Help me Built a Dividend Growth Investment Portfolio

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bei22000
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Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Wed Jan 09, 2019 1:50 pm

As I am approaching my retirement (about 10-12 yrs), I want to gradually develop a more conservative portfolio with both tax-free and taxable accounts. I would like to invest in more value-based equity earning dividends so I will have some monthly income down the road. I have come across some investment newsletters or books introducing a dividend portfolio in which you buy a list of individual dividends stocks, such as Verizon, Johnson & Johnson. At the same time, I have seen some dividend ETFs that generate dividends too, such as VYM. I am wondering if You just need to invest a few good dividend ETF or Index funds instead of owning a whole basket of individual stocks that I need to monitor. Please advise. thank you.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by KyleAAA » Wed Jan 09, 2019 1:56 pm

Most here would advise against an explicit dividend strategy, but I think there are worse approaches. I would definitely avoid buying individual stocks and suggest sticking with ETFs. Tilting HALF (probably no more than half) of your domestic stock allocation to VYM and half your international stock allocation to VYMI is not a bad portfolio so long as you are aware of the tax implications.

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JoMoney
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by JoMoney » Wed Jan 09, 2019 2:02 pm

I do not use a dividend focused portfolio, and wouldn't recommend it to others.
That said, I can see the appeal it has to people, and there may be limited circumstances where it's appropriate.
I believe there is a distinction between "Dividend Growth" and "High Dividend Yield" styles of investing. I believe looking for a history of strong dividend growth is a bit of a tilt towards "quality", and may not necessarily pay out higher income than a broad market index. A focus on "High Dividend Yield" may tilt towards companies that are under some sort of duress, or have low expectations for capital growth.
There are many ways to go about selecting individual stocks, but I'm very skeptical of the ability of average investors to gain any advantage by doing so. I think they are more likely to be taken advantage of, or hurt themselves, from lack of experience, bad information, poor diversification, etc..
If I was going to invest in one of those dividend stock investing styles, I would use a broad market index fund such as those offered by Vanguard (VIG for dividend growth, or VYM for high dividend yield). I believe such broad market indexes will approximate the performance of most investors attempting to invest using those styles or selection criteria, and does so at a very low cost. Personally, I use even broader market index funds, that approximates the investment returns of stock investors using all the different styles and at even lower cost ;)
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by WhiteMaxima » Wed Jan 09, 2019 2:07 pm

Only in tax-advantage account. VIG.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bloom2708 » Wed Jan 09, 2019 2:10 pm

If you hold Total US and Total International you will get ~2% dividends. There is 2% of your withdrawal. If you need 4%, then you sell shares to get another 2%.

Dividends are no panacea. Reaching for them can lead to undiversified portfolios and a tax drag.

Best to read up on Total Return. Some income from dividends/withdrawal and some from selling shares (that are appreciating over time).
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by Jack FFR1846 » Wed Jan 09, 2019 2:20 pm

For taxable, you want the opposite. Stocks that pay no dividends, such as Berkshire Hathaway, which is probably the most famous. Getting high paying dividend stocks in taxable means you're paying tax on those high dividends. With a no-dividend stock, you sell LTCG shares when you need to and pay less tax. Either way, you'd want to be highly diversified, which is not so easy to do be designating dividend or no dividend stocks.
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bei22000
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Wed Jan 09, 2019 2:29 pm

THANK YOU VERY VERY much for all your input. :!: I know I will get useful information here. :)

drzzzzz
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by drzzzzz » Wed Jan 09, 2019 2:32 pm

Most won't recommend your approach or do it themselves, but look at the following - all offered by Vanguard VHDYX - Vanguard High Dividend Index of VDIGX - Vanguard Dividend Growth as well as VIG or VYM (both etfs)

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bei22000
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Wed Jan 09, 2019 3:01 pm

drzzzzz wrote:
Wed Jan 09, 2019 2:32 pm
Most won't recommend your approach or do it themselves, but look at the following - all offered by Vanguard VHDYX - Vanguard High Dividend Index of VDIGX - Vanguard Dividend Growth as well as VIG or VYM (both etfs)
Thank you for the post. In your opinion, which one is better vig or vym? should I get both if buying?

