VTI dividend drop

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erik265
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Joined: Sat Dec 05, 2015 8:55 am

VTI dividend drop

Post by erik265 » Wed Mar 11, 2020 11:45 am

How long will over market have to be down before we start seeing sizable drops in dividend returns?

Topic Author
erik265
Posts: 204
Joined: Sat Dec 05, 2015 8:55 am

Re: VTI dividend drop

Post by erik265 » Wed Mar 11, 2020 12:00 pm

Any thoughts?

sycamore
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Re: VTI dividend drop

Post by sycamore » Wed Mar 11, 2020 12:24 pm

A company wouldn't lower dividends it pays just because its stock or even the whole stock market is doing poorly. Rather, a company would lower its dividend if it couldn't afford to pay it out for various reasons. Such as a severe decline in revenue due to customers not purchasing as much as stuff as before.

VTI pays dividends quarterly. I would assume that VTI's Q1 March dividend was pretty much not affected by the coronavirus' effect on the economy. But you might start seeing dividend cuts over the next few months, so VTI's June dividend might be lower than last year's June dividend.

mega317
Posts: 4284
Joined: Tue Apr 19, 2016 10:55 am

Re: VTI dividend drop

Post by mega317 » Wed Mar 11, 2020 12:46 pm

I am just looking at the VTI chart.
Dec 2008: .335
March 2009: .278
June 2009: .223
Sept 2009: .248
Then it recovered to .358, but then the next 2 were under .27.

I make no predictions about the future.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

MotoTrojan
Posts: 9856
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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 11, 2020 1:55 pm

Why do you care? If the dividend is reduced, then the reduction in price (NAV) on the ex-div will be less as well.

It can only help (less forced tax-liability) but cannot hurt you.

alex_686
Posts: 6172
Joined: Mon Feb 09, 2015 2:39 pm

Re: VTI dividend drop

Post by alex_686 » Wed Mar 11, 2020 2:06 pm

MotoTrojan wrote:
Wed Mar 11, 2020 1:55 pm
Why do you care? If the dividend is reduced, then the reduction in price (NAV) on the ex-div will be less as well.

It can only help (less forced tax-liability) but cannot hurt you.
As somebody who normally takes the “dividend is irrelevant”, the question is relevant. A lower cash flow means a lower valuation for the company.

If it is just a bad year, I would not expect a downward dividend. Lowering dividends is the kiss of death. Companies will borrow to pay the dividend. Normal increases in dividend payouts may be delayed.

If it looks like it will be really bad, expect to hear about dividend cuts this summer or fall.

MotoTrojan
Posts: 9856
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 11, 2020 2:08 pm

alex_686 wrote:
Wed Mar 11, 2020 2:06 pm
MotoTrojan wrote:
Wed Mar 11, 2020 1:55 pm
Why do you care? If the dividend is reduced, then the reduction in price (NAV) on the ex-div will be less as well.

It can only help (less forced tax-liability) but cannot hurt you.
As somebody who normally takes the “dividend is irrelevant”, the question is relevant. A lower cash flow means a lower valuation for the company.

If it is just a bad year, I would not expect a downward dividend. Lowering dividends is the kiss of death. Companies will borrow to pay the dividend. Normal increases in dividend payouts may be delayed.

If it looks like it will be really bad, expect to hear about dividend cuts this summer or fall.
Sure but that would be reflected in a price change in VTI, which very well could've already happened. The dividend dropping itself doesn't impact the index investor directly.

mega317
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Re: VTI dividend drop

Post by mega317 » Wed Mar 11, 2020 2:17 pm

MotoTrojan wrote:
Wed Mar 11, 2020 2:08 pm
Sure but that would be reflected in a price change in VTI, which very well could've already happened.
The difference is that share price is decided by the investors/market. Dividend cuts are a decision made by the company.
The dividend dropping itself doesn't impact the index investor directly.
It does if the investor is "living off the dividends"
https://www.bogleheads.org/forum/viewtopic.php?t=6212

MotoTrojan
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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 11, 2020 2:18 pm

mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.

Fortitude
Posts: 11
Joined: Wed Mar 25, 2020 5:41 am

Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 1:40 pm

MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.

Fortitude
Posts: 11
Joined: Wed Mar 25, 2020 5:41 am

Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 1:45 pm

Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
*respectfully* (Oops!)

MathIsMyWayr
Posts: 1653
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: VTI dividend drop

Post by MathIsMyWayr » Wed Mar 25, 2020 1:59 pm

Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
A double triple whammy! My investment is going down, income down, number of shares down.

