Value tilted S&P 500 fund for dividend?

[ChinchillaWhiplash]

Anyone look at funds like SPYD S&P 500 Dividend fund ETF. ER = 0.07. Seems like a good idea. Mostly LCV stocks, but is taking top yielders I presume.

[PFInterest]

Nope.

[MotoTrojan]

Anyone look at funds like SPYD S&P 500 Dividend fund ETF. ER = 0.07. Seems like a good idea. Mostly LCV stocks, but is taking top yielders I presume.

Why?

[DanMahowny]

LCV = League of Conservation Voters?

at least that's what google says . . .

[MotoTrojan]

LCV = League of Conservation Voters?

at least that's what google says . . .

Large cap value.

[nisiprius]

By "for dividend," I assume you mean that you actually want dividends to provide income you can spend... not that you want dividends because you think dividend-paying stocks are just better stocks. (For the record, I personally belong to the school of thought that says total return is total return; that an emphasis on dividends provides no special benefit; and that many of the claims put forward by dividend enthusiasts are dubious).

Pushing that aside, if I wanted a good, solid, plain vanilla, broadly diversified US stock fund with a dividend emphasis, I'd take a careful look at VEIPX/VEIRX, the Vanguard Equity Income Fund. The name here means "specifically intended to provide income from equities," and it is indeed in the large value style box. It is actively managed. The expense ratios, 0.26% for VEIPX, 0.17% for VEIRX, are really very low by most standards, but since it is not classified as an index fund Vanguard requires a minimum of $50,000 for Admiral shares.

I haven't made any careful comparisons between this fund, the Vanguard High Dividend Yield Index Fund (VHDYX), and the Vanguard Value Index Fund (VIVAX). My assumption is that funds whose name refers to "equity income" and "dividend yield" are probably more appropriate than a value fund in which dividends would only be an incidental byproduct.

SPYD should probably be compared with Vanguard's VHDYX (mutual fund) = VYM (ETF). They are all true index funds with a dividend focus. VHDYX tracks the "FTSE® High Dividend Yield Index."

[ChinchillaWhiplash]

This might serve the same niche as the Vanguard funds in the income generation aspect. It is indexed, follows the S&P, takes the top 80 yields from the S&P. Hasn't existed for more than 3 years, so hard to back test its performance. For the 2 years it has existed it is almost equal in performance with drip as the S&P index. Does actually hold 40%+ MC too. It might be a good fund to value tilt with the bonus of a high yield. Since it is only holding S&P 500 stocks and has low costs, how bad can it be?

[MotoTrojan]

This might serve the same niche as the Vanguard funds in the income generation aspect. It is indexed, follows the S&P, takes the top 80 yields from the S&P. Hasn't existed for more than 3 years, so hard to back test its performance. For the 2 years it has existed it is almost equal in performance with drip as the S&P index. Does actually hold 40%+ MC too. It might be a good fund to value tilt with the bonus of a high yield. Since it is only holding S&P 500 stocks and has low costs, how bad can it be?

Why is a high yield a bonus?

[ChinchillaWhiplash]

This might serve the same niche as the Vanguard funds in the income generation aspect. It is indexed, follows the S&P, takes the top 80 yields from the S&P. Hasn't existed for more than 3 years, so hard to back test its performance. For the 2 years it has existed it is almost equal in performance with drip as the S&P index. Does actually hold 40%+ MC too. It might be a good fund to value tilt with the bonus of a high yield. Since it is only holding S&P 500 stocks and has low costs, how bad can it be?

Why is a high yield a bonus?

Why is it not? Especially if the fund increases in value with the market. And if it is down with the market and still paying a higher yield, what's not to like? If you are using it as income in retirement, you wouldn't have to sell as many shares either if living off of a 4% withdrawal rate.

[snarlyjack]

ChinchillaWhiplash,

Nice meeting you.

This article will help you.
I use:
VHDYX & VDAIX (they are excellent funds).
Good luck to you...

http://theconservativeincomeinvestor.co ... e-account/

[drk]

I'm not a fan because I don't like dividend funds, in part because of their tax inefficiency. For what it's worth, you can go read about the index rather than presuming how it's constructed. Thanks to the odd index construction (equal-weighting of 80 high-yield stocks), SPYD is actually doubly tax-inefficient as the index's turnover encourages capital gain distributions on top of dividends.

