Dividend Only Investing Analyzed (latest ERN article)

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geerhardusvos
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Dividend Only Investing Analyzed (latest ERN article)

Post by geerhardusvos »

Interesting analysis on the LOYD approach using S&P500:

https://earlyretirementnow.com/2020/10/ ... s-part-40/
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Scooter57 »

Or hold on to cash and invest after the upcoming major correction that sends dividends to a higher rate. Note that the article's research found that people who bought in when P/Es were low did quite well. But the Fed has pushed so many desperate retirees into dividend stocks that their valuations have been pushed way up, causing their dividends to drop.

If we go into a prolonged recession with continuing, severe job losses, which will heavily impact the consumer-driven economy the yield on the S&P 500 or Total Market might hit 3 or 4% again. The S&P 500 hit 3.06% in 2009 and because babies are thrown out with the bath water, quite a few savvy investors were able to snag high quality consumer staple dividend stocks at ridiculously low prices.

Shwab's dividend fund, SCHD, would be one to keep an eye on as its yield could easily go up to 5% in a strong pullback. But right now, most of its major holdings are way too overvalued and as a result of the price appreciation pay pitiful dividends.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by sycamore »

Scooter57 wrote: Wed Oct 14, 2020 4:06 pm Or hold on to cash and invest after the upcoming major correction that sends dividends to a higher rate. Note that the article's research found that people who bought in when P/Es were low did quite well. But the Fed has pushed so many desperate retirees into dividend stocks that their valuations have been pushed way up, causing their dividends to drop.

If we go into a prolonged recession with continuing, severe job losses, which will heavily impact the consumer-driven economy the yield on the S&P 500 or Total Market might hit 3 or 4% again. The S&P 500 hit 3.06% in 2009 and because babies are thrown out with the bath water, quite a few savvy investors were able to snag high quality consumer staple dividend stocks at ridiculously low prices.

Shwab's dividend fund, SCHD, would be one to keep an eye on as its yield could easily go up to 5% in a strong pullback. But right now, most of its major holdings are way too overvalued and as a result of the price appreciation pay pitiful dividends.
Regarding the bolded part above, a nitpick is that dividends didn't drop because valuations went up -- it was the yields that dropped. There have been a few quarters where actual year-over-year dividends (in $/sh) dropped for S&P or Total Stock, but that was because enough companies cut unsustainable dividends due to the economic conditions / low earnings.

I agree there remains uncertainty of the impact of COVID/economy on the markets esp. consumer-related companies. We'll see what happens.

I do hold some VIG (Vanguard Dividend Appreciation) but I'm not a "dividend only" investor - VIG is ~20% of my stock funds. Don't remember how high the yield got during the 2007-2009 pullback (or even Mar. 2020). One concern with this fund is its criteria for inclusion may be too strict: if there's a big downturn, maybe a lot of the companies would either hold or cut dividend rate, but that would kick them out of the index. If too many were removed from the index, the fund would end up too concentrated / under diversified. That's a risk with this kind of fund.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Scooter57 »

It would have been more correct to say that the yield has dropped. Dividends for the entire S&P 500 have been rising steadily since 2009, but the prices of the stocks have been rising faster.

I looked carefully at VIG but I didn't like that 35% of it was in 10 stocks paying 1% dividends (or in the case of Disney, none.) So most of its dividend yield is coming from small regional banks and insurers, a group that are very exposed to customers suffering in a severe downturn and extremely low interest rates. I agree that in a longer downturn VIG would be worth another look.

But do I would think there will still be plenty of mega cap consumer staple dividend paying stocks left no matter what happens. They held up very well in the Financial Crisis. Though their prices dipped their earnings didn't and their yields were much higher.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by CyclingDuo »

Scooter57 wrote: Wed Oct 14, 2020 5:25 pm It would have been more correct to say that the yield has dropped. Dividends for the entire S&P 500 have been rising steadily since 2009, but the prices of the stocks have been rising faster.

I looked carefully at VIG but I didn't like that 35% of it was in 10 stocks paying 1% dividends (or in the case of Disney, none.) So most of its dividend yield is coming from small regional banks and insurers, a group that are very exposed to customers suffering in a severe downturn and extremely low interest rates. I agree that in a longer downturn VIG would be worth another look.

But do I would think there will still be plenty of mega cap consumer staple dividend paying stocks left no matter what happens. They held up very well in the Financial Crisis. Though their prices dipped their earnings didn't and their yields were much higher.
Keep in mind that VIG is 100% qualified dividends which is why it is loaded up with the type of stocks it is and why the yield is so low. The other Dividend funds/ETFs usually include some non-qualified, higher yielding divvy stocks. Not as tax friendly, of course....
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

From Karsten:
But for the rest of us, probably for most folks in the early retirement crowd who don’t have a six-figure income from a blog, the LOYD approach will likely not work in today’s dividend environment. The current S&P 500 yield, just under 2%, is too low and I don’t need to grow my nest egg anymore going forward. I’d much rather consume and withdraw a little bit more today and leave a smaller bequest to our daughter.
In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by hoops777 »

VIG may be a good fund but it is definitely not an income fund that a dividend centric investor wants to hold. The yield is simply too low.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Schlabba »

willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:
But for the rest of us, probably for most folks in the early retirement crowd who don’t have a six-figure income from a blog, the LOYD approach will likely not work in today’s dividend environment. The current S&P 500 yield, just under 2%, is too low and I don’t need to grow my nest egg anymore going forward. I’d much rather consume and withdraw a little bit more today and leave a smaller bequest to our daughter.
In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
Secretly a dividend investor. Feel free to ask why.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

Schlabba wrote: Thu Oct 15, 2020 2:30 pm
willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:
But for the rest of us, probably for most folks in the early retirement crowd who don’t have a six-figure income from a blog, the LOYD approach will likely not work in today’s dividend environment. The current S&P 500 yield, just under 2%, is too low and I don’t need to grow my nest egg anymore going forward. I’d much rather consume and withdraw a little bit more today and leave a smaller bequest to our daughter.
In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
The problem remains that the days of the S&P 500 paying 5% dividends are far behind in the rearview mirror. The only way you can come close to doing that today is by deviating substantially from a TSM approach (e.g. sector picking, stock picking). That may get you the yield you want, but it will very likely sacrifice long-term growth potential in the process, as Karsten pointed out in his prior post examining dividends. No free lunch with dividends.