Alex GR
Posts: 152
Joined: Mon Jul 31, 2017 9:17 am

Re: VTI dividend drop

Post by Alex GR » Wed Mar 25, 2020 2:06 pm

Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
I think I was trying to say the exact same thing yesterday here:
viewtopic.php?f=1&t=309076&p=5129588#p5129588

MotoTrojan
Posts: 9856
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 2:06 pm

Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
Respectfully you do not understand how dividends work if this is your feeling. Emotionally I can understand someone who only wants to spend dividends, but it is not ground in logic. If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date. The investor had an automatic withdrawal, but neither gained or lost any value (just moved 1% to cash via the dividend). If in the same otherwise flat market VTI's dividend was cut to 0.1%, then the NAV would only fall by 0.1% and the investor could sell 0.9% of the portfolio value if desired, bringing them to the same 1% available in cash.

This is a common misconception but that makes your point no less flawed. If an investor can live off their dividends (~2%) in today's age then yes, they are in a great spot, but only because they can live off a 2% withdrawal rate which is very safe; it has nothing to do with the dividends and if they are cut, they should simply withdraw enough to make-up for it.

If what I am saying wasn't the case then you could simply surf from one index fund to another, buying it just before the dividend is paid out (before ex-dividend, so you get the div), and selling it just after. There are even funds that track the same underlying index but pay their dividends on different days, so you could capture multiple S&P500 dividend payouts for example.
Last edited by MotoTrojan on Wed Mar 25, 2020 2:08 pm, edited 2 times in total.

MotoTrojan
Posts: 9856
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 2:07 pm

Alex GR wrote:
Wed Mar 25, 2020 2:06 pm
Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
I think I was trying to say the exact same thing yesterday here:
viewtopic.php?f=1&t=309076&p=5129588#p5129588
Paper losses are indeed an emotional crutch as well with no grounds in logic, but they are not the same thing as dividends not being free money.

Alex GR
Posts: 152
Joined: Mon Jul 31, 2017 9:17 am

Re: VTI dividend drop

Post by Alex GR » Wed Mar 25, 2020 2:29 pm

MotoTrojan wrote:
Wed Mar 25, 2020 2:06 pm
Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
Respectfully you do not understand how dividends work if this is your feeling. Emotionally I can understand someone who only wants to spend dividends, but it is not ground in logic. If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date. The investor had an automatic withdrawal, but neither gained or lost any value (just moved 1% to cash via the dividend). If in the same otherwise flat market VTI's dividend was cut to 0.1%, then the NAV would only fall by 0.1% and the investor could sell 0.9% of the portfolio value if desired, bringing them to the same 1% available in cash.

This is a common misconception but that makes your point no less flawed. If an investor can live off their dividends (~2%) in today's age then yes, they are in a great spot, but only because they can live off a 2% withdrawal rate which is very safe; it has nothing to do with the dividends and if they are cut, they should simply withdraw enough to make-up for it.

If what I am saying wasn't the case then you could simply surf from one index fund to another, buying it just before the dividend is paid out (before ex-dividend, so you get the div), and selling it just after. There are even funds that track the same underlying index but pay their dividends on different days, so you could capture multiple S&P500 dividend payouts for example.
MotoTrojan, thanks for your patience and for explaining all that.
I think both myself and Fortitude made the mistake of thinking VTI dividend is like a bond, where it's basically a "zero-sum game" as long as you hold to maturity. I think in more simple terms what you are saying is that if you take the dividend on VTI and spend it rather than reinvesting it, it's like you're eating away at the principal.
So the best thing to do is keep DRIP on VTI and turn it off only for whatever your fixed income ETF is and try to live on that :P Great, new goal: Now I need $2M minimum AND Social Security :mrgreen:
P.S. Yeah, I know about the 4% rule and all. The discussion was about not drawing anything and living off the dividends.

MotoTrojan
Posts: 9856
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 2:45 pm

Alex GR wrote:
Wed Mar 25, 2020 2:29 pm


MotoTrojan, thanks for your patience and for explaining all that.
I think both myself and Fortitude made the mistake of thinking VTI dividend is like a bond, where it's basically a "zero-sum game" as long as you hold to maturity. I think in more simple terms what you are saying is that if you take the dividend on VTI and spend it rather than reinvesting it, it's like you're eating away at the principal.
So the best thing to do is keep DRIP on VTI and turn it off only for whatever your fixed income ETF is and try to live on that :P Great, new goal: Now I need $2M minimum AND Social Security :mrgreen:
P.S. Yeah, I know about the 4% rule and all. The discussion was about not drawing anything and living off the dividends.
Sure thing, happy to help. Yes, there is nothing different between "principal" (shares), and dividends, at-least with equity.