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by alex_686 » Wed Jan 09, 2019 3:06 pm

I will warn you away from a value strategy. Value has higher returns and higher risks than total market.

I will also warn you away from a dividend strategy. The theory behind it is weak. Historical it has worked fine until it doesn't, and then you find yourself in a pit of pain.

The simple answer is to use the total returns framework. A more complex answer is to build a portfolio where the factors are loaded on "Low Beta" and "Quality" stocks.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by 3funder » Wed Jan 09, 2019 3:13 pm

JoMoney wrote:
Wed Jan 09, 2019 2:02 pm
I do not use a dividend focused portfolio, and wouldn't recommend it to others.
That said, I can see the appeal it has to people, and there may be limited circumstances where it's appropriate.
I believe there is a distinction between "Dividend Growth" and "High Dividend Yield" styles of investing. I believe looking for a history of strong dividend growth is a bit of a tilt towards "quality", and may not necessarily pay out higher income than a broad market index. A focus on "High Dividend Yield" may tilt towards companies that are under some sort of duress, or have low expectations for capital growth.
There are many ways to go about selecting individual stocks, but I'm very skeptical of the ability of average investors to gain any advantage by doing so. I think they are more likely to be taken advantage of, or hurt themselves, from lack of experience, bad information, poor diversification, etc..
If I was going to invest in one of those dividend stock investing styles, I would use a broad market index fund such as those offered by Vanguard (VIG for dividend growth, or VYM for high dividend yield). I believe such broad market indexes will approximate the performance of most investors attempting to invest using those styles or selection criteria, and does so at a very low cost. Personally, I use even broader market index funds, that approximates the investment returns of stock investors using all the different styles and at even lower cost ;)
+1

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by nisiprius » Wed Jan 09, 2019 3:16 pm

Warning, I don't use any kind of dividend-focussed approach myself.

1) Important: Dividend fans talk about several different kind of dividend strategies. Dividend growth is supposed to be a way of identifying stocks that will be just plain better than the average. High dividend yield is supposed to be a good way of drawing some sustainable regular income from a stock portfolio without making any decisions about yourself about how much is safe to draw. Be sure you understand which dividend strategy you are following and why.

2) If you want to have a fairly traditional Boglehead three-fund portfolio, simply consider swapping one of these three funds in, in place of the Vanguard Total Stock Market Index Fund:

a) For actually drawing income by "spending only the dividends," and getting a higher dividend than a total market or S&P 500 fund, consider:

a1) Vanguard High Dividend Yield Index Fund, VHDYX (= VYM) (blue on chart below)
a2) Vanguard Equity-Income Fund, actively managed, VEIPX or VEIRX (Admiral shares, $50,000 minimum) (orange),

b) For investing in what some people believe to be a superior category of stocks:
Vanguard Dividend Appreciation Index Fund, VDADX ( = VIG) (green)

What the following chart shows is that if you substituted any of these for Total Stock (yellow), and reinvested dividends, the total return and the overall growth of any of the them would be just about the same. Indeed, all of them grew $10,000 to an amount within the range $23,500 ± 4%.

Source

Image

The bottom line is that there hasn't been a heck of a lot of difference. So if you have a strong personal conviction based on something more than soundbites from dividend advocates, and if you have a withdrawal strategy based on "spend the dividends, whatever they happen to be, believing they will be sustainable and won't fluctuation too much," then it is appropriate to consider slotting in a dividend-focussed fund in place of Total Stock.

Watch out for dividend advocates using them as a stalking horse for stock-picking. "Dividend stocks are great, but of course many of them are overpriced, so you need my help in identifying the good ones..." Or, "What, a dividend index fund didn't outperform a total market index fund? Oh, I don't use or like dividend index funds myself, I have a portfolio of individual dividend stocks." Or, to put it another way, "I'm a stock-picker, and I like to pick from the universe of dividend stocks."
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bei22000
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Wed Jan 09, 2019 3:31 pm

thanks. Great. I have learned a lot from your guys and will not build a dividend-focused portfolio. Instead I will just use the broad market funds as I am doing now and will buy vanguard high dividend yield fund to add my total portfolio ( investing a small percentage)

Monster99
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by Monster99 » Wed Jan 09, 2019 7:00 pm

I would recommend that you follow a "total return" strategy and go for tax effient funds have been mentioned above. I am retired and focused on dividend paying funds and now I am trying to unwind 25 years of fund purchases that are very tax inefficient to improve my holdings.

