What do Bogleheads think of Passive income through Dividend Stocks

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Northern Flicker
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Northern Flicker »

I did the math on $100k worth of PNNT at a price of $7.15 per share for 1 year. You would earn an average of $839 a month. This trades like a stock and has no ER. This does not take taxes into account though.
You might earn that. There is no guarantee.
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Tyler Aspect
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Tyler Aspect »

Derivative wrote: Mon Feb 19, 2018 1:36 pm I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
I think this is a critical statement. Out of all the schemes to chase yield, it is important to point out that the original poster has enough cash for tuition. The tuition money should be allocated to a CD ladder. I see nothing wrong with assigning a portion of the remaining money to a stock index fund as long as the original poster understand stock value can be cut in half in a recession.

There is no need to over complicate things when simple solutions will work.
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delamer
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by delamer »

Tyler Aspect wrote: Fri Feb 23, 2018 12:18 am
Derivative wrote: Mon Feb 19, 2018 1:36 pm I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
I think this is a critical statement. Out of all the schemes to chase yield, it is important to point out that the original poster has enough cash for tuition. The tuition money should be allocated to a CD ladder. I see nothing wrong with assigning a portion of the remaining money to a stock index fund as long as the original poster understand stock value can be cut in half in a recession.

There is no need to over complicate things when simple solutions will work.

But the OP wants to use the remaining money to cover living expenses so s/he does not have to take out loans.

It almost seems as if OP wants to generate $5,000 year in income, reliably, through dividends. That is not realistic.
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ChinchillaWhiplash
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

delamer wrote: Fri Feb 23, 2018 10:26 am
Tyler Aspect wrote: Fri Feb 23, 2018 12:18 am
Derivative wrote: Mon Feb 19, 2018 1:36 pm I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
I think this is a critical statement. Out of all the schemes to chase yield, it is important to point out that the original poster has enough cash for tuition. The tuition money should be allocated to a CD ladder. I see nothing wrong with assigning a portion of the remaining money to a stock index fund as long as the original poster understand stock value can be cut in half in a recession.

There is no need to over complicate things when simple solutions will work.

But the OP wants to use the remaining money to cover living expenses so s/he does not have to take out loans.

It almost seems as if OP wants to generate $5,000 year in income, reliably, through dividends. That is not realistic.
Depends on your definition of reliably. The things I listed will pay that much or more and have in the past. I would say it's safe to say they will pay this much this year too. Might not in a longer time frame. But don't expect much capital growth. That's not how these work. They generally have pretty low volatility and will pay steady dividend income at a high rate.
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Tyler Aspect
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Tyler Aspect »

ChinchillaWhiplash wrote: Fri Feb 23, 2018 11:20 am Depends on your definition of reliably. The things I listed will pay that much or more and have in the past. I would say it's safe to say they will pay this much this year too. Might not in a longer time frame. But don't expect much capital growth. That's not how these work. They generally have pretty low volatility and will pay steady dividend income at a high rate.
I took a look at one of the ticker symbol you mentioned: PennantPark Investment Corp (PNNT)

Although this individual high yield stock paid 10% dividend yield, its net asset value has dropped from year 2013 ($12) to now ($7.16), resulting in an average annual return of 2.17% over the past 5 years. It is lucky that its return is not negative.

I charted a performance comparison over the past 5 years. A portfolio of 25% stock / 75% bond beats PNNT. This demonstrates again that high yield is not high return.

https://www.portfoliovisualizer.com/bac ... tion3_3=75
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ChinchillaWhiplash
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

Tyler Aspect wrote: Fri Feb 23, 2018 12:20 pm
ChinchillaWhiplash wrote: Fri Feb 23, 2018 11:20 am Depends on your definition of reliably. The things I listed will pay that much or more and have in the past. I would say it's safe to say they will pay this much this year too. Might not in a longer time frame. But don't expect much capital growth. That's not how these work. They generally have pretty low volatility and will pay steady dividend income at a high rate.
I took a look at one of the ticker symbol you mentioned: PennantPark Investment Corp (PNNT)

Although this individual high yield stock paid 10% dividend yield, its net asset value has dropped from year 2013 ($12) to now ($7.16), resulting in an average annual return of 2.17% over the past 5 years. It is lucky that its return is not negative.

I charted a performance comparison over the past 5 years. A portfolio of 25% stock / 75% bond beats PNNT. This demonstrates again that high yield is not high return.

https://www.portfoliovisualizer.com/bac ... tion3_3=75
You correct. Right now most of those tickers are down pretty low and you would not be making much headway. PNNT cut its yield recently too. It still pays over 10% now. Price went down to petty much keep its yield the same as before. A lot of these have not been around long enough to get a good historical record too. Like I said, I wouldn't put a whole lot into these, but currently these would meet the OP's goal for dividends off a $100k investment. Not with out a high inherent risk, but they would work at least in the near future.
Northern Flicker
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Northern Flicker »

You correct. Right now most of those tickers are down pretty low and you would not be making much headway. PNNT cut its yield recently too. It still pays over 10% now. Price went down to petty much keep its yield the same as before. A lot of these have not been around long enough to get a good historical record too. Like I said, I wouldn't put a whole lot into these, but currently these would meet the OP's goal for dividends off a $100k investment. Not with out a high inherent risk, but they would work at least in the near future.
This is not correct. The goal of the OP is to generate income and preserve as much capital as possible, essentially have the investment return generate the income without spending down the capital. Whether or not PNNT can do that is purely speculative. Over the last 5 years it would have failed.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by TropikThunder »

ChinchillaWhiplash wrote: Fri Feb 23, 2018 12:35 pm
Tyler Aspect wrote: Fri Feb 23, 2018 12:20 pm I took a look at one of the ticker symbol you mentioned: PennantPark Investment Corp (PNNT)

Although this individual high yield stock paid 10% dividend yield, its net asset value has dropped from year 2013 ($12) to now ($7.16), resulting in an average annual return of 2.17% over the past 5 years. It is lucky that its return is not negative.
PNNT cut its yield recently too. It still pays over 10% now. Price went down to petty much keep its yield the same as before.
This is what the dividend hawks don't understand (or don't admit). The NAV dropped by over 40% but you're more concerned with the yield still being over 10%. Well, it doesn't really help to have the yield as a percentage remain the same when the yield in dollars takes a 40% haircut too (or more).
ChinchillaWhiplash
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

You guys are right about PNNT. About the best outcome of holding it for over a year is that it maintains or gains little and doesn't cut its dividend. That is a complete unknown for sure.
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