[rkhusky]

Note that Vanguard's Dividend Appreciation Index, Dividend Growth, High Dividend Yield Index, and Value Index funds all had 100% qualified dividends for 2017, which is important if one is contemplating using dividends for retirement income, rather than selling shares.

[whodidntante]

Value does not mean dividend. Although they do seem to go to the same bars.

[ChinchillaWhiplash]

Thanks for the useful info. I did see that they SPYD has an equal weight and a 40% turnover rate. Guess that makes it pretty bad in comparison. Would create a lot of unwanted tax drag. Any idea why a so called index fund would have such a high rate of turnover?

[ChinchillaWhiplash]

If the dividend come almost completely from income(not stcg or ltcg), does this add much to the tax burden?

[venkman]

Thanks for the useful info. I did see that they SPYD has an equal weight and a 40% turnover rate. Guess that makes it pretty bad in comparison. Would create a lot of unwanted tax drag. Any idea why a so called index fund would have such a high rate of turnover?

If it's equal weight, they need to do a lot of buying and selling to keep it in balance as stock prices change. Market-cap weighted index funds only have to buy and sell when a stock enters/leaves the index.

[tibbitts]

Anyone look at funds like SPYD S&P 500 Dividend fund ETF. ER = 0.07. Seems like a good idea. Mostly LCV stocks, but is taking top yielders I presume.

You must have missed the previous 8,457 threads discussing dividend focused investing approaches. While there is no perfect consensus you won't get much support for dividend investing around here, and at best you'll find that dividends aren't a free lunch.

Also please don't confuse dividend investing with dividend growth investing. Dividend growth funds may pay dividends at below the rate of broad market index funds.

[ChinchillaWhiplash]

Anyone look at funds like SPYD S&P 500 Dividend fund ETF. ER = 0.07. Seems like a good idea. Mostly LCV stocks, but is taking top yielders I presume.

You must have missed the previous 8,457 threads discussing dividend focused investing approaches. While there is no perfect consensus you won't get much support for dividend investing around here, and at best you'll find that dividends aren't a free lunch.

Also please don't confuse dividend investing with dividend growth investing. Dividend growth funds may pay dividends at below the rate of broad market index funds.

For the record, I'm not dividend investing. Just thinking about a value tilt that would also pay higher yields than the total market. Would make up about 10% of the US equities portion of portfolio. I decided to go with the Vanguard ETF as it seems to be the best balance of yield, ER, and turnover. Schwab also has a pretty good ETF it was pretty close between these 2 IMO.

[rkhusky]

If the dividend come almost completely from income(not stcg or ltcg), does this add much to the tax burden?

If the dividends are qualified, the tax rate is the same as for long term cap gains. If the dividends are not qualified, then you pay your income tax rate, which is higher than ltcg rate.

Note that when dividends are paid by a fund, the share price drops, such that you have the same amount of money in your account before and after the dividend. If you owe taxes on the dividend, you actually lose money by getting the dividend.

[dbr]

ChinchillaWhiplash, there have been myriad threads where people discuss this question and all its variations essentially forever. You can read a bunch of them here:

https://www.google.com/search?sitesearc ... =dividends

[dbr]

Anyone look at funds like SPYD S&P 500 Dividend fund ETF. ER = 0.07. Seems like a good idea. Mostly LCV stocks, but is taking top yielders I presume.

You must have missed the previous 8,457 threads discussing dividend focused investing approaches. While there is no perfect consensus you won't get much support for dividend investing around here, and at best you'll find that dividends aren't a free lunch.

Also please don't confuse dividend investing with dividend growth investing. Dividend growth funds may pay dividends at below the rate of broad market index funds.

For the record, I'm not dividend investing. Just thinking about a value tilt that would also pay higher yields than the total market. Would make up about 10% of the US equities portion of portfolio. I decided to go with the Vanguard ETF as it seems to be the best balance of yield, ER, and turnover. Schwab also has a pretty good ETF it was pretty close between these 2 IMO.

