Best S&P Index Dividend Fund

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spm301
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Best S&P Index Dividend Fund

Post by spm301 » Sat Dec 27, 2014 9:08 pm

I've been using VYM as an S&P index fund - periodically investing in the fund over time. My goal is to find a fund that performs similar to the S&P and returns high dividends.

I've noticed that SDOG is a similar S&P index fund that returns higher dividend yield than VYM. I'm considering converting from VYM to SDOG. Any thoughts or concerns? Below are my approximate yearly dividend calculations for each security. Calculations should be after all fees/expenses.

> VYM_dividend_return
2013 2014
3.06 2.9

> SDOG_dividend_return
2013 2014
3.77 3.5

I don't see any particular reason why SDOG would perform substantially worse than VYM or the market, but wanted to seek the advice of bogleheads! Or is there a better S&P index fund you would recommend?

Thank you!

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JoMoney
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Re: Best S&P Index Dividend Fund

Post by JoMoney » Sat Dec 27, 2014 9:40 pm

SDOG is the "ALPS Sector Dividend Dogs ETF "
It has an expense ratio of .40% ... I've seen worse, but it's higher than I would accept for a mutual fund.

My preference would be to ignore dividends, just accept the S&P Index for what it is, and use a "total return" approach for any income/withdrawal needs.

If I was focused on dividends for some reason, I would probably try to decide what type of dividend investor I was with regard to seeking "High Yield" or "Dividend Growth". High yield stocks will tend to be companies that are in some sort of distress, and the high dividend rate may be unlikely to continue.
Dividend growth stocks tend to be companies with solid dividend policies, that have consistently raised dividends over a number of years, and may be more likely to continue to do so into the future.

In terms of the return "factors" people discuss here, one leans towards a "Value" tilt, the other towards a "Quality" tilt. I don't think either is likely to prove superior as far as long-run total returns. Others have expressed different opinions. I think both are potentially exposing you to more risk that could be better diversified, and both types of funds will likely have higher fees/expenses.

Higher fees/expenses is provably the path to lower returns.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Lafder
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Re: Best S&P Index Dividend Fund

Post by Lafder » Sat Dec 27, 2014 9:43 pm

spm301,

Welcome!

Why is a fund that returns high dividends important to you ? That is only one component of an investment portfolio and I have never paid attention which funds pay high dividends. Your overall asset allocation and expense ratio may be much more important.

Best wishes,
lafder

beammeupscotty
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Re: Best S&P Index Dividend Fund

Post by beammeupscotty » Sat Dec 27, 2014 9:45 pm

Why, when you can buy the S&P index with an expense ratio 50% lower than VYM and 88% lower than SDOG?

http://seekingalpha.com/article/2093953 ... agic-pants

spm301
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Re: Best S&P Index Dividend Fund

Post by spm301 » Sun Dec 28, 2014 10:38 am

First, thank you for the response! The posts, and articles were very informative. While I’m of the mindset of not wanting to own securities that do not pay dividends, the article did sway my opinion (slightly) as to the value of a non-dividend paying stocks; however, I still don’t feel comfortable owning securities that do not pay dividends (may be ignorance talking). As such, I have focused my portfolio around the idea of dividends, mostly ‘dividend growth’. Subscribing to John Bogle’s theory of index funds I am of the mindset that:

Indexing = good
Indexing that pays dividends = better

I have noticed that SDOG has a higher expense ratio of 40%; however, by my calculations it still returns a higher dividend yield than VYM (which has a lower expense ratio)....If it is mirroring the S&P, and producing a high yield…is that not a win-win? Any insight, or thoughts, are greatly appreciated.

Thank you.

dbr
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Re: Best S&P Index Dividend Fund

Post by dbr » Sun Dec 28, 2014 10:43 am

This is a strange idea. It is not clear what you really want, but it sounds like you want a fund that tracks the return and risk of the S&P 500 but delivers the return with a greater proportion in dividends and a lesser proportion in capital growth. It would seem an obvious simple choice would be any low cost high dividend fund like VHDYX. But I don't know how much tracking error vs the S&P 500 index itself you would accept.

dbr
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Re: Best S&P Index Dividend Fund

Post by dbr » Sun Dec 28, 2014 10:52 am

spm301 wrote:First, thank you for the response! The posts, and articles were very informative. While I’m of the mindset of not wanting to own securities that do not pay dividends, the article did sway my opinion (slightly) as to the value of a non-dividend paying stocks; however, I still don’t feel comfortable owning securities that do not pay dividends (may be ignorance talking). As such, I have focused my portfolio around the idea of dividends, mostly ‘dividend growth’. Subscribing to John Bogle’s theory of index funds I am of the mindset that:

Indexing = good
Indexing that pays dividends = better

Keep in mind that an S&P 500 index fund pays a 1.9% dividend, and the total stock market fund pays 1.78%. The dividend growth fund pays 1.84%, the dividend appreciation fund pays 1.96%, and the high yield fund pays 2.75%. The point is that people buying diversified index funds are not somehow buying stocks that do NOT pay dividends, and if Mr. Bogle made some statement about dividends, no one is suggesting that they should be intentionally avoided, and they aren't. If you do pick the lowest dividend paying Vanguard funds they would be growth fund, and if you believe the Fama-French model returns are less for growth and more for value. If you want to invest in a factor model for higher return, you are better off tilting explicitly to a value tilt for which dividends area partial proxy. Tilting, however, requires taking additional risk in the value risk factor.

