php?t=46454

It was a link (on the right side of the page) at the following page about dividends on the wiki:

https://www.bogleheads.org/wiki/Dividend

See https://www.bogleheads.org/wiki/Qualified_dividend for explanation of when dividends and LTCG have the same tax rate. This is typical of index mutual funds, but not REITs.

22twain
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Re: Thoughts on individual dividend investing?

Postby 22twain » Tue Jul 11, 2017 10:58 pm

arcticpineapplecorp. wrote:While dividends are taxed as ordinary income, long term capital gains are usually taxed at a lower rate.

My father-in-law worked for the original AT&T (pre-breakup) so my wife inherited shares of various post-breakup descendants. Last year she received dividends from AT&T, Verizon, CenturyLink and Vodafone, all qualified dividends taxed at the LTCG rate. For us, that means 0% because we're in the 15% bracket.

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saltycaper
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Re: Thoughts on individual dividend investing?

Postby saltycaper » Tue Jul 11, 2017 11:08 pm

jb1 wrote:
Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?


If you're not worried about the principal, just give me the $10,000, and I'll give you $1,000 a year. That's a 10% yield. Good deal, eh? :P

(You should care about total, after-tax return, not dividend yield.)
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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topper1296
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Re: Thoughts on individual dividend investing?

Postby topper1296 » Wed Jul 12, 2017 7:28 am

RAchip wrote:I have a pretty significant buy-and-hold portfolio of individual blue chip "dividend" stocks that produces about $250k in dividend income for me annually. And there is a significant unrealized capital gain in my portfolio as well which is largely irrelevant to me because I have no plans to sell. My view is that a portfolio of 15-25 blue chip "dividend" stocks is a perfectly reasonable and viable strategy. Perhaps it will turn out that it would have been better to just invest in an S&P 500 index fund but I'm going to continue with my approach. I like owning individual companies who send me part of their profits.


I'm mainly indexed, however I also have long term buy and hold individual positions that I've held for years. Currently I have 15 positions and may get up to around 20 at some point in time, but I'm in no rush.

kjvmartin
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Re: Thoughts on individual dividend investing?

Postby kjvmartin » Wed Jul 12, 2017 8:18 am

badbreath wrote:the only person I know who got rich off of dividend stock picks is Dividend Mantra who sold his website.


My grandfather made a small fortune off dividend stocks starting around 1970 with DRIPs mostly in utilities. He was a WW2 vet, then a fireman, had a pension, and lived well below his means. I'm not sure if low cost funds were available during his accumulation phase? When he passed away a few years back, he was a just shy of the 2 comma mark.

Anyway, I'm sure there are a lot of very comfortable retirees and boomers getting inheritances because of conservative dividend investors.

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Re: Thoughts on individual dividend investing?

Postby RAchip » Wed Jul 12, 2017 9:38 am

"You should care about total, after-tax return, not dividend yield."

In my view, price appreciation is unrealized gain and unrealized gain is not "return." And it certainly isn't "after-tax return." Price appreciation is gain you could obtain if you sell. If you don't sell, you might have more unrealized gain or you could lose some or all of the unrealized gain. I am not a trader. I am a long-term by-and-hold investor. My goal is price appreciation in 20 or more years when I will likely need most or all of my money back but in the meantime I would also like to produce income for myself of about 3-3.5% of my invested money. For me, receiving reliable dividend payments that usually grow every year is a better option than hoping the market price of my stock is up every quarter and selling bits of that appreciated stock every quarter for 20 years.

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saltycaper
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Re: Thoughts on individual dividend investing?

Postby saltycaper » Wed Jul 12, 2017 10:01 am

RAchip wrote:"You should care about total, after-tax return, not dividend yield."

In my view, price appreciation is unrealized gain and unrealized gain is not "return." And it certainly isn't "after-tax return."


