Vanguard Domestic Dividend Funds - VHDYX vs VDADX

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einstem
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Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by einstem » Fri May 13, 2016 1:05 pm

This is a follow-up to a similar post I made about international dividend funds, but this one is for Domestic.

I am looking to add a 'bucket' of dividend paying stocks to my portfolio.

This will sit in a taxable account, and the goal here is produce income primarily through qualified dividends. Some appreciation is fine, but not the goal. Initially, I will "reinvest" the dividends, but over time, I will switch to "income production" and use this "bucket" to help supplement my retirement income.

For this "bucket", I plan to allocate about 25% to international dividend paying stocks, and about 75% to domestic dividend paying stocks.

I am a big proponent of Vanguard Funds, and would like to stick with them if at all possible (I have the rest of my after-tax money in Vanguard).

I am looking at two potential Vanguard funds for the "Domestic" component:

VHDYX - Vanguard High Dividend Yield Index (SEC Yield of 3.17%, Expense of 0.16%)
VDADX - Vanguard Dividend Appreciation index Fund (SEC Yield of 2.05%, Expense of 0.20%).

I also looked at VDIGX (Vanguard Dividend Growth Fund), but its performance seemed to lag the above two funds, and also had higher expenses, so it didn't seem a good fit.

Seems like the VHDYX goes after more of a "high yield" approach on dividend stocks, whereas VDADX goes after more of a "value" play for those that have upside for long-term growth.

Any thoughts in terms of these two indexes (pros/cons) ?
Which would be more appropriate for my goal of income production over the long term?

Thanks.

Michael

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JoMoney
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by JoMoney » Fri May 13, 2016 4:32 pm

IMO, VHDYX is more of a "Value" play than VDADX, which i would consider more of a "Quality" play. Since the goal was to produce income, I'd think VHDYX would be a better fit. VDADX isn't as focused on the idea of paying out income, it's primary focus is on the aspect that a company has a long history of regularly raising whatever dividend it pays, they could be paying out very little income, but if they're raising them consistently it's a "quality" aspect that some might look at, but that doesn't seem to be what you're looking for.

FWIW - I don't really like the idea of focusing on dividends at all, but there may be some information in them. High yield may be riskier, a long history of raising them is a nice aspect that may relate to a company doing well over time.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by Dulocracy » Fri May 13, 2016 4:51 pm

Of the two, I would be more likely to choose VDADX. Is there a reason that you are not considering VEIRX? ER of 0.17

I like this fund because it does not aim for the highest dividend. It aims for a stable dividend with stocks that increase in value over time. (That increase in stock value is important for a long-term consistent increase in dividend amount). It is this consistent, long term approach that attracted me to dividends in the beginning. It is managed by Wellington.
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by SpringMan » Fri May 13, 2016 5:05 pm

VDADX is Dividend Appreciation Index Admiral and it expense ratio is only .09%. It only requires 10K as a minimum and is large blend. If you do not have 10K to invest VDAIX is the same only investor class shares with the .2% expense ratio. VHDYX only comes in investor class shares at .16% expense or an ETF VYM with .09% expense ratio. It is classified as large value. Though personally I don't hold either, they are both fine funds.
Best Wishes, SpringMan

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einstem
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by einstem » Fri May 13, 2016 5:34 pm

Dulocracy wrote:Of the two, I would be more likely to choose VDADX. Is there a reason that you are not considering VEIRX? ER of 0.17

I like this fund because it does not aim for the highest dividend. It aims for a stable dividend with stocks that increase in value over time. (That increase in stock value is important for a long-term consistent increase in dividend amount). It is this consistent, long term approach that attracted me to dividends in the beginning. It is managed by Wellington.
Haven't looked into VEIRX yet, but definitely will.
I was just looking at the funds listed with "dividends" in the title, but the yield on VEIRX looks pretty solid as well, so that may be a good option as well.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by nedsaid » Fri May 13, 2016 6:04 pm

I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
A fool and his money are good for business.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by patrick013 » Fri May 13, 2016 6:06 pm

You should consider VG Utilities Fund also. If you get a good entry
point it can yield over 4 % with some NAV growth. It's also a decent
defensive stock in market downturns.
age in bonds, buy-and-hold, 10 year business cycle

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einstem
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by einstem » Sat May 14, 2016 6:19 am

nedsaid wrote:I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
Nedsaid,

Thanks for the suggestion, but my goal here is a bit different. This is primarily an "income bucket" for my "taxable" account, where some stock appreciation is certainly expected, but not the goal. Due to my tax bracket, the best ways for me to generate "income" off my investment holdings is either muni-bond funds (which are free from federal taxes) or "qualified dividends", which are taxed at "qualified dividend" rates, which are lower then my "marginal tax rate". This is why I want to stay away from funds that have a "high trade rate" and would generate "capital gain distributions" (which are taxed as ordinary income) and instead stick to a lower-trading "index" type fund that primarily generates "qualified dividends". Price growth is fine and expected, but not the goal of this "bucket".

