Will dividend spending only portfolio last forever ?
Will dividend spending only portfolio last forever ?
If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
Re: Will dividend spending only portfolio last forever ?
What happened to dividends during the last recession?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Will dividend spending only portfolio last forever ?
I consider the last recession in 2008 as an extreme event. Don’t think wholesale dividend cutbacks occur in regular garden variety recessions
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Re: Will dividend spending only portfolio last forever ?
first I think we have to define what type of dividend investing you're referring to. Are you talking about individual stocks or a total stock market type index fund?
The difference is important because while the dividend may continue (albeit reduced during a recession) with a total stock market index fund, if an individual company goes out of business you've not only lost your dividend forever thereafter, you've also lost your principal.
So can you be more specific with the strategy you're inquiring about?
The difference is important because while the dividend may continue (albeit reduced during a recession) with a total stock market index fund, if an individual company goes out of business you've not only lost your dividend forever thereafter, you've also lost your principal.
So can you be more specific with the strategy you're inquiring about?
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Re: Will dividend spending only portfolio last forever ?
I am referring to dividends in a mostly diversified portfolio of mutual funds and ETFs and some blue chip stocks
Re: Will dividend spending only portfolio last forever ?
What happened to dividends in the recession before that?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Will dividend spending only portfolio last forever ?
Of course spending only the dividends is perpetual. If you just spend whatever the portfolio throws off in dividends the principle shares are never sold. Of course dividends fluctuate significantly so one year you may eat steak and another year dog food but oh well. That's what happens when you have a bad strategy.
Re: Will dividend spending only portfolio last forever ?
I mean, obviously a dividend spending portfolio will last forever. It'll last until the US stock market ceases to exist. But that doesn't tell you anything about the amount of the dividends.skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
Seems like dividends have gone down massively even without "extreme downturns".
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Re: Will dividend spending only portfolio last forever ?
Actually you can do much worse ... and when the next big recession hits ..may be this time one would not panic sell if you just keep an eye on the income ..... during and after the drop and you may be surprised to see good out come ...
please see this article ... was an eye opener for me and POSITIVE ... limited in scope I know ...
https://www.fastgraphs.com/wp/why-accom ... olatility/
See half way down
Hypothetical Portfolio Performance, Capital Appreciation & Dividend Income 2007-2012
I am leaning to the Dividend portfolio and this just makes me feel very confident.
Each to their own approach and nothing is certain I know ...but the key here is it may help certain investors not rush to see low and buy high .
please see this article ... was an eye opener for me and POSITIVE ... limited in scope I know ...
https://www.fastgraphs.com/wp/why-accom ... olatility/
See half way down
Hypothetical Portfolio Performance, Capital Appreciation & Dividend Income 2007-2012
I am leaning to the Dividend portfolio and this just makes me feel very confident.
Each to their own approach and nothing is certain I know ...but the key here is it may help certain investors not rush to see low and buy high .
Re: Will dividend spending only portfolio last forever ?
And that’s my question. Do dividends get cut back to the point of dog food down from steak in normal recessions ? My understanding was they do not get cut back that much
Re: Will dividend spending only portfolio last forever ?
And that’s my question. Do dividends get cut back to the point of dog food down from steak in normal recessions ? My understanding was they do not get cut back that muchNate79 wrote: ↑Thu Aug 02, 2018 8:16 pm Of course spending only the dividends is perpetual. If you just spend whatever the portfolio throws off in dividends the principle shares are never sold. Of course dividends fluctuate significantly so one year you may eat steak and another year dog food but oh well. That's what happens when you have a bad strategy.
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Re: Will dividend spending only portfolio last forever ?
Sure, the portfolio could last forever. Its just that you may not like the income you get years or decades from now. If the trend toward stock repurchases instead of cash dividends persists, dividend yields will eventually go too low to provide any meaningful income. Whether that occurs over your time horizon is the issue.
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Re: Will dividend spending only portfolio last forever ?
If you adjust your expenses to decrease with dividend cuts so you are not using principle then it could work out... but if half your portfolio cuts dividends? could you survive on that limited income for 2-3 years or longer??skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
Re: Will dividend spending only portfolio last forever ?