Some equities provide more of their return in dividends, other return more in price change, or even entirely in price change (don't have a dividend) but all that really matters is the total return.

Imagine two equity funds, both returning 7% total annually, but one with a 3% dividend (4% price change) and the other with a 1% dividend (6% price change). If you want to spend 3% annually you can just spend the dividend of the 1st one, or withdraw 2% in addition to the 1% dividend, and come out in the same position. You are not safer for having only spent the 3% from the dividend in the 1st instance while letting your share count persist.

So your only goal should be to get your portfolio to a size that allows you to withdraw a rate annually that you are comfortable with based on your asset allocation and risk level. From there you withdraw that amount each year, regardless of dividends; if dividends are light or even cut, then you withdraw more. If dividends are more than your withdrawal rate, then you re-invest the difference.

But the real key thing to understand is that the NAV (price) drops proportional to the dividend in an equity fund or individual stock, on the ex-dividend day (the day that determines whether you get the dividend, if you own the fund). They are not free money. They truly are a forced sale and nothing more.

mega317
Posts: 4284
Joined: Tue Apr 19, 2016 10:55 am

Re: VTI dividend drop

Post by mega317 » Wed Mar 25, 2020 3:52 pm

Welcome to the forum. Don't know if you've been lurking before joining today but you are touching on an oft-discussed and disagreed about topic here.
Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well
Your words, especially "managed" leave some room for interpretation. I contend that such a person has worked and/or accumulated for longer than necessary. That may or may not be a problem (or "mismanagement") based on one's own circumstances (enjoy the work, won the lottery).
any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
But it is not a problem if dividends are cut because they have more money than they need so they can just sell some shares.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

Fortitude
Posts: 11
Joined: Wed Mar 25, 2020 5:41 am

Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 4:05 pm

Alex GR wrote:
Wed Mar 25, 2020 2:29 pm
MotoTrojan wrote:
Wed Mar 25, 2020 2:06 pm
Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I respectively disagree. If the investor is fortunate to have a portfolio that generates sufficient dividends to “live off of the dividends”, this avoids the need to sell any underlying shares particularly in a down market. By spending these dividends to cover living expenses rather than electing to reinvest them to purchase additional shares does not equate to selling a portion of the portfolio since the dividends that weren’t reinvested were never part of the existing portfolio to begin with. An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well (assuming the appropriate allocation of risk and diversification). So yes...for this individual...any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
Respectfully you do not understand how dividends work if this is your feeling. Emotionally I can understand someone who only wants to spend dividends, but it is not ground in logic. If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date. The investor had an automatic withdrawal, but neither gained or lost any value (just moved 1% to cash via the dividend). If in the same otherwise flat market VTI's dividend was cut to 0.1%, then the NAV would only fall by 0.1% and the investor could sell 0.9% of the portfolio value if desired, bringing them to the same 1% available in cash.

This is a common misconception but that makes your point no less flawed. If an investor can live off their dividends (~2%) in today's age then yes, they are in a great spot, but only because they can live off a 2% withdrawal rate which is very safe; it has nothing to do with the dividends and if they are cut, they should simply withdraw enough to make-up for it.

If what I am saying wasn't the case then you could simply surf from one index fund to another, buying it just before the dividend is paid out (before ex-dividend, so you get the div), and selling it just after. There are even funds that track the same underlying index but pay their dividends on different days, so you could capture multiple S&P500 dividend payouts for example.
MotoTrojan, thanks for your patience and for explaining all that.
I think both myself and Fortitude made the mistake of thinking VTI dividend is like a bond, where it's basically a "zero-sum game" as long as you hold to maturity. I think in more simple terms what you are saying is that if you take the dividend on VTI and spend it rather than reinvesting it, it's like you're eating away at the principal.
So the best thing to do is keep DRIP on VTI and turn it off only for whatever your fixed income ETF is and try to live on that :P Great, new goal: Now I need $2M minimum AND Social Security :mrgreen:
P.S. Yeah, I know about the 4% rule and all. The discussion was about not drawing anything and living off the dividends.
To the contrary, I made no such mistake thinking VTI’s dividend behaves like a bond. Yes, I do agree with MotoTrojan that, in theory that with no market impact to VTI’s share price, there’s an immediate hit to VTI’s share price in the amount of the dividend per share. But the share prince recovers with market growth sometimes very quickly (i.e. a day or two; sometimes longer depending on the specific equity and market conditions) given existing market conditions. If one assumes that the dividend hit to share price is never recouped due to market growth, since he believes continues to stay flat (or even decrease) and share price continues to take a hit every time the dividend is paid and growth never recovers it, then a person with this kind of thinking truly doesn’t understand the relationship between the portfolio’s number of shares and how the shares’ prices move pursuant to dividends and share price growth and should stay away from equities altogether.