It appears that the best case historic scenario was that a dividend focused approach did no worse than a total return approach.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

A nice article, as usual from ERN. But he might have mentioned buybacks to add some context. And it is an odd feature of the dividend only strategy that how a company chooses to return excess earnings to investors impacts how much money you have available to spend...
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Schlabba »

willthrill81 wrote: Thu Oct 15, 2020 2:42 pm
Schlabba wrote: Thu Oct 15, 2020 2:30 pm
willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:
But for the rest of us, probably for most folks in the early retirement crowd who don’t have a six-figure income from a blog, the LOYD approach will likely not work in today’s dividend environment. The current S&P 500 yield, just under 2%, is too low and I don’t need to grow my nest egg anymore going forward. I’d much rather consume and withdraw a little bit more today and leave a smaller bequest to our daughter.
In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
The problem remains that the days of the S&P 500 paying 5% dividends are far behind in the rearview mirror. The only way you can come close to doing that today is by deviating substantially from a TSM approach (e.g. sector picking, stock picking). That may get you the yield you want, but it will very likely sacrifice long-term growth potential in the process, as Karsten pointed out in his prior post examining dividends. No free lunch with dividends.

It appears that the best case historic scenario was that a dividend focused approach did no worse than a total return approach.
You don’t need to sector/stock pick to get to a safe-withdrawal-rate-yield. Like the article mentions, there are funds that do that for you like the “VYM: Vanguard High Dividend Yield Index Fund ETF. Currently a yield around 3.5%” and the one I hold, “ FTSE All-World High Dividend Yield UCITS ETF”.

Also don’t forget that choosing such funds
it didn’t hurt you either
Secretly a dividend investor. Feel free to ask why.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

Schlabba wrote: Thu Oct 15, 2020 2:58 pm
willthrill81 wrote: Thu Oct 15, 2020 2:42 pm
Schlabba wrote: Thu Oct 15, 2020 2:30 pm
willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:
But for the rest of us, probably for most folks in the early retirement crowd who don’t have a six-figure income from a blog, the LOYD approach will likely not work in today’s dividend environment. The current S&P 500 yield, just under 2%, is too low and I don’t need to grow my nest egg anymore going forward. I’d much rather consume and withdraw a little bit more today and leave a smaller bequest to our daughter.
In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
The problem remains that the days of the S&P 500 paying 5% dividends are far behind in the rearview mirror. The only way you can come close to doing that today is by deviating substantially from a TSM approach (e.g. sector picking, stock picking). That may get you the yield you want, but it will very likely sacrifice long-term growth potential in the process, as Karsten pointed out in his prior post examining dividends. No free lunch with dividends.

It appears that the best case historic scenario was that a dividend focused approach did no worse than a total return approach.
You don’t need to sector/stock pick to get to a safe-withdrawal-rate-yield. Like the article mentions, there are funds that do that for you like the “VYM: Vanguard High Dividend Yield Index Fund ETF. Currently a yield around 3.5%” and the one I hold, “ FTSE All-World High Dividend Yield UCITS ETF”.

Also don’t forget that choosing such funds
it didn’t hurt you either
If there's no inherent advantage, then why deviate from a total return approach?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Broken Man 1999 »

willthrill81 wrote: Thu Oct 15, 2020 3:01 pm
Schlabba wrote: Thu Oct 15, 2020 2:58 pm
willthrill81 wrote: Thu Oct 15, 2020 2:42 pm
Schlabba wrote: Thu Oct 15, 2020 2:30 pm
willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:



In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
The problem remains that the days of the S&P 500 paying 5% dividends are far behind in the rearview mirror. The only way you can come close to doing that today is by deviating substantially from a TSM approach (e.g. sector picking, stock picking). That may get you the yield you want, but it will very likely sacrifice long-term growth potential in the process, as Karsten pointed out in his prior post examining dividends. No free lunch with dividends.

It appears that the best case historic scenario was that a dividend focused approach did no worse than a total return approach.
You don’t need to sector/stock pick to get to a safe-withdrawal-rate-yield. Like the article mentions, there are funds that do that for you like the “VYM: Vanguard High Dividend Yield Index Fund ETF. Currently a yield around 3.5%” and the one I hold, “ FTSE All-World High Dividend Yield UCITS ETF”.

Also don’t forget that choosing such funds
it didn’t hurt you either
If there's no inherent advantage, then why deviate from a total return approach?
Indeed! Total return works on the equity side, and, depending of quality of bonds/bond funds, can also work on the bond side.

Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.

Broken Man 1999
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Broken Man 1999 »

willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
Yeah, the old fear of eating their "seed-corn." So, some start looking for equities that act like bonds, and bonds that act like equities, and when the dust settles, their portfolio risk is higher. But, by golly they didn't sell any shares! :oops:

I can sympathize with their issues, I really can. I'm sure having something that worked for many years, like dividend stocks and/or bond yield and suddenly having to face a new investing environment is tough.