Looking at past recessions it appears to be in the range of 10-20%.
In 1969 according to one source I looked at, the S&P 500 paid $21.09. It dropped in 1970 and moved down and up for years. It didn't exceed $21.09 until 1989 -- in real 2018 dollars. So the purchasing power of dividends declined for about 20 years.
In 1969 according to one source I looked at, the S&P 500 paid $21.09. It dropped in 1970 and moved down and up for years. It didn't exceed $21.09 until 1989 -- in real 2018 dollars. So the purchasing power of dividends declined for about 20 years.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Will dividend spending only portfolio last forever ?
If you look at your chart the decline in dividend yield has coincided with the increase in value, so the dollar value is still constant or increasing ( except for extreme circumstances)AlohaJoe wrote: ↑Thu Aug 02, 2018 8:17 pmI mean, obviously a dividend spending portfolio will last forever. It'll last until the US stock market ceases to exist. But that doesn't tell you anything about the amount of the dividends.skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
Seems like dividends have gone down massively even without "extreme downturns".
Re: Will dividend spending only portfolio last forever ?
Ok that is a valid point. Buybacks are usually worse than dividends for notmal investors from what I have heard. That might be an area of concern if this trend persistsSvensk Anga wrote: ↑Thu Aug 02, 2018 8:22 pm Sure, the portfolio could last forever. Its just that you may not like the income you get years or decades from now. If the trend toward stock repurchases instead of cash dividends persists, dividend yields will eventually go too low to provide any meaningful income. Whether that occurs over your time horizon is the issue.
Re: Will dividend spending only portfolio last forever ?
No, the dollar value is not constant or increasing. This is the actual inflation-adjusted monthly cashflow for 3 different retirements.
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Re: Will dividend spending only portfolio last forever ?
Yup should be okay but not because you are only spending dividends. It’ll work because you’re only withdrawing 1-2%.
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Re: Will dividend spending only portfolio last forever ?
It’s more tax-efficient so many feel it’s better. See Berkshire.skor99 wrote: ↑Thu Aug 02, 2018 8:28 pmOk that is a valid point. Buybacks are usually worse than dividends for notmal investors from what I have heard. That might be an area of concern if this trend persistsSvensk Anga wrote: ↑Thu Aug 02, 2018 8:22 pm Sure, the portfolio could last forever. Its just that you may not like the income you get years or decades from now. If the trend toward stock repurchases instead of cash dividends persists, dividend yields will eventually go too low to provide any meaningful income. Whether that occurs over your time horizon is the issue.
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Re: Will dividend spending only portfolio last forever ?
Looking at 12-month real dividend per share across other years:jebmke wrote: ↑Thu Aug 02, 2018 8:25 pm Looking at past recessions it appears to be in the range of 10-20%.
In 1969 according to one source I looked at, the S&P 500 paid $21.09. It dropped in 1970 and moved down and up for years. It didn't exceed $21.09 until 1989 -- in real 2018 dollars. So the purchasing power of dividends declined for about 20 years.
Apr 30, 1911 13.51
Nov 30, 1946 8.27
http://www.multpl.com/s-p-500-dividend/ http://www.multpl.com/s-p-500-dividend/table?f=m
it didn't definitively break out above 13.5 until the 1950s. There were huge real drops after WWI and from 1930 to 1932. Also the 1940s and 1970s saw nasty drops in real terms.
Last edited by david1082b on Thu Aug 02, 2018 8:54 pm, edited 1 time in total.
Re: Will dividend spending only portfolio last forever ?
Here are the annual dividends for one share of the S&P 500, going back to 1980; you can go back further — http://www.multpl.com/s-p-500-dividend/table
I counted 8 years (of 39) where dividends were below the prior year. And 3 intervals where it took 3 years or more to return to the previous high.
All values are nominal.