mega317
Posts: 4284
Joined: Tue Apr 19, 2016 10:55 am

Re: VTI dividend drop

Post by mega317 » Wed Mar 25, 2020 4:18 pm

Fortitude wrote:
Wed Mar 25, 2020 4:05 pm
If one assumes that the dividend hit to share price is never recouped due to market growth
Why would you assume that?
the relationship between the portfolio’s number of shares and how the shares’ prices move pursuant to dividends and share price growth
I can't quite parse this sentence but the share price and amount of dividend per share is not dependent on number of shares are owned.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

Fortitude
Posts: 11
Joined: Wed Mar 25, 2020 5:41 am

Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 4:32 pm

mega317 wrote:
Wed Mar 25, 2020 4:18 pm
[quote=Fortitude post_id=5132762 time=<a href="tel:1585170339">1585170339</a> user_id=159101]
If one assumes that the dividend hit to share price is never recouped due to market growth
Why would you assume that?
the relationship between the portfolio’s number of shares and how the shares’ prices move pursuant to dividends and share price growth
I can't quite parse this sentence but the share price and amount of dividend per share is not dependent on number of shares are owned.
[/quote]
mega317 wrote:
Wed Mar 25, 2020 3:52 pm
Welcome to the forum. Don't know if you've been lurking before joining today but you are touching on an oft-discussed and disagreed about topic here.
Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
An individual who has amassed a portfolio large enough to live off the portfolio’s dividends without having to sell any of the portfolio’s shares has actually invested and managed the portfolio well
Your words, especially "managed" leave some room for interpretation. I contend that such a person has worked and/or accumulated for longer than necessary. That may or may not be a problem (or "mismanagement") based on one's own circumstances (enjoy the work, won the lottery).
any significant reduction to dividends is of serious concern if it means that the investor has to sell any existing shares to cover living expenses that the reduced level of dividends fails to cover.
But it is not a problem if dividends are cut because they have more money than they need so they can just sell some shares.
Thanks for the kind welcome. I agree with you that selling shares isn’t a problem if one’s portfolio is large enough to sustain them through his or her life if dividends are insufficient. Each person is different and the future intent how people would like to use portions of their portfolio other than for living expenses can vary greatly from person to person including leaving legacies.

MotoTrojan
Posts: 9856
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 4:32 pm

Fortitude wrote:
Wed Mar 25, 2020 4:05 pm
Alex GR wrote:
Wed Mar 25, 2020 2:29 pm


MotoTrojan, thanks for your patience and for explaining all that.
I think both myself and Fortitude made the mistake of thinking VTI dividend is like a bond, where it's basically a "zero-sum game" as long as you hold to maturity. I think in more simple terms what you are saying is that if you take the dividend on VTI and spend it rather than reinvesting it, it's like you're eating away at the principal.
So the best thing to do is keep DRIP on VTI and turn it off only for whatever your fixed income ETF is and try to live on that :P Great, new goal: Now I need $2M minimum AND Social Security :mrgreen:
P.S. Yeah, I know about the 4% rule and all. The discussion was about not drawing anything and living off the dividends.
To the contrary, I made no such mistake thinking VTI’s dividend behaves like a bond. Yes, I do agree with MotoTrojan that, in theory that with no market impact to VTI’s share price, there’s an immediate hit to VTI’s share price in the amount of the dividend per share. But the share prince recovers with market growth sometimes very quickly (i.e. a day or two; sometimes longer depending on the specific equity and market conditions) given existing market conditions. If one assumes that the dividend hit to share price is never recouped due to market growth, since he believes continues to stay flat (or even decrease) and share price continues to take a hit every time the dividend is paid and growth never recovers it, then a person with this kind of thinking truly doesn’t understand the relationship between the portfolio’s number of shares and how the shares’ prices move pursuant to dividends and share price growth and should stay away from equities altogether.
I tried to help. You are the person truly not understanding the mechanics of share # vs. $ and I have no idea how to help more. If you feel this way I again suggest you find several S&P500 funds and alternate holdings to capture multiple dividends per quarter, all from the same S&P500 companies.