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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by 000 »

Dividends have no transaction costs.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

000 wrote: Thu Oct 15, 2020 4:04 pm Dividends have no transaction costs.
What is your point though? Most of us have mutual funds with no transaction costs (though perhaps limits on frequency of trading)?
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by 000 »

Da5id wrote: Thu Oct 15, 2020 4:06 pm
000 wrote: Thu Oct 15, 2020 4:04 pm Dividends have no transaction costs.
What is your point though? Most of us have mutual funds with no transaction costs (though perhaps limits on frequency of trading)?
Mutual funds pay for the same transaction costs. And you are paying for the transaction costs of those who trade more frequently than you.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

000 wrote: Thu Oct 15, 2020 4:07 pm
Da5id wrote: Thu Oct 15, 2020 4:06 pm
000 wrote: Thu Oct 15, 2020 4:04 pm Dividends have no transaction costs.
What is your point though? Most of us have mutual funds with no transaction costs (though perhaps limits on frequency of trading)?
Mutual funds pay for the same transaction costs. And you are paying for the transaction costs of those who trade more frequently than you.
Hmm. Given that tracking error on index funds is so slim, I'm not at all clear that your argument, which seems to be that these costs are a material factor, is correct.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by MathIsMyWayr »

willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
No, nobody is that naive or stupid as you imagine. The reason why some are reluctant to sell shares is not the reduction of the shares they own, but the reduced fraction of the market they own. If I own 0.001 ppb of the total market and sell 1%, then I will end up owning only 0.00099 ppb. Don't step on a slippery slope and hold the ground. If I get dividends instead, isn't my 1% preserved? Same thing, but a slight different point of view. Are they smart? Maybe not. Are they naive or stupid? No.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by 000 »

Da5id wrote: Thu Oct 15, 2020 4:09 pm Hmm. Given that tracking error on index funds is so slim, I'm not at all clear that your argument, which seems to be that these costs are a material factor, is correct.
It depends on the particular day you sell, e.g. if you are a demander of liquidity on a volatile day.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

MathIsMyWayr wrote: Thu Oct 15, 2020 4:34 pm
willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
No, nobody is that naive or stupid as you imagine. The reason why some are reluctant to sell shares is not the reduction of the shares they own, but the reduced fraction of the market they own. If I own 0.001 ppb of the total market and sell 1%, then I will end up owning only 0.00099 ppb. Don't step on a slippery slope and hold the ground. If I get dividends instead, isn't my 1% preserved? Same thing, but a slight different point of view. Are they smart? Maybe not. Are they naive or stupid? No.
Owning 'fractions of the market' is just as irrelevant as the number of shares one owns.

There's only one correct view of the value of one's portfolio: its dollar value.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by MathIsMyWayr »

willthrill81 wrote: Thu Oct 15, 2020 4:41 pm
MathIsMyWayr wrote: Thu Oct 15, 2020 4:34 pm
willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
No, nobody is that naive or stupid as you imagine. The reason why some are reluctant to sell shares is not the reduction of the shares they own, but the reduced fraction of the market they own. If I own 0.001 ppb of the total market and sell 1%, then I will end up owning only 0.00099 ppb. Don't step on a slippery slope and hold the ground. If I get dividends instead, isn't my 1% preserved? Same thing, but a slight different point of view. Are they smart? Maybe not. Are they naive or stupid? No.
Owning 'fractions of the market' is just as irrelevant as the number of shares one owns.

There's only one correct view of the value of one's portfolio: its dollar value.
A cowboy doesn't always have to count the number heads of his cattle, he may also count the number of tails. No fancy math is involved.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

000 wrote: Thu Oct 15, 2020 4:39 pm
Da5id wrote: Thu Oct 15, 2020 4:09 pm Hmm. Given that tracking error on index funds is so slim, I'm not at all clear that your argument, which seems to be that these costs are a material factor, is correct.
It depends on the particular day you sell, e.g. if you are a demander of liquidity on a volatile day.
In the past 10 years, VTSAX (Vanguard Admiral Total Stock Market fund) has tracked its benchmark within 0.01% annually. I think any claim that these costs are material needs some better justification. Particularly in the context of whether it is a factor in deciding whether a dividend only investing strategy has merit, which I assume you to be claiming as that is the purpose of the thread?
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by 000 »

Da5id wrote: Thu Oct 15, 2020 4:54 pm
000 wrote: Thu Oct 15, 2020 4:39 pm
Da5id wrote: Thu Oct 15, 2020 4:09 pm Hmm. Given that tracking error on index funds is so slim, I'm not at all clear that your argument, which seems to be that these costs are a material factor, is correct.
It depends on the particular day you sell, e.g. if you are a demander of liquidity on a volatile day.
In the past 10 years, VTSAX (Vanguard Admiral Total Stock Market fund) has tracked its benchmark within 0.01% annually. I think any claim that these costs are material needs some better justification. Particularly in the context of whether it is a factor in deciding whether a dividend only investing strategy has merit, which I assume you to be claiming as that is the purpose of the thread?
You are comparing holding with holding. The correct comparison is holding with selling.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

000 wrote: Thu Oct 15, 2020 5:03 pm
Da5id wrote: Thu Oct 15, 2020 4:54 pm In the past 10 years, VTSAX (Vanguard Admiral Total Stock Market fund) has tracked its benchmark within 0.01% annually. I think any claim that these costs are material needs some better justification. Particularly in the context of whether it is a factor in deciding whether a dividend only investing strategy has merit, which I assume you to be claiming as that is the purpose of the thread?
You are comparing holding with holding. The correct comparison is holding with selling.
The transaction costs are borne by the mutual fund, not the buyer/seller unless there is a sales charge/redemption fee, which VTSAX doesn't have. If the transactional costs of all sellers (and buyers) add up to anything much, it should cause the fund return to diverge from the index. It does not.