I do have a different "bucket" of "stock appreciation" (which is primarily a few stock index funds) for my retirement account, as well as some "high yield" corporate bond funds. But this is in a "taxable" account and the goal is pure income production, which is why I am looking hard at dividend paying stocks. Their return is far better then the almost zero after-inflation return of treasury bonds. And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds (which have a higher return, but due to their higher tax treatment, are better served in my retirement account). They also do have the "upside" of long-term future appreciation (unlike bonds), which although not the "goal", would still be very welcome!

I am not a believer in an sort of "timing strategy" or "chasing yields". The academic research has consistently shown that it doesn't work. I am a big fan of Burton Malkiel and "A Random Walk Down Wall Street" and Ray Lucia's "Buckets of Money" strategy.. I do not perform any sort of market timing, stock picking, trading, or complicated investing approaches. What I DO believe in is having a long-term strategy that places my investments into several, non-correlating assets and not touching them, and using low-cost index funds is one of the best ways to achieve this strategy for the "stock" component of this strategy.

Regards,

Michael
Last edited by einstem on Sat May 14, 2016 6:28 am, edited 1 time in total.

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einstem
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by einstem » Sat May 14, 2016 6:23 am

patrick013 wrote:You should consider VG Utilities Fund also. If you get a good entry
point it can yield over 4 % with some NAV growth. It's also a decent
defensive stock in market downturns.
Patrick - Thanks, but I'm not considering any "sector funds" for this bucket. Too risky for what will be a significant chunk of my strategy for "income production". I do have a long-term strategy for creation of a bucket of "non-correlating assets", and may consider a few select "sector funds" as part of that, but I am looking for a broad-based fund or index that will yield modest, but consistent income that is free from ordinary income, which pretty much reduces me to muni-bond funds and qualified dividends.

Regards,

Michael

staybalanced
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by staybalanced » Sat May 14, 2016 8:15 am

The Vanguard Equity Income fund has a great track record but distributes capital gains every year. If using in taxable I would use the high dividend yield index fund. It is much more tax efficient.

keep in mind, the yield is 3.2% or something like that, Total market is 2 %. Do you really think you can live off 3.2%? If so, why not take the 2% from total market and sell 1.2% of your shares? History has shown this to work actually better and be slightly more tax efficient. Vanguard has a white paper on total return vs dividends.

With that said, their are an infinite number of worse ideas than owning VYM.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by maj » Sat May 14, 2016 8:37 am

Own both Dividend Appreciation and High Dividend Yield since day they were offered.
Excellent results in current and growing dividends, also decent capital growth though that is NOT my primary objective.
peace

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by Longtermgrowth » Sat May 14, 2016 9:35 am

einstem wrote: And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds
In case you haven't seen some of the neat charts that nisiprius posts, check out the second post in this thread: viewtopic.php?t=111303

In 2009, High Dividend Yield Index actually dropped to a slightly lower NAV than Total Stock Market Index.

Knowing it can drop just as low as the total market and also with what nedsaid has already pointed out about low interest rates and yield chasing, has kept me hesitant so far even though I find VYM very appealing.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by RobertB » Sat May 14, 2016 11:41 am

einstem wrote:
nedsaid wrote:I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
Nedsaid,

Thanks for the suggestion, but my goal here is a bit different. This is primarily an "income bucket" for my "taxable" account, where some stock appreciation is certainly expected, but not the goal. Due to my tax bracket, the best ways for me to generate "income" off my investment holdings is either muni-bond funds (which are free from federal taxes) or "qualified dividends", which are taxed at "qualified dividend" rates, which are lower then my "marginal tax rate". This is why I want to stay away from funds that have a "high trade rate" and would generate "capital gain distributions" (which are taxed as ordinary income) and instead stick to a lower-trading "index" type fund that primarily generates "qualified dividends". Price growth is fine and expected, but not the goal of this "bucket".
Michael,