Generator515
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by Generator515 » Wed Jan 09, 2019 7:09 pm

I switched away from it a long time ago but if you are considering it, don't blindly follow the vanguard route.

I like Schwab for it. They have multiple commission free ETFs with dividends in mind. In particular I like SCHD and DGRW. I feel like both have stronger portfolios and a better track record than VIG.

FinancialRookie
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by FinancialRookie » Wed Jan 09, 2019 7:57 pm

First, let me say that I use a total market ETF approach in my pre-tax and Roth accounts.

Secondly, I use a dividend approach for my taxable account, I am in the 12% tax bracket now and for the foreseeable future so my dividends are taxed favorably. I use the DJIA. 10 of the companies are dividend aristocrats, a number are dividend achievers, and almost half of the remaining stocks have dividend growth rates in the double digits. There is a less than 1% turnover rate, and currently yields about 2.7% when weighting the aristocrats at 4% of the portfolio and the remaining stocks at 3% each.

Some of the best economists, investors, and advisers comprise the index, and when they add and/or remove a company from the index you can choose to follow suit or not based on potential tax implications.

ER's are 0 by holding the individual securities, and the index acts as a guide that you can set and forget to a certain extent.

I know most people on here won't agree with my approach but it is a nice small addition to my overall portfolio. Tracking an index helps me out by taking some information overload with fundamentals.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by ChinchillaWhiplash » Wed Jan 09, 2019 8:39 pm

You might want to look at REIT funds too. VNQ and VNQI have good yields. Wisdom Tree has several dividend based factor funds also, including EM and Internatioal small cap. Expense ratios are a little on the high side, but yields are good.

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bei22000
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Thu Jan 10, 2019 12:34 pm

Generator515 wrote:
Wed Jan 09, 2019 7:09 pm
I switched away from it a long time ago but if you are considering it, don't blindly follow the vanguard route.

I like Schwab for it. They have multiple commission free ETFs with dividends in mind. In particular I like SCHD and DGRW. I feel like both have stronger portfolios and a better track record than VIG.
I do have schwab account and will look into it.
Thank you :sharebeer

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by nedsaid » Thu Jan 10, 2019 12:39 pm

A dividend strategy is just fine. I think you have to be realistic about what such a strategy can accomplish for you. An income stream that grows a bit faster than inflation is very appealing. The biggest problem that I have with a dividend strategy is that many of our portfolios just won't be big enough to live off of only interest and dividends, most of us will have to harvest capital gains as well. So probably a total return strategy is what most of us will pursue.

Whatever you do, don't chase yield for the sake of yield. The US Stock Market Yield is about 2%, you might reach to 3% but don't go too much further than that. Higher yielding investments often tend to sort of liquidate themselves over time. Folks chased the Energy Master Limited Partnerships only to find that a few of these went bust when energy prices fell. Don't chase preferred stock either. Sometimes high yields on a stock cannot be sustained.
Last edited by nedsaid on Thu Jan 10, 2019 12:43 pm, edited 1 time in total.
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by alex_686 » Thu Jan 10, 2019 12:40 pm

FinancialRookie wrote:
Wed Jan 09, 2019 7:57 pm
Some of the best economists, investors, and advisers comprise the index, and when they add and/or remove a company from the index you can choose to follow suit or not based on potential tax implications.
I will point out that that the primary value of the DJIA, according to Dow Jones, is its long history. They think that market weighted cap indexes are the way to go, and that the DJIA is a bit of a relic.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by Desperate_Plankton » Sun Jun 16, 2019 12:50 pm

The Vanguard funds are nice. They also offer an international version if you want to diversify some. Can also include REIT fund. I keep all my dividend funds in my Roth IRA.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by patrick013 » Sun Jun 16, 2019 1:35 pm

bei22000 wrote:
Wed Jan 09, 2019 1:50 pm
I am wondering if You just need to invest a few good dividend ETF or Index funds instead of owning a whole basket of individual stocks that I need to monitor.
Image

These are tickers PEY, DJD, SPHD, and SPYD. Some have REIT's included. NOBL or SDY could be good
but I'd go with these because of some old studies. Great in a Roth.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by unclescrooge » Sun Jun 16, 2019 2:40 pm

FinancialRookie wrote:
Wed Jan 09, 2019 7:57 pm
First, let me say that I use a total market ETF approach in my pre-tax and Roth accounts.