Again, are you saying this is a real difference in favor of a dividend strategy vs a total return one? Or are you just arguing? I claim it is not a real difference.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by 000 »

Da5id wrote: Thu Oct 15, 2020 5:18 pm
000 wrote: Thu Oct 15, 2020 5:03 pm
Da5id wrote: Thu Oct 15, 2020 4:54 pm In the past 10 years, VTSAX (Vanguard Admiral Total Stock Market fund) has tracked its benchmark within 0.01% annually. I think any claim that these costs are material needs some better justification. Particularly in the context of whether it is a factor in deciding whether a dividend only investing strategy has merit, which I assume you to be claiming as that is the purpose of the thread?
You are comparing holding with holding. The correct comparison is holding with selling.
The transaction costs are borne by the mutual fund, not the buyer/seller unless there is a sales charge/redemption fee, which VTSAX doesn't have. If the transactional costs of all sellers (and buyers) add up to anything much, it should cause the fund return to diverge from the index. It does not.

Again, are you saying this is a real difference in favor of a dividend strategy vs a total return one? Or are you just arguing? I claim it is not a real difference.
I don't know how much of a quantitative difference it makes, but you are still missing the fact that the day on which I sell matters, but the dividends just show up without any such consideration. I don't specifically pursue a dividend strategy, but am not averse to dividends either. I just like to point out things the total return camp neglects to mention.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Da5id »

000 wrote: Thu Oct 15, 2020 5:31 pm I don't know how much of a quantitative difference it makes, but you are still missing the fact that the day on which I sell matters, but the dividends just show up without any such consideration. I don't specifically pursue a dividend strategy, but am not averse to dividends either. I just like to point out things the total return camp neglects to mention.
I'm arguing that the quantitative difference is basically nonexistent. And that the transactional costs (related to day you sell) don't matter for any big liquid index fund. The price the day you sell of course matters in terms of your gain/loss.

I don't hate or love dividends. I'd rather not get them in taxable accounts (compared to buyback). Don't care in sheltered accounts. And I understand that people like the convenience. And that many have emotional issues about selling holdings (particularly at a loss) to raise money. But I agree with the ERN article that this isn't a great strategy...
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Scooter57 »

Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by MathIsMyWayr »

[ quoted post removed by admin LadyGeek]

What should we call anyone who cannot or refuses to connect the number of shares to the market value? How many know the number of shares of VTSAX they have? I bet everybody knows that his worth in VTSAX dropped 1% if VTSAX dropped 1% even if the number of shares unchanged.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Scooter57 »

willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover. For retirees who are no longer earning, this is not trivial.

I find it puzzling that this is heresy here on Bogleheads, but it makes sense to me. Perhaps the problem is that too many people here are younger high income earners who don't rely on their investments for current income or are retirees with huge portfolios who can sell stock at lower prices because they have so much more of it left. So they dont understand the appeal. The retired people I know who rely on dividends to supplement Social Security seem quite happy and don't sell their holdings out of fear when markets drop dramatically. So what's wrong with that? They are maybe trading some potential price appreciation for more stability.

That said, I don't think pursuing high dividend strategies is wise, because too often that high dividend is a sign of trouble ahead. But in a market where P/E multiples of many of the stocks dominating the portfolio are over 30 as looming unemployment is engulfing many industries, you could do worse than tilt towards the kind of steady Consumer Staples stocks that won't soar like the FAANGs and Tesla that now dominatethe indexes but will still be around when the smoke clears.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by bluquark »

Scooter57 wrote: Thu Oct 15, 2020 7:34 pm Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover. For retirees who are no longer earning, this is not trivial.

I find it puzzling that this is heresy here on Bogleheads, but it makes sense to me. Perhaps the problem is that too many people here are younger high income earners who don't rely on their investments for current income
Another difference with younger investors is that when we started investing, all our mutual funds were set to reinvested dividends by default. Dividends are then buried in the transaction history and cost basis details and have no effect at all on the main account summary webpage, so we naturally learned to think in terms of total return, with dividends coming across as an irrelevant technicality.

Brokerages like Vanguard and Fidelity deliberately engineered this mindset shift in younger investors, I think.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by willthrill81 »

Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover.
That income is not separate from the total return; it is part of it.

I don't recall anyone here claiming that it's a good idea to assume that stocks will go up throughout your retirement. On the contrary, many here take a cue from the '4% rule of thumb' and suggest starting one's withdrawals at no more than that rate, and many start even lower. Historically, this was very likely to lead to one's portfolio continuing to grow. In other words, the '4% rule of thumb' was based around the worst starting periods for U.S. retirees in history, not the average and certainly not returns like we've seen over the prior decade.

Further, living only on dividends these days requires about 59x your annual spending. Never has such a multiple been needed for those focusing on a total return approach. Half that much would have lasted 50+ years through any period of U.S. history for which we have data.
bluquark wrote: Thu Oct 15, 2020 7:52 pmAnother difference with younger investors is that when we started investing, all our mutual funds were set to reinvested dividends by default. Dividends are then buried in the transaction history and cost basis details and have no effect at all on the main account summary webpage, so we naturally learned to think in terms of total return, with dividends coming across as an irrelevant technicality.
The only rational argument for a company to pay dividends to its shareholders is if it cannot find a good alternative use for the funds.

If I own a company that has $10,000 in its checking account, and I get a check for that $10,000 sent to me, my net worth has not changed because I owned the funds the whole time. The increase in my wealth came with the company presumably earned that $10,000. The same is true of companies I own via shares. Their profits are proportionately my profits. Them sending me a dividend does not increase my profits; it's merely a transfer of my own money from one pocket to another.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by hoops777 »

willthrill81 wrote: Thu Oct 15, 2020 8:40 pm
Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover.
That income is not separate from the total return; it is part of it.