Well, I guess dividend investing with a value tilt is not exactly the same topic, so the question would be what would be unique about a special combination of the two that isn't already understood as the possible advantages of value tilting and of dividend investing. Probably an opinion on this Forum is that quite a few people like small cap value tilting but not so much the "wrong" size with large cap value tilting. There are people who really like getting dividends but most of the Forum doesn't really see it. You might argue that this choice is a little bit Buffett like, though Mr. Buffett does not generally buy to get dividends.

[MotoTrojan]

This might serve the same niche as the Vanguard funds in the income generation aspect. It is indexed, follows the S&P, takes the top 80 yields from the S&P. Hasn't existed for more than 3 years, so hard to back test its performance. For the 2 years it has existed it is almost equal in performance with drip as the S&P index. Does actually hold 40%+ MC too. It might be a good fund to value tilt with the bonus of a high yield. Since it is only holding S&P 500 stocks and has low costs, how bad can it be?

Why is a high yield a bonus?

Why is it not? Especially if the fund increases in value with the market. And if it is down with the market and still paying a higher yield, what's not to like? If you are using it as income in retirement, you wouldn't have to sell as many shares either if living off of a 4% withdrawal rate.

But your share price (and portfolio) will go down more during ex-div than a lower yielding fund. 4% is 4%, all you are doing is reducing tax-efficiency potentially, while absolutely reducing diversification, and getting a value tilt. Nothing wrong with a value tilt (I tilt my small-caps) but the yield increase is a feature that alone doesn't add value at all.

Not sure what your overall AA is but probably over-complicating if you think making this a 10% allocation will do something special.

[patrick013]

Any idea why a so called index fund would have such a high rate of turnover?

Because if they don't pay up they're out. Tax wise it would be better
if it didn't have REIT's but still good in a Roth. Actually, if it didn't
have Reit's and Utilities it would be very close to the asset selection
"index" of dividend fund researchers. But I guess that's hard to find
except at an investment bank or whatever, but still a good diversified
income producer when bought when interest rates have peaked.

Everybody wants a baked in investment but a couple things can be done
when not in the general indexes exclusively.

[Phineas J. Whoopee]

I'm afraid, ChinchillaWhiplash, that stock dividends do not increase your wealth. After the corporation distributes a dividend investors won't pay as much for its shares. Their market value goes down by the amount of the dividend. The same happens with stock funds, whose values are based on their underlying stock holdings.

One share of stock plus ten dollars in cash is worth ten dollars more than the very same share of stock but without the cash.

Receiving a stock dividend has precisely the same effect on your portfolio as selling shares to raise the same amount of money.

Please see our wiki article Why did my fund unexpectedly drop in value.

PJW

[triceratop]

ChinchillaWhiplash,

Nice meeting you.

This article will help you.
I use:
VHDYX & VDAIX (they are excellent funds).
Good luck to you...

http://theconservativeincomeinvestor.co ... e-account/

As others have pointed out in general, I will point this out specifically: note that in a taxable account a high dividend fund is likely to be strictly worse than a total market fund with a lower dividend yield. Tax cost is an important drag on returns.

[patrick013]

As others have pointed out in general, I will point this out specifically: note that in a taxable account a high dividend fund is likely to be strictly worse than a total market fund with a lower dividend yield. Tax cost is an important drag on returns.

But what if mathematically one of the optimum dividend indexes is used
and the before tax return is over 1% or higher than the market portfolio ?

2 +2 does not equal what you are saying. From whose book did you get that
idea from ???

[Phineas J. Whoopee]

patrick13, what is an optimum dividend index? And when you've explained that, how can one reliably find them in advance, rather than after the fact?
PJW

[triceratop]

As others have pointed out in general, I will point this out specifically: note that in a taxable account a high dividend fund is likely to be strictly worse than a total market fund with a lower dividend yield. Tax cost is an important drag on returns.

But what if mathematically one of the optimum dividend indexes is used
and the before tax return is over 1% or higher than the market portfolio ?