I think there are a couple points here that are a bit confused. First off, long-term capital gains dividends from a mutual fund are treated as long-term capital gain dividends for the shareholder. Only dividends from short-term gain (or other non-QDI, non-LTCG income) would be ordinary income. But the big misconception is that qualified dividends are somehow a good way to generate income in a tax-efficient manner. They are not, for three reasons. First is timing. When a company pays a dividend, even if you reinvest it, you are currently taxed on the amount of the dividend. If you aren't immediately using the cash, that's bad because you're paying taxes you could otherwise have deferred. (There's a slight caveat that you may want to take some gains in a year when you have a low rate, but let's ignore that here.) Second, qualified dividend income cannot be offset against capital losses. Depending on the performance of your investments and how much tax loss harvesting you do, you may end up in a position where you have a capital loss carryforward. Dividends, unlike capital gains, will ignore this carryforward and create a tax liability. Third, and this may be the most important part, you can pull cash out of an equity investment more efficiently by selling shares. If you have shares of a fund that are in a loss position, this is completely tax-free (and gives you a loss to use). But even if the investment is appreciated, selling a piece is still MUCH more tax-efficient than receiving a dividend. The reason is that the capital gain from a sale is equal to the amount of cash you pull out minus the basis of the shares you give up. If you receive a dividend, the entire amount of the dividend is taxable income (except in the very rare case where the dividend isn't paid out of corporate earnings).

Just to reiterate: dividends are bad from a tax perspective. Never getting a dividend is the ideal position. You can "roll your own" dividends by selling shares when you need cash, at a vastly lower tax cost. There is no advantage to investing in companies that pay dividends. I think the reason people like dividends is because they analogize them to bonds and interest. With a bond, you get your original investment back, plus you get the interest. More interest is good, because your return is (barring a default) principal (which is fixed) plus interest. With a stock dividend, it's not really like that. The reason is that the holders of a company's common stock are entitled to all of the value of the company after its creditors are paid off. It doesn't improve their situation if you move a dollar from corporate assets and pay it off as a dividend, because they were entitled to the dollar even before it was paid out as a dividend, because it was an asset of the corporation they own stock in! The main effect of paying a dividend is tax, and those consequences are all bad.

Now there are lots of corporate finance articles that try to figure out why companies pay dividends, and maybe there's some weird reason out there where it increases returns somehow. I don't know. But I know for certain that there are big tax costs associated with receiving dividends. A 3% dividend yield is a 0.60% check that you have to write to Uncle Sam every year. Unless you're really patriotic, there's no reason to view that as any different from a management fee. If someone came in here saying that he wanted to invest in a high-fee mutual fund because he thought it was going to beat the index, the advice would be to diversify and minimize expenses. I think the same advice is correct here. Invest in an equity index fund that has lower tax costs than a dividend fund.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by patrick013 » Sat May 14, 2016 12:22 pm

einstem wrote:
patrick013 wrote:You should consider VG Utilities Fund also. If you get a good entry
point it can yield over 4 % with some NAV growth. It's also a decent
defensive stock in market downturns.
Patrick - Thanks, but I'm not considering any "sector funds" for this bucket. Too risky for what will be a significant chunk of my strategy for "income production". I do have a long-term strategy for creation of a bucket of "non-correlating assets", and may consider a few select "sector funds" as part of that, but I am looking for a broad-based fund or index that will yield modest, but consistent income that is free from ordinary income, which pretty much reduces me to muni-bond funds and qualified dividends.
Vanguard Short Term Corporate Bond ETF VCSH
Vanguard High Dividend Yield ETF VYM
RevenueShares ETF Trust RDIV
iShares Trust HDV
iShares Select Dividend ETF DVY
WisdomTree Dividend Top 100 Fund (ETF) DTN
PowerShares High Yld. Dividend Achv(ETF) PEY
Schwab Strategic Trust SCHD
Vanguard Utilities ETF VPU

I put the above in my hypothetical portfolio on 1-8-2016. Since then
return has been close to 11%. I'm sure there's some crossover but the
selection was made due to low ER and good yield. Lower risk=lower return
but the utility need for cash income remains.

The 2 best performers are PEY and VPU. Wish I had a little cash to put
them into taxable being mostly a income investor these days.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by nedsaid » Sat May 14, 2016 12:25 pm

einstem wrote:
nedsaid wrote:I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
Nedsaid,

Thanks for the suggestion, but my goal here is a bit different. This is primarily an "income bucket" for my "taxable" account, where some stock appreciation is certainly expected, but not the goal. Due to my tax bracket, the best ways for me to generate "income" off my investment holdings is either muni-bond funds (which are free from federal taxes) or "qualified dividends", which are taxed at "qualified dividend" rates, which are lower then my "marginal tax rate". This is why I want to stay away from funds that have a "high trade rate" and would generate "capital gain distributions" (which are taxed as ordinary income) and instead stick to a lower-trading "index" type fund that primarily generates "qualified dividends". Price growth is fine and expected, but not the goal of this "bucket".