I have noticed that SDOG has a higher expense ratio of 40%; however, by my calculations it still returns a higher dividend yield than VYM (which has a lower expense ratio)....If it is mirroring the S&P, and producing a high yield…is that not a win-win? Any insight, or thoughts, are greatly appreciated.

Thank you.

Lafder
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Re: Best S&P Index Dividend Fund

Post by Lafder » Sun Dec 28, 2014 11:15 am

I realize this is a small sample size, but I own 2 individual stocks. One pays dividends which I reinvest so I own many more shares of that stock than I purchased years ago. However the total value of both stocks usually is very close. The original purchase price was the same for both.

In my n=2 experience, the effect of dividends is that the stock price has ended up staying more consistent on the dividend paying stock. The share price of the other stock has gone up, but I still only own the original 200 shares originally purchased.

The tax effect is that I have had to pay a tax on the dividends every year for the dividend bearing stock. And I get an adjustment in my cost basis. So if I have an equivalent value of both stocks in the end, I will owe less capital gains tax on the one with dividends since the cost basis will be higher on that one.

(These stocks were picked before I found Bogleheads and both have too much in capital gains for me to want to sell.)

The bottom line for me is that dividends are not "free money"

But there are a number of investors like yourself who prefer dividend paying stocks. I think that personal preference is important and you should have dividends if you want them. I just wanted to be sure you do not think that dividend paying stocks somehow make more money vs non dividend paying stocks. I think it is more of a behavioral economics factor that the "cash back" feels like you are making more.

Some of my older relatives like dividend paying funds. They set dividends to go to them and they like the idea of their investment "making money" rather than needing to sell some shares when they need more cash.

lafder

tibbitts
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Re: Best S&P Index Dividend Fund

Post by tibbitts » Sun Dec 28, 2014 11:36 am

spm301 wrote:First, thank you for the response! The posts, and articles were very informative. While I’m of the mindset of not wanting to own securities that do not pay dividends, the article did sway my opinion (slightly) as to the value of a non-dividend paying stocks; however, I still don’t feel comfortable owning securities that do not pay dividends (may be ignorance talking). As such, I have focused my portfolio around the idea of dividends, mostly ‘dividend growth’. Subscribing to John Bogle’s theory of index funds I am of the mindset that:

Indexing = good
Indexing that pays dividends = better

I have noticed that SDOG has a higher expense ratio of 40%; however, by my calculations it still returns a higher dividend yield than VYM (which has a lower expense ratio)....If it is mirroring the S&P, and producing a high yield…is that not a win-win? Any insight, or thoughts, are greatly appreciated.

Thank you.
I think there's a huge amount of confusion on the forum about dividend growth and (high) dividend yield, which have almost nothing to do with each other - as is reflected by many dividend growth funds yielding approximately the same as broader-objective funds. So it seems that if you truly care about dividend growth, you probably don't care about the amount of yield - just about the (projected) rate of change in yield.

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JoMoney
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Re: Best S&P Index Dividend Fund

Post by JoMoney » Sun Dec 28, 2014 3:20 pm

None of the funds you have suggested "mirror the S&P". The S&P500 is an index that attempts to track the market, funds that focus on dividends are avoiding huge areas of the market, and at some point will inevitably fail to track the market (for better or worse).

It appears that the SDOG fund you mentioned only holds about 50 stocks, and periodically trades them to match a trading strategy based on rotating through the stocks that have the highest yield within a sector. There is certain to be quite a bit of "tracking error" if your expectation is that it will match a broad market index fund.
http://www.alpssectordividenddogs.com/d ... 0930-1.pdf
...The ALPS Sector Dividend Dogs ETF [SDOG] is an Exchange Traded Fund that applies the ‘Dogs of the Dow Theory’ on a sector-by-sector basis using the S&P 500® as its starting universe of eligible securities. ...
... SDOG provides high dividend exposure across all 10 sectors of the market by selecting the five highest yielding securities in each sector and equally weighting them. ...
VYM contains over 390 stocks that pay "above average" dividends.

I don't believe either will "mirror" the S&P500, but VYM seems considerably more diversified, lower risk, and lower expenses... But since you can buy an ETF like VOO or VTI with even lower expenses, broader diversification, and a goal of tracking the S&P500 or the CRSP US Total Market Index, it seems silly to pay more for some other fund. Especially since you seem to want something that mirrors the "S&P" which is a broad index tracking the market. Why pay more for a fund that's almost guaranteed not to track the market?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

john94549
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Re: Best S&P Index Dividend Fund

Post by john94549 » Sun Dec 28, 2014 9:52 pm

Hands down, VFIAX is the best. Lowest ER, pays dividends quarterly, what's not to like? SWPPX, the 401K darling, has a higher ER, and sequesters dividends until December. But, then, they have to generate bucks to pay the 401K admins.

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