Price appreciation most certainly is part of return. That part of the return is calculated based on the price you can sell at right now. After-tax return is what you would keep after you sell and pay taxes. It is calculated based on your cost basis, the price appreciation (or "depreciation"), and the tax code. You can't make gains or losses--positive return or negative return--go away simply by refusing to mark securities to market. This way of thinking is at the heart of misunderstanding dividends. If you bought a stock at $100, and it paid a 5% dividend and declined in price by 50%, there is no reality in which you have a 5% return.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

RAchip
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Re: Thoughts on individual dividend investing?

Postby RAchip » Wed Jul 12, 2017 10:07 am

"You can't make gains or losses--positive return or negative return--go away simply by refusing to mark securities to market."

Of course I can. The IRS says so. The IRS says I have no gain or loss until I sell my stock. They don't require me to "mark to market."

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saltycaper
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Re: Thoughts on individual dividend investing?

Postby saltycaper » Wed Jul 12, 2017 10:14 am

RAchip wrote:"You can't make gains or losses--positive return or negative return--go away simply by refusing to mark securities to market."

Of course I can. The IRS says so. The IRS says I have no gain or loss until I sell my stock. They don't require me to "mark to market."


That the IRS does not force you to mark to market is irrelevant. There's just no way to get around the fact that losses and gains are returns whether you acknowledge them or not.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

dbr
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Re: Thoughts on individual dividend investing?

Postby dbr » Wed Jul 12, 2017 10:27 am

saltycaper wrote:
RAchip wrote:"You can't make gains or losses--positive return or negative return--go away simply by refusing to mark securities to market."

Of course I can. The IRS says so. The IRS says I have no gain or loss until I sell my stock. They don't require me to "mark to market."


That the IRS does not force you to mark to market is irrelevant. There's just no way to get around the fact that losses and gains are returns whether you acknowledge them or not.


It is really hard to discuss any subject when participants won't accept common definitions of terms. It isn't very difficult to find out what almost everyone means by return. Note the IRS has nothing to do with it.

NotWhoYouThink
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Re: Thoughts on individual dividend investing?

Postby NotWhoYouThink » Wed Jul 12, 2017 10:36 am

jb1 wrote:Hey all, besides my 3 fund and Roth IRA, Ive been looking into individual dividend stock investing. Companies that catch my eye include BP or Coca Cola. BP give a yield of 6.99 which is amazing. Hypothetically speaking on dividends alone, if you put 10k in, after 10 years youve nearly doubled your money alone off dividends. Thoughts on this?


To get back to the original question - It depends on what you would do with the dividends if you got them. If you would be tempted to spend them, then don't do it. When you are in the accumulation stage - working, saving, letting your money grow - it makes no sense to spend dividends. You would be contributing to your account with one hand, and taking money out with the other. Part of "letting your money grow" is re-investing any dividends so that the total portfolio grows. If that's what you are doing, you shouldn't much care whether the stock pays dividends or not - it's the difference between more cheaper shares and fewer, more expensive shares. Same bottom line.

From your earlier posts, I think you are early in your career, so your income may be low enough that you would not pay tax on dividends in a taxable account. When you hit your mid-career stride and your income goes up, your dividends will likely be taxed. In that case, if you are still accumulating rather than spending down your investments, you would rather not have high dividend paying stocks in your taxable account. It just puts a tax drag on your portfolio growth.

Once you are retired, you again shouldn't much care about dividends. Spending dividends or selling shares is pretty much the same thing, even if not everybody gets that.

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unclescrooge
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Re: Thoughts on individual dividend investing?

Postby unclescrooge » Wed Jul 12, 2017 12:41 pm

I used to be a big proponent of dividend investing.
And I made money too.

But then I realized, I was making money from value strategies, and dividends were largely irrelevant.

I'm now a slice-n-dice ETF investor with a tilt to value and quality, but if food, alcohol or sin stocks ever presented a good value I could be convinced to buy some.

indexonlyplease
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Re: Thoughts on individual dividend investing?