I do have a different "bucket" of "stock appreciation" (which is primarily a few stock index funds) for my retirement account, as well as some "high yield" corporate bond funds. But this is in a "taxable" account and the goal is pure income production, which is why I am looking hard at dividend paying stocks. Their return is far better then the almost zero after-inflation return of treasury bonds. And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds (which have a higher return, but due to their higher tax treatment, are better served in my retirement account). They also do have the "upside" of long-term future appreciation (unlike bonds), which although not the "goal", would still be very welcome!

I am not a believer in an sort of "timing strategy" or "chasing yields". The academic research has consistently shown that it doesn't work. I am a big fan of Burton Malkiel and "A Random Walk Down Wall Street" and Ray Lucia's "Buckets of Money" strategy.. I do not perform any sort of market timing, stock picking, trading, or complicated investing approaches. What I DO believe in is having a long-term strategy that places my investments into several, non-correlating assets and not touching them, and using low-cost index funds is one of the best ways to achieve this strategy for the "stock" component of this strategy.

Regards,

Michael
Michael, your strategy is not irrational. One good reason to hold dividend paying stocks is that you have a pretty good shot at your pay-outs growing faster than inflation. Just keep in mind my warnings above. Even in this climate, if you bought Vanguard High Dividend and Vanguard Dividend Growth and held them long-term, you would do okay. Just keep in mind that you will likely get below market performance for a while. Don't be shocked. High Dividend in recent years has been a great value strategy and Dividend Growth has barely beaten plain old Growth. Past performance does not guarantee future performance.
A fool and his money are good for business.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by ogd » Sat May 14, 2016 3:02 pm

einstem wrote: But this is in a "taxable" account and the goal is pure income production, which is why I am looking hard at dividend paying stocks. Their return is far better then the almost zero after-inflation return of treasury bonds.
Please, do not make this comparison. It's apples to oranges. Dividend stocks are much riskier than treasury bonds, which means they're entitled to have higher returns usually. But they will not have the benefits that safe bonds provide you in a portfolio.

Dividend paying stocks are in fact just as risky as regular stocks (total market or even non-paying only) whether or not one is taking withdrawals. So the decision to replace bonds with dividend stocks should be broken down into "should I replace bonds with stocks" (one of the most consequential decisions an investor can make), and "should I replace some stocks with dividend focused" (comparatively unimportant). Do not be swayed by the higher yield -- like in the case of your high yield corp bonds, it comes at a huge cost in risk.
einstem wrote:And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds (which have a higher return, but due to their higher tax treatment, are better served in my retirement account).
Dividend stocks (and stocks in general) are still much riskier than investment-grade bonds. There is a qualitative difference in the instrument even if paid by the same exact company, most importantly that your dealings with the company have an expiration date rather than being subject to its long term health; also because bond holders are senior to shareholders and will get something long after shareholders are wiped out. Only the highest risk categories of bonds have comparable risk (and return) to even high quality dividend stocks.
einstem wrote:Initially, I will "reinvest" the dividends, but over time, I will switch to "income production" and use this "bucket" to help supplement my retirement income.
While you are reinvesting dividends, the portfolio is tax inefficient because you forego some capital gain tax deferral - in essence, you stop earning money on taxes unpaid like in the CG case.

When you begin withdrawals, the tax efficiency is similar (if withdrawals equal or above dividends). So ar least you won't get penalized for a dividend approach, but it still provides no particular advantages worth the loss of diversification - if you take withdrawals by selling shares of a lower dividend index, you will be in about the same place even at the bottom of a recession. Now if selling shares make you u less comfortable than taking a dividend, you could go that route but it's pretty much a psychological effect.