Jun 30, 2018 50.99
Dec 31, 2017 49.94
Dec 31, 2016 47.62
Dec 31, 2015 46.15
Dec 31, 2014 42.26
Dec 31, 2013 37.78
Dec 31, 2012 34.24
Dec 31, 2011 29.46
Dec 31, 2010 26.09
Dec 31, 2009 26.10
Dec 31, 2008 33.97
Dec 31, 2007 33.22
Dec 31, 2006 31.02
Dec 31, 2005 28.40
Dec 31, 2004 25.70
Dec 31, 2003 23.73
Dec 31, 2002 22.36
Dec 31, 2001 22.41
Dec 31, 2000 23.53
Dec 31, 1999 24.95
Dec 31, 1998 24.86
Dec 31, 1997 24.17
Dec 31, 1996 23.63
Dec 31, 1995 22.60
Dec 31, 1994 22.13
Dec 31, 1993 21.70
Dec 31, 1992 21.96
Dec 31, 1991 22.26
Dec 31, 1990 22.73
Dec 31, 1989 22.06
Dec 31, 1988 20.36
Dec 31, 1987 19.21
Dec 31, 1986 18.85
Dec 31, 1985 18.18
Dec 31, 1984 17.99
Dec 31, 1983 17.61
Dec 31, 1982 17.71
Dec 31, 1981 17.74
Dec 31, 1980 17.96
I counted 8 years (of 39) where dividends were below the prior year. And 3 intervals where it took 3 years or more to return to the previous high.
All values are nominal.
Jun 30, 2018 50.99
Dec 31, 2017 49.94
Dec 31, 2016 47.62
Dec 31, 2015 46.15
Dec 31, 2014 42.26
Dec 31, 2013 37.78
Dec 31, 2012 34.24
Dec 31, 2011 29.46
Dec 31, 2010 26.09
Dec 31, 2009 26.10
Dec 31, 2008 33.97
Dec 31, 2007 33.22
Dec 31, 2006 31.02
Dec 31, 2005 28.40
Dec 31, 2004 25.70
Dec 31, 2003 23.73
Dec 31, 2002 22.36
Dec 31, 2001 22.41
Dec 31, 2000 23.53
Dec 31, 1999 24.95
Dec 31, 1998 24.86
Dec 31, 1997 24.17
Dec 31, 1996 23.63
Dec 31, 1995 22.60
Dec 31, 1994 22.13
Dec 31, 1993 21.70
Dec 31, 1992 21.96
Dec 31, 1991 22.26
Dec 31, 1990 22.73
Dec 31, 1989 22.06
Dec 31, 1988 20.36
Dec 31, 1987 19.21
Dec 31, 1986 18.85
Dec 31, 1985 18.18
Dec 31, 1984 17.99
Dec 31, 1983 17.61
Dec 31, 1982 17.71
Dec 31, 1981 17.74
Dec 31, 1980 17.96
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Will dividend spending only portfolio last forever ?
Where did you hear that buybacks are usually worse than dividends?skor99 wrote: ↑Thu Aug 02, 2018 8:28 pmOk that is a valid point. Buybacks are usually worse than dividends for normal investors from what I have heard. That might be an area of concern if this trend persistsSvensk Anga wrote: ↑Thu Aug 02, 2018 8:22 pm Sure, the portfolio could last forever. Its just that you may not like the income you get years or decades from now. If the trend toward stock repurchases instead of cash dividends persists, dividend yields will eventually go too low to provide any meaningful income. Whether that occurs over your time horizon is the issue.
If you can live off dividends from a portfolio then great; if not, then you will have to sell some stock to pay for living costs. It's not an issue, since a dividend is just a forced sale of equity in any case. A total return safe withdrawl rate is more useful for most investors, dividend + price. Lower dividend payout ratios don't impede an investor's ability to make safe withdrawl rates.
Re: Will dividend spending only portfolio last forever ?
OP,skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
Living off dividend only from VFIAX or VTSAX is a sound strategy. It’s just hard because (1) most people won’t be able to build such big enough nest egg in the first place so statistically you won’t get many good/real feedback or (2) living expenses are too high for dividend only cash flow.