Postby indexonlyplease » Wed Jul 12, 2017 1:00 pm

I would think a Dividend fund during retirment would work. Like the Vanguard Dividend Fund. But that would be only during retirment to get cash dividents each quarter, monthly.

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arcticpineapplecorp.
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Re: Thoughts on individual dividend investing?

Postby arcticpineapplecorp. » Wed Jul 12, 2017 4:46 pm

22twain wrote:
arcticpineapplecorp. wrote:While dividends are taxed as ordinary income, long term capital gains are usually taxed at a lower rate.

My father-in-law worked for the original AT&T (pre-breakup) so my wife inherited shares of various post-breakup descendants. Last year she received dividends from AT&T, Verizon, CenturyLink and Vodafone, all qualified dividends taxed at the LTCG rate. For us, that means 0% because we're in the 15% bracket.

You and trubluekey are correct. I should have said "sometimes" rather than "usually". The other points I made, however, are still valid and perhaps more important.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Thesaints
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Re: Thoughts on individual dividend investing?

Postby Thesaints » Wed Jul 12, 2017 4:53 pm

RAchip wrote:"You should care about total, after-tax return, not dividend yield."

In my view, price appreciation is unrealized gain and unrealized gain is not "return." And it certainly isn't "after-tax return." Price appreciation is gain you could obtain if you sell. If you don't sell, you might have more unrealized gain or you could lose some or all of the unrealized gain. I am not a trader. I am a long-term by-and-hold investor. My goal is price appreciation in 20 or more years when I will likely need most or all of my money back but in the meantime I would also like to produce income for myself of about 3-3.5% of my invested money. For me, receiving reliable dividend payments that usually grow every year is a better option than hoping the market price of my stock is up every quarter and selling bits of that appreciated stock every quarter for 20 years.


As such two people who bought their homes for the same money, but the price of one went down by 200k while the price of the other went up by 500k should be equally happy.

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patrick013
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Re: Thoughts on individual dividend investing?

Postby patrick013 » Wed Jul 12, 2017 5:11 pm

The dogs of the dow website was supposed to be a good
dividend provider. As cycles go some "dogs" are reducing
their payouts while the Dow index rises in price. AT&T
doesn't want to upgrade line customers' old wires anymore
it seems as some other new business is more profitable
while reducing dividends is possible for them, and so on.

So, a good dividend index like SPYD would be a good choice
for a dividend tilt and to manage a dividend investment. Like
small cap they are competitive with the market portfolios and
add value and profitable diversification at the same time.
age in bonds, buy-and-hold, 10 year business cycle

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FIREchief
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Re: Thoughts on individual dividend investing?

Postby FIREchief » Wed Jul 12, 2017 5:21 pm

arcticpineapplecorp. wrote:
22twain wrote:
arcticpineapplecorp. wrote:While dividends are taxed as ordinary income, long term capital gains are usually taxed at a lower rate.

My father-in-law worked for the original AT&T (pre-breakup) so my wife inherited shares of various post-breakup descendants. Last year she received dividends from AT&T, Verizon, CenturyLink and Vodafone, all qualified dividends taxed at the LTCG rate. For us, that means 0% because we're in the 15% bracket.

You and trubluekey are correct. I should have said "sometimes" rather than "usually". The other points I made, however, are still valid and perhaps more important.


Only non-qualified dividends are taxed as ordinary income. Most dividends I receive from my after-tax index funds are qualified dividends, taxed at capital gains rates.

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friar1610
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Re: Thoughts on individual dividend investing?

Postby friar1610 » Wed Jul 12, 2017 5:49 pm

I posted a similar sentiment recently in another thread...

My IRA is 50% Wellesley which is 35%-40% dividend paying stocks. (The other 50% is Total Bond.) I am taking RMDs and hope this small equity slice will help the account grow (or at least help prevent it from drawing down too fast.) I don't really care (nor does it have any tax implications) whether any increase in value comes from dividends or increase in underlying stock value.