2 +2 does not equal what you are saying. From whose book did you get that
idea from ???

You've correctly pointed out that if one surmises convenient hypotheticals one obtains convenient conclusions.

The connection of that hypothetical to reality, however, is slightly more tentative.

[patrick013]

patrick13, what is an optimum dividend index? And when you've explained that, how can one reliably find them in advance, rather than after the fact?

VYM can go pick flowers as far as I am concerned.
https://us.spindices.com/documents/rese ... nload=true

Dozens of times, a 500 index selection, even a multi-cap index selection
is a very profitable investment historically. Yield or equal weighted.
I agree, the indexes available are a little off, and the exact indexes, highest
yield (within constraints), weighting, annual replacement, etc. are not exact
with the studies as to what is available to a retail investor.

But anyway, if you had an index of 50-100 S&P 500 stocks in an index based on
yield and yield weighted I'd buy it when rates peak and hold it for a long time.
VYM ? No way. 2+2 has equaled 4 then. What a boring topic.

[snarlyjack]

Some of us don't have the advantage of using tax advantaged accounts,
(like me considering my life insurance disposition). So I just have to
bite the bullet on my small taxes.

I realize that the TSM is more tax efficient than VHDYX.
What I' am looking for is the quarterly income for security
reasons without having to liquidate anything. The small amount
of taxes that I have to pay is a small price for financial security.

Triceratop is correct that the TSM is probably Vanguards best
fund. It includes everything & is very tax efficient & low cost.

In my case...I live in a low cost area but not a lot of high
paying jobs. It's beautiful & I don't want to move. An
extra $9,000. a year income can help a lot. I have no
problems putting money into the TSM fund, I just want to
secure myself first.

[triceratop]

I'd buy it when rates peak

So, not only tax inefficient fund choices, but market timing too? When will you know when rates peak?

[triceratop]

Some of us don't have the advantage of using tax advantaged accounts,
(like me considering my life insurance disposition). So I just have to
bite the bullet on my small taxes.

I realize that the TSM is more tax efficient than VHDYX.
What I' am looking for is the quarterly income for security
reasons without having to liquidate anything. The small amount
of taxes that I have to pay is a small price for financial security.

Triceratop is correct that the TSM is probably Vanguards best
fund. It includes everything & is very tax efficient & low cost.

In my case...I live in a low cost area but not a lot of high
paying jobs. It's beautiful & I don't want to move. An
extra $9,000. a year income can help a lot. I have no
problems putting money into the TSM fund, I just want to
secure myself first.

I don't have tax-advantaged contributions either. That is precisely why I care about tax efficiency.

Your purchase of VHDYX does not afford you more financial security. The proper context is to evaluate Total Returns; income return is only a part of that. You are mistaken on this point of financial theory and analysis.

There is no conflict between living where you live and using a more tax efficient fund like TSM (in fact it is the smart thing to do). There is no conflict between your security and using TSM.

[patrick013]

I'd buy it when rates peak

So, not only tax inefficient fund choices, but market timing too? When will you know when rates peak?

Write a book on it. It's not that difficult.

[nisiprius]

Why is a high yield a bonus?

Why is it not? Especially if the fund increases in value with the market. And if it is down with the market and still paying a higher yield, what's not to like? If you are using it as income in retirement, you wouldn't have to sell as many shares either if living off of a 4% withdrawal rate.

You have a very serious misunderstanding of how dividends affect fund returns. Dividends are not something extra, not a free lunch on top of capital appreciation. Stocks and funds that pay out high dividends will show slower capital appreciation. Money that is paid out to shareholders cannot be used to grow the company.

We can see this clearly if we look at the price charts of the Vanguard Equity Income Fund (which I picked because it has a good long history) and the Vanguard 500 Index Fund, and then the growth charts. The price charts show what happens if you spend the dividends instead of reinvesting them. Without reinvesting dividends, the dividend-oriented fund, green, did not "increase in value with the market," it fell far behind the S&P 500 fund (orange). The dividend fund added +259% over thirty years compared to +807% in thirty years... because the investor was draining off dividends that would otherwise have gone into growth.

