Dividend impact of investing $4,000 / month in VTSAX?

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BaylorBears
Posts: 27
Joined: Thu May 02, 2013 11:00 pm

Dividend impact of investing $4,000 / month in VTSAX?

Post by BaylorBears » Tue Sep 12, 2017 8:09 am

By my math, the annual dividend of VTSAX is about 1.8%.

Based on that math, of correct, each monthly $4,000 investment would add about $72 per year to my dividend income.

This would be reinvested as I'm 40 and still adding $ for a while.

1) Is anything off in my understanding here?

2) long term, should I assume a 1.8% dividend in this vehicle could be sustained?

Bfwolf
Posts: 1634
Joined: Thu Oct 14, 2010 11:19 am

Re: Dividend impact of investing $4,000 / month in VTSAX?

Post by Bfwolf » Tue Sep 12, 2017 8:28 am

Your math is correct.

Will it be 1.8% long term? Nobody knows. Dividends yields used to be higher but dropped in the 90s and have stayed at this relatively low level since. http://www.multpl.com/s-p-500-dividend-yield/

The bigger question is: why do you care? There have been about 100 threads on here that have discussed whether dividend yield matters. There's a vocal contingent of Boglehead dividend enthusiasts, but many (most?) people here believe in "Total Return Investing" where the dividend yield is irrelevant. A google search on the forum will pull many of these threads up for you and you can decide for yourself.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Dividend impact of investing $4,000 / month in VTSAX?

Post by dbr » Tue Sep 12, 2017 8:31 am

The one practical interest in estimating dividend income I can think of is anticipating one's tax costs.

Chadnudj
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Joined: Tue Oct 29, 2013 11:22 am

Re: Dividend impact of investing $4,000 / month in VTSAX?

Post by Chadnudj » Tue Sep 12, 2017 8:37 am

dbr wrote:
Tue Sep 12, 2017 8:31 am
The one practical interest in estimating dividend income I can think of is anticipating one's tax costs.
Exactly. If you can estimate the expected dividend income, you can also estimate how much you need to set aside in cash each year (or additional amount you need withheld from your wages) to pay the income taxes on the dividends if you're in a high enough bracket for it to matter (which, given the $4k per month into VTSAX hypothetical, the OP almost surely is in a high enough bracket).

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Dividend impact of investing $4,000 / month in VTSAX?

Post by rkhusky » Tue Sep 12, 2017 1:08 pm

BaylorBears wrote:
Tue Sep 12, 2017 8:09 am
2) long term, should I assume a 1.8% dividend in this vehicle could be sustained?
As long as dividends are paid per share, the dividend yield will fluctuate with share price. If the stock market drops by 50%, all else being equal, your dividend yield will increase by a factor of two.

dbr
Posts: 23676
Joined: Sun Mar 04, 2007 9:50 am

Re: Dividend impact of investing $4,000 / month in VTSAX?

Post by dbr » Tue Sep 12, 2017 3:13 pm

rkhusky wrote:
Tue Sep 12, 2017 1:08 pm
BaylorBears wrote:
Tue Sep 12, 2017 8:09 am
2) long term, should I assume a 1.8% dividend in this vehicle could be sustained?
As long as dividends are paid per share, the dividend yield will fluctuate with share price. If the stock market drops by 50%, all else being equal, your dividend yield will increase by a factor of two.
Probably the thinking is more about the dividend payout which will be more or less constant in the short run. It is really a confusion or just sloppiness of terminology.

One thing ignored here if tax costs are the issue is the possibility of capital gains distributions. Those are not so easy to forecast.

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