I don't recall anyone here claiming that it's a good idea to assume that stocks will go up throughout your retirement. On the contrary, many here take a cue from the '4% rule of thumb' and suggest starting one's withdrawals at no more than that rate, and many start even lower. Historically, this was very likely to lead to one's portfolio continuing to grow. In other words, the '4% rule of thumb' was based around the worst starting periods for U.S. retirees in history, not the average and certainly not returns like we've seen over the prior decade.

Further, living only on dividends these days requires about 59x your annual spending. Never has such a multiple been needed for those focusing on a total return approach. Half that much would have lasted 50+ years through any period of U.S. history for which we have data.
bluquark wrote: Thu Oct 15, 2020 7:52 pmAnother difference with younger investors is that when we started investing, all our mutual funds were set to reinvested dividends by default. Dividends are then buried in the transaction history and cost basis details and have no effect at all on the main account summary webpage, so we naturally learned to think in terms of total return, with dividends coming across as an irrelevant technicality.
The only rational argument for a company to pay dividends to its shareholders is if it cannot find a good alternative use for the funds.

If I own a company that has $10,000 in its checking account, and I get a check for that $10,000 sent to me, my net worth has not changed because I owned the funds the whole time. The increase in my wealth came with the company presumably earned that $10,000. The same is true of companies I own via shares. Their profits are proportionately my profits. Them sending me a dividend does not increase my profits; it's merely a transfer of my own money from one pocket to another.
I think it is a bit arrogant to state what you say is the “only “ rational argument.
I believe it rational for a company that knows millions of non Bogleheads like stocks that pay dividends and therefore pay out a nice dividend to attract investment.

I will also say most dividend investors use dividends to SUUPLEMENT their income. For example they need 500 a month beyond their SS and that is what they feel comfortable doing. Most are not investing in the sp 500 for their dividend income.

There is no right or wrong here. It is a preference and people accept the returns in a way that they are comfortable with.
K.I.S.S........so easy to say so difficult to do.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Rowan Oak »

willthrill81 wrote: Thu Oct 15, 2020 4:41 pm
MathIsMyWayr wrote: Thu Oct 15, 2020 4:34 pm
willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
No, nobody is that naive or stupid as you imagine. The reason why some are reluctant to sell shares is not the reduction of the shares they own, but the reduced fraction of the market they own. If I own 0.001 ppb of the total market and sell 1%, then I will end up owning only 0.00099 ppb. Don't step on a slippery slope and hold the ground. If I get dividends instead, isn't my 1% preserved? Same thing, but a slight different point of view. Are they smart? Maybe not. Are they naive or stupid? No.
Owning 'fractions of the market' is just as irrelevant as the number of shares one owns.

There's only one correct view of the value of one's portfolio: its dollar value.
This.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by JustinR »

MathIsMyWayr wrote: Thu Oct 15, 2020 4:34 pm
willthrill81 wrote: Thu Oct 15, 2020 3:38 pm
Broken Man 1999 wrote: Thu Oct 15, 2020 3:12 pm Seems easy enough to do, I don't get the reluctance of some investors, so far as selling things.
I believe that the reason for this is because they view their capital as the number of shares they own rather than the market value of those shares (i.e. number of shares multiplied by the market price per share). Thus, if they sell any shares, they are 'eating into their capital'.
No, nobody is that naive or stupid as you imagine. The reason why some are reluctant to sell shares is not the reduction of the shares they own, but the reduced fraction of the market they own. If I own 0.001 ppb of the total market and sell 1%, then I will end up owning only 0.00099 ppb. Don't step on a slippery slope and hold the ground. If I get dividends instead, isn't my 1% preserved? Same thing, but a slight different point of view. Are they smart? Maybe not. Are they naive or stupid? No.
The irony here is hilarious.

The number of shares you own is completely irrelevant. All that matters is the actual monetary value.
Last edited by JustinR on Fri Oct 16, 2020 4:02 am, edited 2 times in total.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by JustinR »

Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover. For retirees who are no longer earning, this is not trivial.

I find it puzzling that this is heresy here on Bogleheads, but it makes sense to me. Perhaps the problem is that too many people here are younger high income earners who don't rely on their investments for current income or are retirees with huge portfolios who can sell stock at lower prices because they have so much more of it left. So they dont understand the appeal. The retired people I know who rely on dividends to supplement Social Security seem quite happy and don't sell their holdings out of fear when markets drop dramatically. So what's wrong with that? They are maybe trading some potential price appreciation for more stability.

That said, I don't think pursuing high dividend strategies is wise, because too often that high dividend is a sign of trouble ahead. But in a market where P/E multiples of many of the stocks dominating the portfolio are over 30 as looming unemployment is engulfing many industries, you could do worse than tilt towards the kind of steady Consumer Staples stocks that won't soar like the FAANGs and Tesla that now dominatethe indexes but will still be around when the smoke clears.
Getting a dividend at low prices is exactly the same as selling at low prices, but if spending this much time here hasn't convinced you of that yet, then nothing will.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Schlabba »

JustinR wrote: Thu Oct 15, 2020 10:30 pm
Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover. For retirees who are no longer earning, this is not trivial.

I find it puzzling that this is heresy here on Bogleheads, but it makes sense to me. Perhaps the problem is that too many people here are younger high income earners who don't rely on their investments for current income or are retirees with huge portfolios who can sell stock at lower prices because they have so much more of it left. So they dont understand the appeal. The retired people I know who rely on dividends to supplement Social Security seem quite happy and don't sell their holdings out of fear when markets drop dramatically. So what's wrong with that? They are maybe trading some potential price appreciation for more stability.