To repeat: dividend stocks even when "all you care about" is the yearly withdrawal are as risky as regular stocks. They are no substitute for bonds.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by LilyFleur » Sun Aug 11, 2019 5:50 pm

nedsaid wrote:
Sat May 14, 2016 12:25 pm
einstem wrote:
nedsaid wrote:I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
Nedsaid,

Thanks for the suggestion, but my goal here is a bit different. This is primarily an "income bucket" for my "taxable" account, where some stock appreciation is certainly expected, but not the goal. Due to my tax bracket, the best ways for me to generate "income" off my investment holdings is either muni-bond funds (which are free from federal taxes) or "qualified dividends", which are taxed at "qualified dividend" rates, which are lower then my "marginal tax rate". This is why I want to stay away from funds that have a "high trade rate" and would generate "capital gain distributions" (which are taxed as ordinary income) and instead stick to a lower-trading "index" type fund that primarily generates "qualified dividends". Price growth is fine and expected, but not the goal of this "bucket".

I do have a different "bucket" of "stock appreciation" (which is primarily a few stock index funds) for my retirement account, as well as some "high yield" corporate bond funds. But this is in a "taxable" account and the goal is pure income production, which is why I am looking hard at dividend paying stocks. Their return is far better then the almost zero after-inflation return of treasury bonds. And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds (which have a higher return, but due to their higher tax treatment, are better served in my retirement account). They also do have the "upside" of long-term future appreciation (unlike bonds), which although not the "goal", would still be very welcome!

I am not a believer in an sort of "timing strategy" or "chasing yields". The academic research has consistently shown that it doesn't work. I am a big fan of Burton Malkiel and "A Random Walk Down Wall Street" and Ray Lucia's "Buckets of Money" strategy.. I do not perform any sort of market timing, stock picking, trading, or complicated investing approaches. What I DO believe in is having a long-term strategy that places my investments into several, non-correlating assets and not touching them, and using low-cost index funds is one of the best ways to achieve this strategy for the "stock" component of this strategy.

Regards,

Michael
Michael, your strategy is not irrational. One good reason to hold dividend paying stocks is that you have a pretty good shot at your pay-outs growing faster than inflation. Just keep in mind my warnings above. Even in this climate, if you bought Vanguard High Dividend and Vanguard Dividend Growth and held them long-term, you would do okay. Just keep in mind that you will likely get below market performance for a while. Don't be shocked. High Dividend in recent years has been a great value strategy and Dividend Growth has barely beaten plain old Growth. Past performance does not guarantee future performance.
I agree with Michael. I too hold bonds in my 401k and a low-cost indexed S &P 500 fund as well as a low-cost indexed international fund and cash according to my AA. I am looking to some sort of a combo approach for future retirement withdrawal that will include pension, social security, dividends from my taxable account, and then whatever is appropriate from 401k/401k Roth or 401k/Roth IRA. I have been busy learning here. A priority for me will be Roth rollovers in the next ten years. But in the meantime, SCHB (and others, as I make some decisions) will help my current tax situation by avoiding money market dividends that are taxed at the regular income tax rate, as I need to use the remaining space in my marginal tax bracket for Roth rollovers.

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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by nedsaid » Sun Aug 11, 2019 6:26 pm

LilyFleur wrote:
Sun Aug 11, 2019 5:50 pm
nedsaid wrote:
Sat May 14, 2016 12:25 pm
einstem wrote:
nedsaid wrote:I like dividends and have posted on that subject many, many times. And I have gotten beaten up on those threads many, many times. A dividend strategy like you are suggesting isn't a bad one but the timing is terrible. Investors have been chasing yield on both the equity and the bond side since late 2008, I think chasing a strategy that many other investors have been chasing for almost eight years now is not a good idea. It is a prescription for future underperformance. Everybody knows that interest rates are very low.

Right now, you would be better off with Total Stock Market. The other place I would look at is plain, old, boring Large Value. In 2016, Value is starting to perk up again after trailing the broad market since about 2010. Check that out.
Nedsaid,

Thanks for the suggestion, but my goal here is a bit different. This is primarily an "income bucket" for my "taxable" account, where some stock appreciation is certainly expected, but not the goal. Due to my tax bracket, the best ways for me to generate "income" off my investment holdings is either muni-bond funds (which are free from federal taxes) or "qualified dividends", which are taxed at "qualified dividend" rates, which are lower then my "marginal tax rate". This is why I want to stay away from funds that have a "high trade rate" and would generate "capital gain distributions" (which are taxed as ordinary income) and instead stick to a lower-trading "index" type fund that primarily generates "qualified dividends". Price growth is fine and expected, but not the goal of this "bucket".