Even in the extreme case of 2008/2009, dividend yield actually shot up as a result of sharpe price decline. If you had lived through that 2 years, you will see “only” about 20%-25% decline in dividend income but it only lasted no more than 2 or 3 quarters before corporate dividends resumed to similar pre-crisis level so the key as always is how you manage liquidity and cash flow during extreme.
Contrary to popular belief, I find “recessions” in modern US simply a monetary phenomena that has no long term negative impact on the economy’s productivity. Like McDonald will still make hamburgers and Starbucks will still serve coffee and Walmart will still sell cost effective daily products etc. The economic engine and society’s productivity will continue in the long term. So the key is how you manage cash flow and liquidity during the tough time (short period) and largely how you coupe with expenses when your diversified index fund dividend income will be temporarily reduced to some degree
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Re: Will dividend spending only portfolio last forever ?
Why would you only want to spend dividends? A portfolio doesn't need any dividends in order to last forever.skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
The Sensible Steward
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Re: Will dividend spending only portfolio last forever ?
If you take into account that your portfolio may need to be twice as large as necessary in order to make it work, it's actually a really poor strategy. I personally don't want to wait an additional 10-15 years for my portfolio to grow that large. That's a huge loss of time in retirement for no real benefit unless you want to be the richest person in the cemetery or have really big bequest goals.
The Sensible Steward
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Re: Will dividend spending only portfolio last forever ?
So the dividend yield of the S&P "500" has gone down? Suppose you bought XXX dollars worth of the S&P 500 thirty years ago (using "Bogle's Folly") (thank you Jack) and didn't sell any of it but did extract rather than reinvest the dividends. Is the yield of that investment now less than it was 30 years ago? I think not. Correct me if I'm wrong. Of course the valuation of what was bought would be much more than what it cost 30 years ago.
The yield goes down per new dollars invested because you get less new bang for your money as the valuation goes up-but what you got with your old money doesn't shrink in the same way.
The yield goes down per new dollars invested because you get less new bang for your money as the valuation goes up-but what you got with your old money doesn't shrink in the same way.
Last edited by Wakefield1 on Thu Aug 02, 2018 10:45 pm, edited 1 time in total.
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Re: Will dividend spending only portfolio last forever ?
Skor99,
It's a great strategy...
(I would like to make a few points).
1). The reason VHDYX cut it's dividend in 2008 (about 25%)
is because the Fed. Gov't had restrictions on the bank stocks
to not pay any dividends. (2008 was a banking/mortgage crisis).
2). If you look at long term charts VHDYX is within " a hair" of
the S & P 500 & TSM funds. You can also sell shares of VHDYX
just as easily as the S & P 500 or TSM fund. In other words
you can convert the strategy to the 4% rule at any time (options).
3). If you look at the dividend growth rate of VHDYX,VMVAX & VSIAX
(high dividend yield, Medium cap. value & small cap. value) the
dividend growth rate is very strong.
4). If you have the time ( a long runway) (years), Imho, it's a
great strategy. It has proven results & lot's of University studies
to back it up.
5). The S & P 500 & TSM are growth funds (blend funds).
VHDTX, VMVAX & VSIAX are value funds. Big difference between
growth funds & value funds.
Enjoy...this success.
https://www.cnbc.com/2015/02/09/heres-h ... rtune.html
It's a great strategy...
(I would like to make a few points).
1). The reason VHDYX cut it's dividend in 2008 (about 25%)
is because the Fed. Gov't had restrictions on the bank stocks
to not pay any dividends. (2008 was a banking/mortgage crisis).
2). If you look at long term charts VHDYX is within " a hair" of
the S & P 500 & TSM funds. You can also sell shares of VHDYX
just as easily as the S & P 500 or TSM fund. In other words
you can convert the strategy to the 4% rule at any time (options).
3). If you look at the dividend growth rate of VHDYX,VMVAX & VSIAX
(high dividend yield, Medium cap. value & small cap. value) the
dividend growth rate is very strong.
4). If you have the time ( a long runway) (years), Imho, it's a
great strategy. It has proven results & lot's of University studies
to back it up.
5). The S & P 500 & TSM are growth funds (blend funds).