That said, I don't think pursuing high dividend strategies is wise, because too often that high dividend is a sign of trouble ahead. But in a market where P/E multiples of many of the stocks dominating the portfolio are over 30 as looming unemployment is engulfing many industries, you could do worse than tilt towards the kind of steady Consumer Staples stocks that won't soar like the FAANGs and Tesla that now dominatethe indexes but will still be around when the smoke clears.
Getting a dividend at low prices is exactly the same as selling at low prices, but if spending this much time here hasn't convinced you of that yet, then nothing will.
Part of the stock market is speculation. Selling shares at 100 P/E like Japan in 1989 is very different from selling shares at 10 P/E after a bursting bubble. Dividends don't have this effect because they are simply a bank transfer. But if spending this much time here hasn't convinced you of that yet, then nothing will.
willthrill81 wrote: Thu Oct 15, 2020 3:01 pm
Schlabba wrote: Thu Oct 15, 2020 2:58 pm
willthrill81 wrote: Thu Oct 15, 2020 2:42 pm
Schlabba wrote: Thu Oct 15, 2020 2:30 pm
willthrill81 wrote: Thu Oct 15, 2020 12:57 pm From Karsten:



In other words, why should I build my portfolio to 50x when 30x would have always worked, even for very long retirements, and provided for much less volatile withdrawals?
Thats just a tiny quote from the article. You could read it a different way as well...
Again, some of the most painful declines occurred early on. In contrast, retirement cohorts during the 1950 to the late 70s era had extremely stable dividend income. And again, that means over 30-year windows. So only when the 30-year windows reached the Global Financial Crisis era did you experience 20+% declines again. And also noteworthy: after the Global Financial Crisis, we haven’t even seen any drop in the real dividend income.
...
During the Global Financial Crisis and until about 2015, the three funds DVY, SDY and VYM had returns roughly in line with S&P 500. Some better, some worse than the broad index. Hence my verdict in the Yield Shield posts last year: higher dividend yield didn’t help you with Sequence Risk, but at least it didn’t hurt you either.
So it has been "extremely stable" for a very long time and choosing a high-dividend-yield fund did not hurt performance.

He even says it can work if you add bonds in the mix:
To conclude, most retirees will do better hedging against Sequence Risk through a diversified portfolio with somewhere around 60-80% equities and the rest in safe(r) assets; cash, government bonds, etc. But that said, keep in mind that a glidepath approach (see Part 19 and Part 20) has a similar flavor to the LOYD. Think of the bond portion as funding the difference between the dividend yield and your retirement budget early on. And by the time you’ve depleted the bond portion, the dividend income is likely high enough to (almost) fund your entire budget. So, the dividend approach works out in that way. And hat’s the perfect, nice conciliatory note to end this post today!
The problem remains that the days of the S&P 500 paying 5% dividends are far behind in the rearview mirror. The only way you can come close to doing that today is by deviating substantially from a TSM approach (e.g. sector picking, stock picking). That may get you the yield you want, but it will very likely sacrifice long-term growth potential in the process, as Karsten pointed out in his prior post examining dividends. No free lunch with dividends.

It appears that the best case historic scenario was that a dividend focused approach did no worse than a total return approach.
You don’t need to sector/stock pick to get to a safe-withdrawal-rate-yield. Like the article mentions, there are funds that do that for you like the “VYM: Vanguard High Dividend Yield Index Fund ETF. Currently a yield around 3.5%” and the one I hold, “ FTSE All-World High Dividend Yield UCITS ETF”.

Also don’t forget that choosing such funds
it didn’t hurt you either
If there's no inherent advantage, then why deviate from a total return approach?
That is actually a really good question. I'm totally fine with anyone choosing their own withdrawal method, I don't mind. Just like the other withdrawal methods (https://www.bogleheads.org/wiki/Withdrawal_methods), it does have different characteristics. I see it as a "variable withdrawal based on corporate earnings". It is variable because dividends are not constant, however it is not as variable as a withdrawal based on price alone. I like the relative stability, but I also holds bonds because I know I cannot count on the dividends.

You can choose the constant-dollar approach. That approach doesn't have a huge appeal to me. In practice, would you really not want to spend a little extra when your investments are taking off and would you really keep spending during a downturn? I'd like some some flexibility in my budget.
Secretly a dividend investor. Feel free to ask why.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by geerhardusvos »

hoops777 wrote: Thu Oct 15, 2020 9:31 pm
willthrill81 wrote: Thu Oct 15, 2020 8:40 pm
Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm
Scooter57 wrote: Thu Oct 15, 2020 6:09 pm Everyone loves Total Return after a decade or more of manipulated rates pushing up stocks. When you have that decade of slowly sinking or stagnant stock prices, the point of dividend oriented investing will become clearer.
So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover.
That income is not separate from the total return; it is part of it.

The only rational argument for a company to pay dividends to its shareholders is if it cannot find a good alternative use for the funds.

If I own a company that has $10,000 in its checking account, and I get a check for that $10,000 sent to me, my net worth has not changed because I owned the funds the whole time. The increase in my wealth came with the company presumably earned that $10,000. The same is true of companies I own via shares. Their profits are proportionately my profits. Them sending me a dividend does not increase my profits; it's merely a transfer of my own money from one pocket to another.
I think it is a bit arrogant to state what you say is the “only “ rational argument.
I believe it rational for a company that knows millions of non Bogleheads like stocks that pay dividends and therefore pay out a nice dividend to attract investment.