Secondly, I use a dividend approach for my taxable account, I am in the 12% tax bracket now and for the foreseeable future so my dividends are taxed favorably. I use the DJIA. 10 of the companies are dividend aristocrats, a number are dividend achievers, and almost half of the remaining stocks have dividend growth rates in the double digits. There is a less than 1% turnover rate, and currently yields about 2.7% when weighting the aristocrats at 4% of the portfolio and the remaining stocks at 3% each.

Some of the best economists, investors, and advisers comprise the index, and when they add and/or remove a company from the index you can choose to follow suit or not based on potential tax implications.
Aren't the taxes on dividends the same as long term capital gains? I.e. if you created your own dividends by selling equities, wouldn't the tax be the same?

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by dbr » Sun Jun 16, 2019 2:46 pm

unclescrooge wrote:
Sun Jun 16, 2019 2:40 pm


Aren't the taxes on dividends the same as long term capital gains? I.e. if you created your own dividends by selling equities, wouldn't the tax be the same?
To the extent a sale of equities is partly a sale of already taxed basis, then no. But your general point is valid. With taxes you have to take a close look at exactly what the cost is to any particular individual situation.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by RAchip » Sun Jun 16, 2019 10:25 pm

A “dividend strategy” focusing on buying and holding large cap blue chip companies committed to a healthy, growing dividend is a good approach. I follow it with a large portion of my portfolio. There are plenty of companies that currently have dividend yields that are well above average. T, MO, UPS, AMGN, BP, VZ, IP, WBA, F, just to name a few random ones. Referring to “total return” investing is misleading. I want to achieve a high “total return” (dividends plus capital gains) as much as anyone. I just prefer to get as much income as reasonably possible from dividends rather than constantly having to sell shares. It is possible to find companies that give you excellent long term capital gain prospects AND pay you a larger than average dividend that grows every year. One example I like to give is MSFT. It is by far my largest holding. I bought a lot of it back when its price was in the upper $30’s and its dividend yield was over 3%. Since then its dividend has increased by about 70% and the stock price has trippled. It takes a little work. You have to look for good companies that are a little out of favor or struggling a bit but that have a history of a commitment to their dividend.

There is nothing wrong with just buying an S&P 500 index, collecting the 2% dividend and selling a bit now and then if you need additional income. I just think that if you are willing to do a little work you can build a portfolio that will produce significantly larger dividends and at least similar capital gains without having to sell shares regularly.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by rossington » Mon Jun 17, 2019 3:35 am

RAchip wrote:
Sun Jun 16, 2019 10:25 pm
A “dividend strategy” focusing on buying and holding large cap blue chip companies committed to a healthy, growing dividend is a good approach. I follow it with a large portion of my portfolio. There are plenty of companies that currently have dividend yields that are well above average. T, MO, UPS, AMGN, BP, VZ, IP, WBA, F, just to name a few random ones. Referring to “total return” investing is misleading. I want to achieve a high “total return” (dividends plus capital gains) as much as anyone. I just prefer to get as much income as reasonably possible from dividends rather than constantly having to sell shares. It is possible to find companies that give you excellent long term capital gain prospects AND pay you a larger than average dividend that grows every year. One example I like to give is MSFT. It is by far my largest holding. I bought a lot of it back when its price was in the upper $30’s and its dividend yield was over 3%. Since then its dividend has increased by about 70% and the stock price has trippled. It takes a little work. You have to look for good companies that are a little out of favor or struggling a bit but that have a history of a commitment to their dividend.