VHDTX, VMVAX & VSIAX are value funds. Big difference between
growth funds & value funds.
Enjoy...this success.
https://www.cnbc.com/2015/02/09/heres-h ... rtune.html
Last edited by snarlyjack on Fri Aug 03, 2018 6:01 am, edited 1 time in total.
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Re: Will dividend spending only portfolio last forever ?
Meh, what the heck, I will answer this by going out on a very short sturdy limb. Will it last forever? More than your (or anyone here) lifetime. The real question you're asking is: will a 1.8- 2% percent safe withdraw rate last forever ? There is NO model that says it won't last less than 100 years. But if I know Bogleheads, someone will have a fear of black swans, and world war, and ghosts, and gobblins.
“On balance, the financial system subtracts value from society” |
-John Bogle
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Re: Will dividend spending only portfolio last forever ?
Many retirees are living off nothing but dividends. And you can mitigate risks even further by buying only stocks from Dividend Kings, which are companies who not only never cut their dividends but have been increasing them every year for the past 50+ years. That includes three severe bear markets (1974, 2000 and 2008), flash crash of 1987 and 17% inflation in the late 70's.skor99 wrote: ↑Thu Aug 02, 2018 7:56 pm If somebody is able to plan their expenses in retirement to only spend dividends , then wouldn’t that portfolio last forever?(except for truly extreme circumstances). I know that the emphasis on this forum is on total returns, but dividend spending only maybe a way to enforce discipline on spending. Dividends in general keep pace with inflation during normal times and even in normal recessions and rarely go down on whole diversified portfolios ( again, excepting extreme downturns ).
This year I am seeing dividend growths of 10-15 % thus far , which might be due to the corporate tax cuts. Now, even if the growth rate falls down in the subsequent years, does anybody anticipate companies reducing dividends wholesale once the stimulating effect of the tax cuts is gone ?
If you could assemble a nice portfolio of dividend kings and lock in their fat dividend by acquiring certain companies when they're cheap, you should be more than golden.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart
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Re: Will dividend spending only portfolio last forever ?
Some people have large pensions that pay their bills.willthrill81 wrote: ↑Thu Aug 02, 2018 9:03 pmIf you take into account that your portfolio may need to be twice as large as necessary in order to make it work, it's actually a really poor strategy. I personally don't want to wait an additional 10-15 years for my portfolio to grow that large. That's a huge loss of time in retirement for no real benefit unless you want to be the richest person in the cemetery or have really big bequest goals.
Their portfolio is simply fun money.
So spending at most 2% of portfolio per year is one way to have a decently large amount passed on to the next generation or to charity.
It's not always about maximizing retirement income...
Attempted new signature...
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Re: Will dividend spending only portfolio last forever ?
The only issue I have with this forum is that when people post questions like this one, everyone answers or debates the question from thier perspective.
There’s nothing wrong with living off dividends. However, it’s hard for some people to reach a portfolio large enough where this is possible. So for someone making $50,000 thier whole life, they might be better off with a total return approach.
Also, if you can save enoug to live off of the dividends, you are probably used to a higher cost of living lifestyle, and would need ever more money.
I’m not saying this is bad, just that you have to look at how you fit in to these strategies.
Do you have a pension etc. you have to factor everything in. You can’t just take people’s advice if you can’t relate to them financially.
There’s nothing wrong with living off dividends. However, it’s hard for some people to reach a portfolio large enough where this is possible. So for someone making $50,000 thier whole life, they might be better off with a total return approach.
Also, if you can save enoug to live off of the dividends, you are probably used to a higher cost of living lifestyle, and would need ever more money.
I’m not saying this is bad, just that you have to look at how you fit in to these strategies.
Do you have a pension etc. you have to factor everything in. You can’t just take people’s advice if you can’t relate to them financially.
I'm trying to think, but nothing happens
Re: Will dividend spending only portfolio last forever ?