I will also say most dividend investors use dividends to SUUPLEMENT their income. For example they need 500 a month beyond their SS and that is what they feel comfortable doing. Most are not investing in the sp 500 for their dividend income.

There is no right or wrong here. It is a preference and people accept the returns in a way that they are comfortable with.
Is it rational for millions of people to flock to dividend stocks instead of owning the market? is that the right approach? Well, Jack Bogle would say owning the whole market is fundamentally the right thing to do for long term investors, and dividend investors chasing sectors and dividend stocks/funds veer wildly outside of what we consider a “right” investing approach here. And many of those millions of people fundamentally don’t understand dividends as we have even seen in this thread.
VTSAX and chill
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by hoops777 »

geerhardusvos wrote: Fri Oct 16, 2020 1:14 pm
hoops777 wrote: Thu Oct 15, 2020 9:31 pm
willthrill81 wrote: Thu Oct 15, 2020 8:40 pm
Scooter57 wrote: Thu Oct 15, 2020 7:34 pm
willthrill81 wrote: Thu Oct 15, 2020 6:12 pm

So dividends can make good returns out of bad returns?
Dividends allow you to hold your stocks without needing to sell them at low prices because you are getting income while you wait for the price to recover.
That income is not separate from the total return; it is part of it.

The only rational argument for a company to pay dividends to its shareholders is if it cannot find a good alternative use for the funds.

If I own a company that has $10,000 in its checking account, and I get a check for that $10,000 sent to me, my net worth has not changed because I owned the funds the whole time. The increase in my wealth came with the company presumably earned that $10,000. The same is true of companies I own via shares. Their profits are proportionately my profits. Them sending me a dividend does not increase my profits; it's merely a transfer of my own money from one pocket to another.
I think it is a bit arrogant to state what you say is the “only “ rational argument.
I believe it rational for a company that knows millions of non Bogleheads like stocks that pay dividends and therefore pay out a nice dividend to attract investment.

I will also say most dividend investors use dividends to SUUPLEMENT their income. For example they need 500 a month beyond their SS and that is what they feel comfortable doing. Most are not investing in the sp 500 for their dividend income.

There is no right or wrong here. It is a preference and people accept the returns in a way that they are comfortable with.
Is it rational for millions of people to flock to dividend stocks instead of owning the market? is that the right approach? Well, Jack Bogle would say owning the whole market is fundamentally the right thing to do, and dividend investors chasing sectors and dividend stocks/funds veer wildly outside of what we consider a “right” investing approach here. And many of those millions of people fundamentally don’t understand dividends as we have even seen in this thread.
Jack Bogle did not own what or what is not rational.
I hate to inform you there are many great investors who do not follow Jack Bogle. Believe it or not.

There are all kinds of dividend investors.Yet you all choose to lump them all together as irrational.Very arrogant.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by geerhardusvos »

hoops777 wrote: Fri Oct 16, 2020 1:31 pm Jack Bogle did not own what or what is not rational.
I hate to inform you there are many great investors who do not follow Jack Bogle. Believe it or not.

There are all kinds of dividend investors.Yet you all choose to lump them all together as irrational.Very arrogant.
Well on a boglehead forum, I wonder what you’re gonna hear about?

Sure, there are many ways to invest. Almost anyone can be successful at almost any investment if given enough time. But what’s the most efficient horizon? What’s the simple path to passive wealth?
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Re: Dividend Only Investing Analyzed (latest ERN article)

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The obsessional dividend dissers are deluded by their belief in theory. If the stock price varied in lock step with the company's earnings they would be right. But they don't.

During the Financial crisis the stock price of many solid co!panies plummeted though their earnings barely twitched. They continued paying or even raising their dividends. If you just spent the dividend rather than sell the shares for cash at the low you ended up ahead when the price recovered.

And though it is repeated here ad nauseum that the dividend payment reduces the share price, this is only true in funds that stockpile the dividends and then pay them a few times a year. If you watch individual stocks you will see that some go up after dividends are paid, some go down, but as usual the price is a combination of momentum, emotion, manipulation, etc as it is every other day and only occasionally reflects the company's assets.

Companies that don't pay dividends often waste their money on buybacks that ensure top execs can cash out their options. Then they issue more stock. The investor who holds does not benefit, unlike the holder who benefits from the dividend payment.

The theorists here are forgetting that the whole reason stocks were invented was so people could buy a share of a company and receive a commensurate share of the company's profits. Wall Street convinced you that you didn't need a regular share of profits by turning stocks into Beanie Babies. Not so coincidentally this happened as executive compensation surged. I will continue to prefer investments in companies that share their earning with supposed owners.
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Re: Dividend Only Investing Analyzed (latest ERN article)

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Scooter57 wrote: Fri Oct 16, 2020 5:30 pm The obsessional dividend dissers are deluded by their belief in theory. If the stock price varied in lock step with the company's earnings they would be right. But they don't.

During the Financial crisis the stock price of many solid co!panies plummeted though their earnings barely twitched. They continued paying or even raising their dividends. If you just spent the dividend rather than sell the shares for cash at the low you ended up ahead when the price recovered.

And though it is repeated here ad nauseum that the dividend payment reduces the share price, this is only true in funds that stockpile the dividends and then pay them a few times a year. If you watch individual stocks you will see that some go up after dividends are paid, some go down, but as usual the price is a combination of momentum, emotion, manipulation, etc as it is every other day and only occasionally reflects the company's assets.

Companies that don't pay dividends often waste their money on buybacks that ensure top execs can cash out their options. Then they issue more stock. The investor who holds does not benefit, unlike the holder who benefits from the dividend payment.