That isn't some technicality, it's a huge difference.

Source



So was VEIPX a terrible fund? No, not at all. If we look at a growth chart which measures total return, the two funds had very similar performance:



They made the same amount of money, overall. There was no big difference in quality. It's just that the dividend fund paid out more dividends that thus grew more slowly in capital appreciation. Dividends plus capital appreciation were about the same for both funds.

[triceratop]

I'd buy it when rates peak

So, not only tax inefficient fund choices, but market timing too? When will you know when rates peak?

Write a book on it. It's not that difficult.

Do I read you correctly as stating that you've written a book on the topic of market timing, either generally or the bond market specifically? Otherwise I am not sure how to interpret your statement.

[snarlyjack]

Nisiprius,

I totality agree with you,
(reinvest those dividends).

In my case I receive about $2,000. per quarter
in dividends. If I don't need the money I reinvest
all of them. If a emergency were to happen in my life
I can use my credit card until my next dividend payment.
So far I haven't had any emergencies. Although the riding
lawn mower needs replaced (about $1,000.). This month I
had to pay $1200. in property taxes (1/2 every 6 months).
It seems like every time I turn around something needs money.

[patrick013]

I'd buy it when rates peak

So, not only tax inefficient fund choices, but market timing too? When will you know when rates peak?

Write a book on it. It's not that difficult.

Do I read you correctly as stating that you've written a book on the topic of market timing, either generally or the bond market specifically? Otherwise I am not sure how to interpret your statement.

Well actually today had some calcs to make, I guess they can wait, and no I
am not an author. So distracted.......but dividend wise ? Who is your author ?

You are obviously a math major where the trend is your friend concept has no
Bogle validity. So be it. I sit with Finance majors.

A little friction yield wise but Bogle handles market stock portfolio investments
quite well. Bonds and investment grade yield items not so well. That's it.

[ChinchillaWhiplash]

So is Vanguard's total bond index ETF BND not a good vehicle with a 55% turnover rate? In a tax deferred account.

[triceratop]

So is Vanguard's total bond index ETF BND not a good vehicle with a 55% turnover rate? In a tax deferred account.

Turnover in a bond fund is different from turnover in a stock fund. Bonds mature (as well as their maturity shortening as they approach maturity) there so there will always be turnover. The same is not true for stocks.

As an example of how the turnover sometimes doesn't hurt you at all: if you invest strictly in 52-week T-bills at auction your yearly turnover will be 100% but your transaction costs are zero.

[22twain]

They made the same amount of money, overall.

Before taxes, of course. After taxes, they come out different because people usually have to pay income tax on dividends even if they're reinvested immediately.

[snarlyjack]

Nisiprius,

Imho, VHDYX is a better fund than VEIPX.

First of all it's a index fund not a managed fund.
So it has no capital gains (short or long) & is more
tax efficient. Lower turnover.

It has more stocks, better diversified, cost less,
with a higher dividend payout. I believe Jack
Bogle when he said index's are the way to go.
The stocks in VHDYX are huge companies. I refer
to it as my battleship.

[ChinchillaWhiplash]

So is Vanguard's total bond index ETF BND not a good vehicle with a 55% turnover rate? In a tax deferred account.

Turnover in a bond fund is different from turnover in a stock fund. Bonds mature (as well as their maturity shortening as they approach maturity) there so there will always be turnover. The same is not true for stocks.

As an example of how the turnover sometimes doesn't hurt you at all: if you invest strictly in 52-week T-bills at auction your yearly turnover will be 100% but your transaction costs are zero.

Thanks for the detailed explanation. Was wondering how that worked.

[nisiprius]

Nisiprius,

Imho, VHDYX is a better fund than VEIPX.

First of all it's a index fund not a managed fund.
So it has no capital gains (short or long) & is more
tax efficient. Lower turnover.

It has more stocks, better diversified, cost less,
with a higher dividend payout. I believe Jack
Bogle when he said index's are the way to go.
The stocks in VHDYX are huge companies. I refer
to it as my battleship.