I am not clear what your point is.Wakefield1 wrote: ↑Thu Aug 02, 2018 10:37 pm So the dividend yield of the S&P "500" has gone down? Suppose you bought XXX dollars worth of the S&P 500 thirty years ago (using "Bogle's Folly") (thank you Jack) and didn't sell any of it but did extract rather than reinvest the dividends. Is the yield of that investment now less than it was 30 years ago? I think not. Correct me if I'm wrong. Of course the valuation of what was bought would be much more than what it cost 30 years ago.
The yield goes down per new dollars invested because you get less new bang for your money as the valuation goes up-but what you got with your old money doesn't shrink in the same way.
If the valuation is $100/share and the dividend yield is 2%, I get $2. If the valuation is $200/share and the dividend yield is 1%, I still get $2.
People don’t spend yields. They spend dollars.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Will dividend spending only portfolio last forever ?
It's called yield on cost.
(It's the factor that is really compounding the dividends out.
Their are some excellent examples on how yield on
cost works on the internet).
Say the growth of the dividend is 7% per year.
(look at the dividends on VHDYX) The price can
be flat but the dividends keep growing. Yield on
cost is the hidden secret of dividend investing.
I wish I could have bought 30 years ago vs. today.
Compounding is the 8th wonder of the world...
(It's the factor that is really compounding the dividends out.
Their are some excellent examples on how yield on
cost works on the internet).
Say the growth of the dividend is 7% per year.
(look at the dividends on VHDYX) The price can
be flat but the dividends keep growing. Yield on
cost is the hidden secret of dividend investing.
I wish I could have bought 30 years ago vs. today.
Compounding is the 8th wonder of the world...
Re: Will dividend spending only portfolio last forever ?
Hypothetically, yes dividend spending will last for forever. Unfortunately, human beings most certainly will not. Fun to think about setting up a trust that pays the dividends to a particular cause forever. Something like a $100,000 portfolio that donates the dividends to the library, in perpetuity. I think Ben Franklin did something like this and it is still paying out today.
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Re: Will dividend spending only portfolio last forever ?
Here is a interesting case study of Warren Buffett
and his purchase of Coke Cola yield on cost.
(This is what the Janitor Next Door did).
Enjoy...this study.
https://www.suredividend.com/yield-on-cost/
and his purchase of Coke Cola yield on cost.
(This is what the Janitor Next Door did).
Enjoy...this study.
https://www.suredividend.com/yield-on-cost/
Re: Will dividend spending only portfolio last forever ?
Yield on cost is an absolutely terrible metric. I can't even fathom using it to make decisions. I'll guarantee you that WB doesn't even think about it when deciding to hold or sell something.
Here's a thought experiment:
You own investment A, which you bought 10 years ago for $1000. It's now worth $3,000 and pays you a dividend of $60 per year.
Investment B is available. $3000 of it will pay you $70 a year because B has a lower expense ratio than A. Otherwise they are identical.
Your "yield on cost" for A is 6% (60/1000). If you sell A and buy B your "yield on cost" for B will be 2.33% (70/3000).
Yield on cost would tell you to keep A and not buy B. That would be a bad decision assuming there were no other costs involved.
Here's a thought experiment:
You own investment A, which you bought 10 years ago for $1000. It's now worth $3,000 and pays you a dividend of $60 per year.
Investment B is available. $3000 of it will pay you $70 a year because B has a lower expense ratio than A. Otherwise they are identical.
Your "yield on cost" for A is 6% (60/1000). If you sell A and buy B your "yield on cost" for B will be 2.33% (70/3000).
Yield on cost would tell you to keep A and not buy B. That would be a bad decision assuming there were no other costs involved.
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Re: Will dividend spending only portfolio last forever ?
Using the Vanguard Balanced Index fund as a diversified portfolio (you previously mentioned using a diversified portfolio), someone who used the approach starting at the end of 1999 would have gotten 3.21% of the initial balance in income distributions during 2000. Adjusted for inflation, 1.72% of the initial balance would have been gotten in income distributions during 2013.
Last edited by FactualFran on Fri Aug 03, 2018 3:29 pm, edited 1 time in total.
Re: Will dividend spending only portfolio last forever ?
That is actually my plan. We already know our yearly expenses and our income starting next year, will be the combination our SS, non tax-deferred account dividends and iBond interest. At 70 1/2, will start pulling dividends from our 401ks.