The theorists here are forgetting that the whole reason stocks were invented was so people could buy a share of a company and receive a commensurate share of the company's profits. Wall Street convinced you that you didn't need a regular share of profits by turning stocks into Beanie Babies. Not so coincidentally this happened as executive compensation surged. I will continue to prefer investments in companies that share their earning with supposed owners.
So the key to higher total returns is to pursue a high dividends approach? I wonder why the finance academics hadn't come up with that one already...
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Re: Dividend Only Investing Analyzed (latest ERN article)

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“You should understand that when you buy a stock that doesn’t pay a dividend, that is not an investment, that is a speculation,” he says. “Because the only way you can make money is it has to go up. And there are many periods in the market’s history where stocks don’t go up…and if the company isn’t paying out a portion of a dividend to you, you cannot make money.”
https://www.wsj.com/articles/shark-tank ... 1549249740
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by RAchip »

With some work, you can put together a reasonably diversified portfolio of 20 or so established blue chip companies (no REITs or MLPs) that collectively pay total dividends in the range of 3.5-4.5% of your initial investment. And you can reasonably expect the dividends to grow in an amount that at least matches inflation.

The boglehead argument as I understand it is that you would be better off just buying a low cost s&p 500 fund, taking its dividend (now around 1.8%) and selling shares to produce additional income in the amount you need (4% for example). This approach is better (the argument goes) because the growth in the market value of the s&p 500 apart from dividends (which you are taking and spending) is likely to be greater than the growth in the market value (again excluding dividends withdrawn) of any 20 or so individual stocks you might pick for an individual dividend stock portfolio.

I am not sure which approach is better. They both seem fairly reasonable. I do concede that the s&p 500 approach is probably a little less risky and likely involves less work than the individual stock portfolio approach.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by Scooter57 »

willthrill81 wrote: Fri Oct 16, 2020 6:35 pm
So the key to higher total returns is to pursue a high dividends approach? I wonder why the finance academics hadn't come up with that one already...
A dividends strategy is a way to hedge your investments. Just as is the case with diversification, which Bogleheads love, and which usually lowers total return, a dividend strategy at times gives up some of the gain from rampant speculation markets in favor of a stream of income paid by companies that are earning and sharing actual profits.

Re Finance Academics, Burton Malkiel is a very distinguished Finance Professor and was a long time crony of Bogle. he has been actively promoting dividend strategies ever since rates collapsed. He is not alone. Given the poor performance of the factor strategies of the academics that are so beloved here, your appeal to authority seems unfortunate. Academics mostly excel at backtesting, which other academics have proven is a very poor way to make investment decisions.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by geerhardusvos »

7eight9 wrote: Fri Oct 16, 2020 6:38 pm “You should understand that when you buy a stock that doesn’t pay a dividend, that is not an investment, that is a speculation,” he says. “Because the only way you can make money is it has to go up. And there are many periods in the market’s history where stocks don’t go up…and if the company isn’t paying out a portion of a dividend to you, you cannot make money.”
https://www.wsj.com/articles/shark-tank ... 1549249740
Garbage advice. :oops:

Bitcoin is speculation.

Investing in public companies isn’t “speculation” — especially when you own the whole market. It’s a bunch of individual companies working as hard as they can provide value to customers and shareholders in the form of profits (paid out in multiple ways)...
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by geerhardusvos »

Scooter57 wrote: Fri Oct 16, 2020 8:33 pm
willthrill81 wrote: Fri Oct 16, 2020 6:35 pm
So the key to higher total returns is to pursue a high dividends approach? I wonder why the finance academics hadn't come up with that one already...
A dividends strategy is a way to hedge your investments. Just as is the case with diversification, which Bogleheads love, and which usually lowers total return, a dividend strategy at times gives up some of the gain from rampant speculation markets in favor of a stream of income paid by companies that are earning and sharing actual profits.

Re Finance Academics, Burton Malkiel is a very distinguished Finance Professor and was a long time crony of Bogle. he has been actively promoting dividend strategies ever since rates collapsed. He is not alone. Given the poor performance of the factor strategies of the academics that are so beloved here, your appeal to authority seems unfortunate. Academics mostly excel at backtesting, which other academics have proven is a very poor way to make investment decisions.
Hedge against what? Are most dividend portfolios doing better in total returns when compared to the S&P 500 over the last 50 years?

Answer: No
Last edited by geerhardusvos on Sat Oct 17, 2020 8:55 am, edited 1 time in total.
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Re: Dividend Only Investing Analyzed (latest ERN article)

Post by hoops777 »

geerhardusvos wrote: Fri Oct 16, 2020 9:07 pm
Scooter57 wrote: Fri Oct 16, 2020 8:33 pm
willthrill81 wrote: Fri Oct 16, 2020 6:35 pm
So the key to higher total returns is to pursue a high dividends approach? I wonder why the finance academics hadn't come up with that one already...
A dividends strategy is a way to hedge your investments. Just as is the case with diversification, which Bogleheads love, and which usually lowers total return, a dividend strategy at times gives up some of the gain from rampant speculation markets in favor of a stream of income paid by companies that are earning and sharing actual profits.

Re Finance Academics, Burton Malkiel is a very distinguished Finance Professor and was a long time crony of Bogle. he has been actively promoting dividend strategies ever since rates collapsed. He is not alone. Given the poor performance of the factor strategies of the academics that are so beloved here, your appeal to authority seems unfortunate. Academics mostly excel at backtesting, which other academics have proven is a very poor way to make investment decisions.
Hedge against what? Are most dividend portfolio is doing better in total returns when compared to the S&P 500 over the last 50 years?

Answer: No
Like everything else it depends on the portfolio. Believe it or not,people actually care about things you do not care about.
K.I.S.S........so easy to say so difficult to do.
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