I do have a different "bucket" of "stock appreciation" (which is primarily a few stock index funds) for my retirement account, as well as some "high yield" corporate bond funds. But this is in a "taxable" account and the goal is pure income production, which is why I am looking hard at dividend paying stocks. Their return is far better then the almost zero after-inflation return of treasury bonds. And I believe dividend stocks are safer and about equivalent in total yield to what I would get from corporate bonds (which have a higher return, but due to their higher tax treatment, are better served in my retirement account). They also do have the "upside" of long-term future appreciation (unlike bonds), which although not the "goal", would still be very welcome!

I am not a believer in an sort of "timing strategy" or "chasing yields". The academic research has consistently shown that it doesn't work. I am a big fan of Burton Malkiel and "A Random Walk Down Wall Street" and Ray Lucia's "Buckets of Money" strategy.. I do not perform any sort of market timing, stock picking, trading, or complicated investing approaches. What I DO believe in is having a long-term strategy that places my investments into several, non-correlating assets and not touching them, and using low-cost index funds is one of the best ways to achieve this strategy for the "stock" component of this strategy.

Regards,

Michael
Michael, your strategy is not irrational. One good reason to hold dividend paying stocks is that you have a pretty good shot at your pay-outs growing faster than inflation. Just keep in mind my warnings above. Even in this climate, if you bought Vanguard High Dividend and Vanguard Dividend Growth and held them long-term, you would do okay. Just keep in mind that you will likely get below market performance for a while. Don't be shocked. High Dividend in recent years has been a great value strategy and Dividend Growth has barely beaten plain old Growth. Past performance does not guarantee future performance.
I agree with Michael. I too hold bonds in my 401k and a low-cost indexed S &P 500 fund as well as a low-cost indexed international fund and cash according to my AA. I am looking to some sort of a combo approach for future retirement withdrawal that will include pension, social security, dividends from my taxable account, and then whatever is appropriate from 401k/401k Roth or 401k/Roth IRA. I have been busy learning here. A priority for me will be Roth rollovers in the next ten years. But in the meantime, SCHB (and others, as I make some decisions) will help my current tax situation by avoiding money market dividends that are taxed at the regular income tax rate, as I need to use the remaining space in my marginal tax bracket for Roth rollovers.
In a more normal time, I would probably steer you towards a combination of Vanguard High Dividend and perhaps a Consumer Staples ETF. Or perhaps a Low Volatility ETF. The valuations that I cited back in 2016 were high for these types of stocks, conditions have improved but still these kind of stocks are not cheap. Take a look at stocks like Coke, Pepsi, Colgate-Palmolive, Proctor & Gamble, etc. Not bargain stocks. I bought shares of Coke, the stock looked expensive, I held my nose and bought anyways. Darned if it isn't up smartly from where I bought it.

Interest rates have been heading down which means folks will start looking again at higher yielding stocks again. The economy has slowed so folks are buying the defensive stocks which are the types I talked about above. My concern is that you could doom yourself to subpar returns by piling into already expensive stocks.

What I would do is reach for yield a bit but not by much. Take a slice of your stock investments and put that towards Vanguard High Dividend, maybe 20% or 30% of a US stock portfolio. Take your bond portfolio, take a slice and buy an investment grade Corporate Bond fund from Vanguard to boost yields a bit. Or you could try a balanced fund from Vanguard like Wellington or Wellesley, Wellington if you are more aggressive and Wellesley if you are more conservative. My guess is that you could safely get yields up to 2.5% on the stock side and maybe 3% on the bond side.

Unfortunately, low interest rates are not good news for retirees. You are going to have to harvest capital gains from your stocks, unless your portfolio is very large you won't be able to live off of dividends and interest.
A fool and his money are good for business.

Wakefield1
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by Wakefield1 » Sun Aug 11, 2019 7:59 pm

I believe that some short term cap gains that are distributed by mutual funds are buried in the IRS tax liability 1099s as "dividends" that are not Qualified? (Trading and turnover in the fund)
if so that might affect some of the considerations as to tax efficiency of funds

My take is that high quality bonds as mutual funds are much safer in the short run than stocks including dividend payers but that over very long times the stocks may actually be safer -meaning very long time like more than 7 years

and I think that dividend paying stocks might not be quite as safe as total market but I think they are much safer than an excepted class of stocks of which none pay dividends

(stocks meaning broad baskets such as the various managed (by algorithms,market weights and computers) index funds mentioned in the discussion-individual stocks by themselves are much riskier-

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patrick013
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by patrick013 » Sun Aug 11, 2019 9:09 pm

viewtopic.php?f=10&t=287319&p=4688476&h ... g#p4688476

Equity risk is equity risk. Every portfolio will get a steep decline in a market crash.