I do understand the situation is different in taxable accounts.
Friar1610

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nedsaid
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Re: Thoughts on individual dividend investing?

Postby nedsaid » Wed Jul 12, 2017 6:37 pm

Dividend investing with individual stocks can be done. I have done it myself and always suspected that I about matched the market indexes. I didn't know how I actually did until I recently discovered that Quicken could calculate the returns of my individual stock portfolio.

I beat the market over one, three, and five years. However, long term is what counts and I trailed over ten and fifteen years. Not a disaster, but last I checked the S&P 500 did 8.10% and I did 7.65% annually over fifteen years. The US Total Stock Market Index grew 8.47% over that same time period. This was as of June 24, 2017. I had good habits buying my stocks at good or at least reasonable periods and long holding periods. A day trader I am not. My average holding period is over 5 years.

So I tried hard, doing what you want to do, and I still couldn't beat the market. I might eventually get disgusted and just switch my stocks for the S&P 500 or the US Total Stock Market Index. These stocks are less than 13% of my retirement portfolio. I do hold index funds, in fact, the US Total Stock Market Index is my largest holding.
A fool and his money are good for business.

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patrick013
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Re: Thoughts on individual dividend investing?

Postby patrick013 » Wed Jul 12, 2017 7:40 pm

nedsaid wrote:Dividend investing with individual stocks can be done.


I think it's a tilt like smaller caps. I mean I think S&P strips were
being traded on the CBOT before Bogle went to college. Most
yield weighted and otherwise low cost dividend indexes should
be a return surprise IMO. In a flat real growth economy there's
still a few large caps supporting dividends without encumbrance.
age in bonds, buy-and-hold, 10 year business cycle

not4me
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Re: Thoughts on individual dividend investing?

Postby not4me » Thu Jul 13, 2017 7:40 am

nedsaid wrote:Dividend investing with individual stocks can be done. I have done it myself and always suspected that I about matched the market indexes. I didn't know how I actually did until I recently discovered that Quicken could calculate the returns of my individual stock portfolio.

I beat the market over one, three, and five years. However, long term is what counts and I trailed over ten and fifteen years. Not a disaster, but last I checked the S&P 500 did 8.10% and I did 7.65% annually over fifteen years. The US Total Stock Market Index grew 8.47% over that same time period. This was as of June 24, 2017. I had good habits buying my stocks at good or at least reasonable periods and long holding periods. A day trader I am not. My average holding period is over 5 years.

So I tried hard, doing what you want to do, and I still couldn't beat the market. I might eventually get disgusted and just switch my stocks for the S&P 500 or the US Total Stock Market Index. These stocks are less than 13% of my retirement portfolio. I do hold index funds, in fact, the US Total Stock Market Index is my largest holding.


I'm not familiar with how Quicken works & so asking a clarifying, curiosity question. Are you saying that Quicken calculated 7.65% for your specific portfolio (accounting for buy/sell, reinvest, etc) as well as sp500/tsm for June 24, 2002 - June 24, 2017? Or was the sp500/tsm determined another way?

RAchip
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Re: Thoughts on individual dividend investing?

Postby RAchip » Thu Jul 13, 2017 7:51 am

The OP also asks about BP. There is certainly a lot of money that could be made in BP. I have certainly considered putting a bunch of money into it. If oil prices recover into the 70s-80s you will be getting a near 7% dividend on your initial investment along with likely very substantial price appreciation and aggressive future dividend growth.

rgs92
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Re: Thoughts on individual dividend investing?

Postby rgs92 » Thu Jul 13, 2017 8:43 am

Does anyone think an investment in a set of dividend stocks would have less volatility than an S&P500 investment?
What about the volatility of a dividend-focused ETF or regular fund compared to the S&P500?
Would such an investment be more stable if used for income?
Just curious if anyone had done research on this. Thanks.
Last edited by rgs92 on Sat Jul 15, 2017 8:00 pm, edited 1 time in total.


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