Re: Will dividend spending only portfolio last forever ?
Fixed that for you. Dog food is so 1970s. Cat food is so 1960s.Nate79 wrote: ↑Thu Aug 02, 2018 8:16 pm Of course spending only the dividends is perpetual. If you just spend whatever the portfolio throws off in dividends the principle shares are never sold. Of course dividends fluctuate significantly so one year you may eat steak and another year dog food [free Costco food samples] but oh well. That's what happens when you have a bad strategy.
Re: Will dividend spending only portfolio last forever ?
If the dividends dropped by 25% in one year, how would you handle that?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Will dividend spending only portfolio last forever ?
Dividends get pooped on a lot in these forums -- for perfectly logical reasons. Dividends are a capital withdrawal that is the same as a divestiture through the sale of shares.
However, I think that the dismissiveness on these forums regarding dividends may be overdone. We all know that the investor's greatest enemy is not the market, high frequency traders, or even his broker. His greatest enemy is himself. If one views dividends as the rewards for being a business owner, it helps to keep a true investment mindset and stay the course.
Go ahead. Spend only your dividends. And yes, your portfolio should last more or less indefinitely with such a strategy since companies will not pay out more than what is tenable.
However, I think that the dismissiveness on these forums regarding dividends may be overdone. We all know that the investor's greatest enemy is not the market, high frequency traders, or even his broker. His greatest enemy is himself. If one views dividends as the rewards for being a business owner, it helps to keep a true investment mindset and stay the course.
Go ahead. Spend only your dividends. And yes, your portfolio should last more or less indefinitely with such a strategy since companies will not pay out more than what is tenable.
Buy right and hold tight.
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Re: Will dividend spending only portfolio last forever ?
***What I do not want is for this blog to go off the rails like they usually do...***
Here is a video explaining "yield on cost" & how you can use it in your portfolio.
(Their are many, many investors who believe in yield on cost).
enjoy...
https://www.youtube.com/watch?v=Zw5uUeecFKk
Here is a video explaining "yield on cost" & how you can use it in your portfolio.
(Their are many, many investors who believe in yield on cost).
enjoy...
https://www.youtube.com/watch?v=Zw5uUeecFKk
Re: Will dividend spending only portfolio last forever ?
I have no issue with "spend only dividends" per se. I know a lot of retirees who do that. The important point is that dividends do not march up all the time in lock-step with inflation. They can and do go down during economic downturns. Anyone planning to spend only dividends (which implies that there is no other source of spendable money) needs to be ready to make adjustments in their spending rate when dividends go down. But many people do that. Now, having said that, if the "spend dividends" strategy causes one to structure their portfolio in a markedly Un-diversified way, they also introduce additional risks to their cash flow.permport wrote: ↑Fri Aug 03, 2018 2:18 pm Dividends get pooped on a lot in these forums -- for perfectly logical reasons. Dividends are a capital withdrawal that is the same as a divestiture through the sale of shares.
However, I think that the dismissiveness on these forums regarding dividends may be overdone. We all know that the investor's greatest enemy is not the market, high frequency traders, or even his broker. His greatest enemy is himself. If one views dividends as the rewards for being a business owner, it helps to keep a true investment mindset and stay the course.
Go ahead. Spend only your dividends. And yes, your portfolio should last more or less indefinitely with such a strategy since companies will not pay out more than what is tenable.
Of course, one variation on the strategy is to spend less than your dividends in good years and sock away some of the extra to get you through the years when dividends are cut. Nothing wrong with that either.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Will dividend spending only portfolio last forever ?
That's why I made an exception for that.The Wizard wrote: ↑Fri Aug 03, 2018 11:25 amSome people have large pensions that pay their bills.willthrill81 wrote: ↑Thu Aug 02, 2018 9:03 pmIf you take into account that your portfolio may need to be twice as large as necessary in order to make it work, it's actually a really poor strategy. I personally don't want to wait an additional 10-15 years for my portfolio to grow that large. That's a huge loss of time in retirement for no real benefit unless you want to be the richest person in the cemetery or have really big bequest goals.