If I bought VPU at a 4% yield I think I'd be happy today. Today SPYD is paying 4.5%.
Will that decrease in a downturn. Probably. But it's volatile and will increase as far as I know.
Kind of a quasi-bond fund to me.

The above may help may not.
age in bonds, buy-and-hold, 10 year business cycle

retiredflyboy
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by retiredflyboy » Mon Aug 12, 2019 11:22 am

I have owned DYX for many years and given your goal would recommend it.
Facts are stubborn things. Everything works until it doesn’t.

Dottie57
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by Dottie57 » Mon Aug 12, 2019 11:27 am

retiredflyboy wrote:
Mon Aug 12, 2019 11:22 am
I have owned DYX for many years and given your goal would recommend it.
Can you give a number to the years? Over 10?

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LilyFleur
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by LilyFleur » Mon Aug 12, 2019 12:35 pm

patrick013 wrote:
Sat May 14, 2016 12:22 pm
einstem wrote:
patrick013 wrote:You should consider VG Utilities Fund also. If you get a good entry
point it can yield over 4 % with some NAV growth. It's also a decent
defensive stock in market downturns.
Patrick - Thanks, but I'm not considering any "sector funds" for this bucket. Too risky for what will be a significant chunk of my strategy for "income production". I do have a long-term strategy for creation of a bucket of "non-correlating assets", and may consider a few select "sector funds" as part of that, but I am looking for a broad-based fund or index that will yield modest, but consistent income that is free from ordinary income, which pretty much reduces me to muni-bond funds and qualified dividends.
Vanguard Short Term Corporate Bond ETF VCSH
Vanguard High Dividend Yield ETF VYM
RevenueShares ETF Trust RDIV
iShares Trust HDV
iShares Select Dividend ETF DVY
WisdomTree Dividend Top 100 Fund (ETF) DTN
PowerShares High Yld. Dividend Achv(ETF) PEY
Schwab Strategic Trust SCHD
Vanguard Utilities ETF VPU

I put the above in my hypothetical portfolio on 1-8-2016. Since then
return has been close to 11%. I'm sure there's some crossover but the
selection was made due to low ER and good yield. Lower risk=lower return
but the utility need for cash income remains.

The 2 best performers are PEY and VPU. Wish I had a little cash to put
them into taxable being mostly a income investor these days.
I am very interested in dividend stocks as part of a plan for retirement income from my taxable account (not an exclusive source of income, though, just a supplement to my pension and SS). I would like to invest in stocks which throw off qualified dividends. (Currently the bulk of the account is in the money market fund, SWVXX, and it throws off dividends which are taxed as regular income, and I live in a high tax state (California). I do not plan to buy individual stocks, but I am interested in ETFs. I already own some SCHB.
I have been researching them through my Schwab portal.
What are some BH opinions regarding the "Market Edge Score"?

For VPU, this is what the Market Edge Score says:
Stock is Not a Short Sell Candidate. SCORE = -2. if you are long, hold current position. Do not initiate new position. Stock shows Mildly Deteriorating Conditions. SCORE = -2

Most of the other dividend ETFs (SCHD, SPY, VYM) I was considering have a Market Edge Score of -1 with this explanation:
SCORE = -1. if you are long, hold current position. Do not initiate new position. Caution; Stock is near Sell Stop.

I liked the idea of SPYD but the Morningstar ratings are not great.

dbr
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by dbr » Mon Aug 12, 2019 1:08 pm

LilyFleur wrote:
Mon Aug 12, 2019 12:35 pm

I am very interested in dividend stocks as part of a plan for retirement income from my taxable account (not an exclusive source of income, though, just a supplement to my pension and SS). I would like to invest in stocks which throw off qualified dividends. (Currently the bulk of the account is in the money market fund, SWVXX, and it throws off dividends which are taxed as regular income, and I live in a high tax state (California). I do not plan to buy individual stocks, but I am interested in ETFs. I already own some SCHB.
I have been researching them through my Schwab portal.
What are some BH opinions regarding the "Market Edge Score"?

For VPU, this is what the Market Edge Score says:
Stock is Not a Short Sell Candidate. SCORE = -2. if you are long, hold current position. Do not initiate new position. Stock shows Mildly Deteriorating Conditions. SCORE = -2

Most of the other dividend ETFs (SCHD, SPY, VYM) I was considering have a Market Edge Score of -1 with this explanation:
SCORE = -1. if you are long, hold current position. Do not initiate new position. Caution; Stock is near Sell Stop.