No real argument. I used VEIPX in my illustration because it has a far longer history and is a better illustration the point that the capital value of a high-dividend fund grows much more slowly than the capital value of a total market fund. Dividends are not on top of capital appreciation, they are taken out of capital appreciation.

VEIPX caught my attention because it happens to be the fund that Burton Malkiel and Charles Ellis decided to name in an updated chapter of their book, The Elements of Investing, in a discussion of "bond surrogates." They don't say why they named VEIPX instead of VHDYX. I

I think it is relevant that Vanguard's own description of VEIPX is "This fund is designed to provide investors with an above-average level of current income while offering exposure to the stock market," while their description of VHDYX is "This index fund seeks to track a benchmark that provides broad exposure to U.S. companies that are dedicated to consistently paying larger-than-average dividends." That is, if someone specifically wants to use the dividend payments from a stock fund as source of spending income, that's a stated goal of VEIPX and not of VHDYX. However, it's possible that VHDYX does a better job than VEIPX at meeting VEIPX's stated goal.

[naha66]

Nisiprius,

Imho, VHDYX is a better fund than VEIPX.

First of all it's a index fund not a managed fund.
So it has no capital gains (short or long) & is more
tax efficient. Lower turnover.

It has more stocks, better diversified, cost less,
with a higher dividend payout. I believe Jack
Bogle when he said index's are the way to go.
The stocks in VHDYX are huge companies. I refer
to it as my battleship.

The numbers say you're wrong and VHDYX has only been around since 2007. Veipx has been around since 1988 with a cgar of 10.10.

[fennewaldaj]

ChinchillaWhiplash,

Nice meeting you.

This article will help you.
I use:
VHDYX & VDAIX (they are excellent funds).
Good luck to you...

http://theconservativeincomeinvestor.co ... e-account/

As others have pointed out in general, I will point this out specifically: note that in a taxable account a high dividend fund is likely to be strictly worse than a total market fund with a lower dividend yield. Tax cost is an important drag on returns.

Obviously strictly worse by the numbers if the returns are the same. There might be a physiological benefit for some. A person might reinvest dividends but then pay taxes out of cash flow (instead of from the investment account) and effectively trick themselves into saving more. Then since the capital appreciation is likely less they will owe less taxes in the future. Similar to how a Roth fund is often worse than a traditional but many people effectively trick themselves into saving more money because they use a ROTH but save the same amount per month.

[snarlyjack]

Don't get me wrong...

VEIPX is a excellent fund.

Another fund that I really like & seriously thought about is Wellington.
Wellington, Imho is another great fund. The reason I didn't go with
Wellington is because of my age at the time (21/22) is the 30% bonds.
Wellington would be another great choice.

Vanguard has some great funds. It was extremely hard to choose
the best fund for me. A person needs to understand the funds &
what they do & understand your goals.

Vanguard is the "cat's meow" & has some really great funds.

[Register44]

[MIretired]

I got smacked on this in March. It went down way more than the index's and hasn't come back. What gives? Will it recover, or is it a terrible methodology?

I think it was the dividend scare (possibility of div cuts prognosticated in the news by some) about two weeks ago. Have to see how that pans out. For past 30 days it was even with SPY as of May 01, but continued to lose more. For last 30 days, SPY up 3%, SPYD down 2.5%.

[BGeste]

Lots of tiresome anti dividend responses on this site.

John Bogle, the patron saint of this site, writes in his book "Stay the Course" how he turned around the Wellington Fund in the late 1970s by making the focus of the fund high paying dividend stocks and corporate bonds to increase income significantly without sacrificing total return. HIs proposal to the Board specifies this and the execution exceeded expectations over the subsequent 10 and 30 year periods. THe Wellington fund needed a turnaround because fund managers focused on growth and total return screwed it up in the late sixties and through the seventies. Read the book.

Bottom line: buying funds and securities with solid dividends does not mean you have to sacrifice total return.

[Phineas J. Whoopee]

I got smacked on this in March. It went down way more than the index's and hasn't come back. What gives? Will it recover, or is it a terrible methodology?

Why should one expect a portfolio that significantly departs from an index will match it in total return over two months? That makes no sense.

PJW