There is nothing wrong with just buying an S&P 500 index, collecting the 2% dividend and selling a bit now and then if you need additional income. I just think that if you are willing to do a little work you can build a portfolio that will produce significantly larger dividends and at least similar capital gains without having to sell shares regularly.
+1...Consistent Income to satisfy your needs plus portfolio preservation. You're correct...GOOD quality companies are the key (I would include some utilities to the mix)....Look at the solid blue chip companies Vanguard actively managed funds consistently have their largest holdings in, the fund managers feel the risk justifies the return.It all comes down to the core fundamentals of investing. BUT one caveat: with today's inflated stock prices it costs more to accumulate the number of shares to provide the desired total dividend payout which can be prohibitive.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by donaldfair71 » Mon Jun 17, 2019 7:45 am

unclescrooge wrote:
Sun Jun 16, 2019 2:40 pm
FinancialRookie wrote:
Wed Jan 09, 2019 7:57 pm
First, let me say that I use a total market ETF approach in my pre-tax and Roth accounts.

Secondly, I use a dividend approach for my taxable account, I am in the 12% tax bracket now and for the foreseeable future so my dividends are taxed favorably. I use the DJIA. 10 of the companies are dividend aristocrats, a number are dividend achievers, and almost half of the remaining stocks have dividend growth rates in the double digits. There is a less than 1% turnover rate, and currently yields about 2.7% when weighting the aristocrats at 4% of the portfolio and the remaining stocks at 3% each.

Some of the best economists, investors, and advisers comprise the index, and when they add and/or remove a company from the index you can choose to follow suit or not based on potential tax implications.
Aren't the taxes on dividends the same as long term capital gains? I.e. if you created your own dividends by selling equities, wouldn't the tax be the same?
Buffet had a take on the difference between selling off shares vs dividends, back in his 2012 letter. Scroll down to page 19 if you want to check it out.


http://www.berkshirehathaway.com/letters/2012ltr.pdf

This was discussed on two episodes of the ChooseFI podcast a while back. If you want to hear two very knowledgeable groups discuss/debate the merits of dividend growth investing vs index/total return, it takes place in episodes 122/123. Two hours of the discussion. Real geek-out stuff.

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by Time2Quit » Mon Jun 17, 2019 8:12 am

Take a look at DGRO as well.

approximately 2% dividend, but focus and filters for companies that have a record of increasing dividends.
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by lostdog » Mon Jun 17, 2019 8:22 am

50% VYM
50% VYMI

I'm a total return investor but the above is decent diversification with the goal you're trying to reach.
VT/VTWAX+BNDW

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Re: Help me Built a Dividend Growth Investment Portfolio

Post by pkcrafter » Mon Jun 17, 2019 8:39 am

bei22000 wrote:
Wed Jan 09, 2019 1:50 pm
As I am approaching my retirement (about 10-12 yrs), I want to gradually develop a more conservative portfolio with both tax-free and taxable accounts. I would like to invest in more value-based equity earning dividends so I will have some monthly income down the road.
Dividends are simply part of total return, so you can reinvest dividends and set up automatic withdrawals from any fund you wish, but I would not recommend it. The problem with automatic withdrawals (taking dividends) is you do not get to choose when and from where you make withdrawals, so when stocks are down you are withdrawing when you should be adding to those funds. Also, dividend producing funds are not tax-efficient and should not be held in a taxable account.


Paul
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by lostdog » Mon Jun 17, 2019 9:07 am

Image
VT/VTWAX+BNDW

usagi
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by usagi » Mon Jun 17, 2019 9:56 am

Use your analysis to pick 10-15 dividend growth paying stocks you really like. After you have made your selection then look at the top 10 in a few dividend growth etfs like DGRO (ER=.08%) , the odds are you will find several of your selections. My point is a lot of the dividend etfs already contain what you are likely to select and have many advantages. There is nothing wrong with a dividend strategy nor single stocks (Bogle approved of them) but you may find them prepackaged for you with a very low ER.

You might also want to look at Value LInes model portfolios. Portfolios II and IV may be of interest, especially portfolio II.

Personally I would do an etf and occasionally dabble in the odd stock dividend stock that got beat up. For example I bought T and MO last year when they were beat up and had ridiculous dividends. MO I bought as a long term marijuana play.