I liked the idea of SPYD but the Morningstar ratings are not great.
You should have stocks vs cash/bonds according to your need, ability, and willingness to take risk for return in your investments. If you want to address tax issues from interest paying assets in a high tax situation in a high tax state then state specific munis may be indicated. But it all depends on all your assets and what kind of accounts you have.

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patrick013
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by patrick013 » Mon Aug 12, 2019 2:51 pm

LilyFleur wrote:
Mon Aug 12, 2019 12:35 pm
patrick013 wrote:
Sat May 14, 2016 12:22 pm
einstem wrote:
patrick013 wrote:You should consider VG Utilities Fund also. If you get a good entry
point it can yield over 4 % with some NAV growth. It's also a decent
defensive stock in market downturns.
Patrick - Thanks, but I'm not considering any "sector funds" for this bucket. Too risky for what will be a significant chunk of my strategy for "income production". I do have a long-term strategy for creation of a bucket of "non-correlating assets", and may consider a few select "sector funds" as part of that, but I am looking for a broad-based fund or index that will yield modest, but consistent income that is free from ordinary income, which pretty much reduces me to muni-bond funds and qualified dividends.
Vanguard Short Term Corporate Bond ETF VCSH
Vanguard High Dividend Yield ETF VYM
RevenueShares ETF Trust RDIV
iShares Trust HDV
iShares Select Dividend ETF DVY
WisdomTree Dividend Top 100 Fund (ETF) DTN
PowerShares High Yld. Dividend Achv(ETF) PEY
Schwab Strategic Trust SCHD
Vanguard Utilities ETF VPU

I put the above in my hypothetical portfolio on 1-8-2016. Since then
return has been close to 11%. I'm sure there's some crossover but the
selection was made due to low ER and good yield. Lower risk=lower return
but the utility need for cash income remains.

The 2 best performers are PEY and VPU. Wish I had a little cash to put
them into taxable being mostly a income investor these days.
I am very interested in dividend stocks as part of a plan for retirement income from my taxable account (not an exclusive source of income, though, just a supplement to my pension and SS). I would like to invest in stocks which throw off qualified dividends. (Currently the bulk of the account is in the money market fund, SWVXX, and it throws off dividends which are taxed as regular income, and I live in a high tax state (California). I do not plan to buy individual stocks, but I am interested in ETFs. I already own some SCHB.
I have been researching them through my Schwab portal.
What are some BH opinions regarding the "Market Edge Score"?

For VPU, this is what the Market Edge Score says:
Stock is Not a Short Sell Candidate. SCORE = -2. if you are long, hold current position. Do not initiate new position. Stock shows Mildly Deteriorating Conditions. SCORE = -2

Most of the other dividend ETFs (SCHD, SPY, VYM) I was considering have a Market Edge Score of -1 with this explanation:
SCORE = -1. if you are long, hold current position. Do not initiate new position. Caution; Stock is near Sell Stop.

I liked the idea of SPYD but the Morningstar ratings are not great.
Looking at 10 year returns :
viewtopic.php?f=10&t=287319&start=50#p4682047

Look here at exhibit 14 for 20 year returns :
Research - High Dividend

I usually look at long term total return and current market condition knowing that these ETF's have long histories that are good as indexes but short histories as ETF's. The last 5 years have been a large cap era. Not many ETF's can beat ticker IWF the last 5 years.

So with a TSM, a dividend fund, and some muni's you should have less volatility and good income.
VPU has very low volatility but isn't paying much right now. PEY has excellent long term history
but is pricey also. IMO ticker SPYD is buyable. Yield is over 4.5% and long term returns are very
good going back 10 years. Has doubled in sized so buyers see the yield and know the history and
are showing that in cash inflows to the fund.

Most "stock researchers" use relative strength or moving averages and usually get contradicting alerts for buy and sell. Alot of stocks have sell alerts today due to higher prices early in the year with lessened business activity forecast. Might be better to buy stocks next year. Probably will be.
age in bonds, buy-and-hold, 10 year business cycle

retiredflyboy
Posts: 160
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Re: Vanguard Domestic Dividend Funds - VHDYX vs VDADX

Post by retiredflyboy » Mon Aug 12, 2019 8:17 pm

Dottie57 wrote:
Mon Aug 12, 2019 11:27 am
retiredflyboy wrote:
Mon Aug 12, 2019 11:22 am
I have owned DYX for many years and given your goal would recommend it.
Can you give a number to the years? Over 10?
About 8 years.
Facts are stubborn things. Everything works until it doesn’t.

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