Their portfolio is simply fun money.
So spending at most 2% of portfolio per year is one way to have a decently large amount passed on to the next generation or to charity.
It's not always about maximizing retirement income...
The Sensible Steward
Re: Will dividend spending only portfolio last forever ?
That was one of the most moronic videos I've ever seen.snarlyjack wrote: ↑Fri Aug 03, 2018 2:22 pm ***What I do not want is for this blog to go off the rails like they usually do...***
Here is a video explaining "yield on cost" & how you can use it in your portfolio.
(Their are many, many investors who believe in yield on cost).
enjoy...
https://www.youtube.com/watch?v=Zw5uUeecFKk
Here's another thought experiment for you. Instead of holding the same fictional investment that grows its initial 3% dividend 10% per year for 20 years (as in the video), how about switching each and every year to a different investment that grows its initial 3% dividend 10% per year?
Guess what? After 20 years you'll have the exact same amount of money as in the video's example. But what does "yield on cost" tell you? Does it tell you that the two investment paths are equivalent? I don't think so.
Again, it's a useless metric. Or worse than useless if used to make investing decisions.
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Re: Will dividend spending only portfolio last forever ?
Let's kick it up a notch & look at my portfolio.
(now that we have the basic's covered).
I have 4 accounts.
1). 401K (small cap. blend, long term investing) 200 stocks.
2). Roth IRA (small cap. value, long term investing) 900 stocks.
3). Taxable account, Vanguard High Dividend Value Index Fund 400 stocks.
4). Taxable account, Vanguard mid cap. value Index fund 200 stocks.
Total diversified stocks = 1700 stocks, mostly index funds except for 401K.
Let's look at some numbers for long term growth.
enjoy...
https://paulmerriman.com/decade-returns/
(now that we have the basic's covered).
I have 4 accounts.
1). 401K (small cap. blend, long term investing) 200 stocks.
2). Roth IRA (small cap. value, long term investing) 900 stocks.
3). Taxable account, Vanguard High Dividend Value Index Fund 400 stocks.
4). Taxable account, Vanguard mid cap. value Index fund 200 stocks.
Total diversified stocks = 1700 stocks, mostly index funds except for 401K.
Let's look at some numbers for long term growth.
enjoy...
https://paulmerriman.com/decade-returns/
Re: Will dividend spending only portfolio last forever ?
This.Nate79 wrote: ↑Thu Aug 02, 2018 8:16 pm Of course spending only the dividends is perpetual. If you just spend whatever the portfolio throws off in dividends the principle shares are never sold. Of course dividends fluctuate significantly so one year you may eat steak and another year dog food but oh well. That's what happens when you have a bad strategy.
Have you determined that you can live on your dividends, no matter how little?
It's a plan, it's perpetual, does it make any sense for you?
This isn't just my wallet. It's an organizer, a memory and an old friend.
- arcticpineapplecorp.
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Re: Will dividend spending only portfolio last forever ?
blue chip? Like GE for instance? Looks like they cut their dividend in half between Sept 2017 and Dec 2017 and in half is where it's been since.
http://www.dividend.com/dividend-stocks ... -electric/
Blue chip like GM? The stock was worthless after their most recent bankruptcy. You lost your dividend and your principal. That's some blue chip stock.
https://www.google.com/search?q=gm+stoc ... fox-b-1-ab
The first blue chip stock ever was the dutch east indies company. People loved the dividends it paid.
https://en.wikipedia.org/wiki/Blue_chip_(stock_market)
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Re: Will dividend spending only portfolio last forever ?
Or, one year you fly coach rather than first class, and enjoy a steak rather than lobster.Nate79 wrote: ↑Thu Aug 02, 2018 8:16 pm Of course spending only the dividends is perpetual. If you just spend whatever the portfolio throws off in dividends the principle shares are never sold. Of course dividends fluctuate significantly so one year you may eat steak and another year dog food but oh well. That's what happens when you have a bad strategy.
It’s a bad strategy only if you don’t have enough assets to live from the dividends.
Be very careful if you think information makes you wise.