RAchip
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by RAchip » Mon Jun 17, 2019 2:17 pm

donaldfair71 wrote:
Mon Jun 17, 2019 7:45 am
unclescrooge wrote:
Sun Jun 16, 2019 2:40 pm
FinancialRookie wrote:
Wed Jan 09, 2019 7:57 pm
First, let me say that I use a total market ETF approach in my pre-tax and Roth accounts.

Secondly, I use a dividend approach for my taxable account, I am in the 12% tax bracket now and for the foreseeable future so my dividends are taxed favorably. I use the DJIA. 10 of the companies are dividend aristocrats, a number are dividend achievers, and almost half of the remaining stocks have dividend growth rates in the double digits. There is a less than 1% turnover rate, and currently yields about 2.7% when weighting the aristocrats at 4% of the portfolio and the remaining stocks at 3% each.

Some of the best economists, investors, and advisers comprise the index, and when they add and/or remove a company from the index you can choose to follow suit or not based on potential tax implications.
Aren't the taxes on dividends the same as long term capital gains? I.e. if you created your own dividends by selling equities, wouldn't the tax be the same?
Buffet had a take on the difference between selling off shares vs dividends, back in his 2012 letter. Scroll down to page 19 if you want to check it out.


http://www.berkshirehathaway.com/letters/2012ltr.pdf

This was discussed on two episodes of the ChooseFI podcast a while back. If you want to hear two very knowledgeable groups discuss/debate the merits of dividend growth investing vs index/total return, it takes place in episodes 122/123. Two hours of the discussion. Real geek-out stuff.

I read the Buffet material and listened to the entire amount of both podcasts. First, the Podcasts. It was amazing how uninformed and unsophisticated the hosts were who purported to conduct a “radio show” about dividend investing. One of the hosts announced that his view is that “dividends are not income.” The fact is that if a company keeps its earnings (rather than paying dividends) nobody knows if the shareholders will ever receive any benefit from those earnings. Dividends guarantee that investors will receive their proportionate share of those earnings that are dividend out. The guest “expert” in the first podcast was a guy with a DGI portfolio that produces $7k per year in dividends so he was a very amateur DGI investor and largely unable to coherently defend DGI investing. Second, Buffet. He thinks its better for companies THAT CAN CONTINUE TO PRODUCE SIMILAR RETURNS on new earnings to hold and reinvest those earnings and people can sell shares if needed to produce homemade dividends (which usually produce lower tax liabilities than dividends because a portion of sales are a return of capital, not income). Buffet is correct that if a company can continue to produce a 20% (or whatever) return on “new money” it should hold the new money. Most companies cant do that and so they should oay dividends. That is why Buffet admits that he loves to invest in strong dividend paying companies and in fact invests billions in them. The tax point is a red herring. You dont pay tax on the entire proceeds of a stock sale because your receipts are mostly a return of your own capital. You pay tax on the portion of the price that exceeds what you paid for the shares you sold. Dividends are not a sale of shares. They are a distribution to you of a portion of the companies income attributable to those shares. That income is taxed at the same lower rate applicable to capital gains. The argument that it is better to withdraw your own capital than receive dividends to “save” taxes is simply misplaced and misguided. It is akin to saying you dont want to pay tax on your interest income from your bank so you are better off withdrawing your money from the bank.

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bei22000
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Re: Help me Built a Dividend Growth Investment Portfolio

Post by bei22000 » Tue Jun 18, 2019 1:55 pm

pkcrafter wrote:
Mon Jun 17, 2019 8:39 am
bei22000 wrote:
Wed Jan 09, 2019 1:50 pm
As I am approaching my retirement (about 10-12 yrs), I want to gradually develop a more conservative portfolio with both tax-free and taxable accounts. I would like to invest in more value-based equity earning dividends so I will have some monthly income down the road.
Dividends are simply part of total return, so you can reinvest dividends and set up automatic withdrawals from any fund you wish, but I would not recommend it. The problem with automatic withdrawals (taking dividends) is you do not get to choose when and from where you make withdrawals, so when stocks are down you are withdrawing when you should be adding to those funds. Also, dividend producing funds are not tax-efficient and should not be held in a taxable account.


Paul
Thank you for your expl.

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