By your logic, I suggest you never hold equities again.

bloom2708
Posts: 7722
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: VTI dividend drop

Post by bloom2708 » Wed Mar 25, 2020 4:37 pm

Ford (F) has suspended their dividend. Not sure if it was for Q1 or starting in Q2.

I know some oil stocks will be reduced.

Yes, expect the dividend for the total market to be reduced. Less tax liability for now in taxable accounts.

For how long? Nobody knows that.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

Fortitude
Posts: 11
Joined: Wed Mar 25, 2020 5:41 am

Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 4:47 pm

mega317 wrote:
Wed Mar 25, 2020 4:18 pm
Fortitude wrote:
Wed Mar 25, 2020 4:05 pm
If one assumes that the dividend hit to share price is never recouped due to market growth
Why would you assume that?

It was in response to your statement “If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date.” Not sure what else to draw from that statement other than that you imply that the market will stay flat and the share price will never recoup the hit from the dividend. In addition, your comment that using a dividend is a forced sale captures how offside you’re thinking is on this. Using the dividend as cash does not result in the sale of a single share of the underlying equity.

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Re: VTI dividend drop

Post by abuss368 » Wed Mar 25, 2020 4:49 pm

Companies can cut dividends at any time.
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Re: VTI dividend drop

Post by grog » Wed Mar 25, 2020 5:25 pm

MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.

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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 5:33 pm

Fortitude wrote:
Wed Mar 25, 2020 4:47 pm


It was in response to your statement “If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date.” Not sure what else to draw from that statement other than that you imply that the market will stay flat and the share price will never recoup the hit from the dividend. In addition, your comment that using a dividend is a forced sale captures how offside you’re thinking is on this. Using the dividend as cash does not result in the sale of a single share of the underlying equity.
Simply put, this is ignorant and recklessly incorrect. Good luck.

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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 5:34 pm

grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Fair. These days the dividend yield is much lower than a traditional SWR. I wonder how that compared back in the day.

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Re: VTI dividend drop

Post by Silverado » Wed Mar 25, 2020 5:38 pm

Fortitude wrote:
Wed Mar 25, 2020 4:47 pm
mega317 wrote:
Wed Mar 25, 2020 4:18 pm
Fortitude wrote:
Wed Mar 25, 2020 4:05 pm
If one assumes that the dividend hit to share price is never recouped due to market growth
Why would you assume that?

It was in response to your statement “If VTI has a 1% dividend payment with an otherwise flat market, the NAV will drop by 1% on the ex-dividend date.” Not sure what else to draw from that statement other than that you imply that the market will stay flat and the share price will never recoup the hit from the dividend. In addition, your comment that using a dividend is a forced sale captures how offside you’re thinking is on this. Using the dividend as cash does not result in the sale of a single share of the underlying equity.
It does not matter. The shares are now worth less. Ignoring taxes (we can’t go there until you understand the basics) the amount of money is the same, just split differently between cash and shares. This was well explained up thread.

I recommend taking a pencil and working out an example with multiple years.

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Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 6:11 pm

grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Very well stated! Hopefully, this should provide some common sense to another who just can’t seem to grasp this simple concept.

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Re: VTI dividend drop

Post by tibbitts » Wed Mar 25, 2020 6:23 pm

alex_686 wrote:
Wed Mar 11, 2020 2:06 pm
MotoTrojan wrote:
Wed Mar 11, 2020 1:55 pm
Why do you care? If the dividend is reduced, then the reduction in price (NAV) on the ex-div will be less as well.

It can only help (less forced tax-liability) but cannot hurt you.
As somebody who normally takes the “dividend is irrelevant”, the question is relevant. A lower cash flow means a lower valuation for the company.

If it is just a bad year, I would not expect a downward dividend. Lowering dividends is the kiss of death. Companies will borrow to pay the dividend. Normal increases in dividend payouts may be delayed.

If it looks like it will be really bad, expect to hear about dividend cuts this summer or fall.
Lowering dividends is only the kiss of death if everybody doesn't do it. Well, if most companies don't do it.

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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 6:42 pm

Fortitude wrote:
Wed Mar 25, 2020 6:11 pm
grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Very well stated! Hopefully, this should provide some common sense to another who just can’t seem to grasp this simple concept.
You have 10 shares of a $10 stock. It provides a $1 dividend, leaving you with 10 shares of a $9 stock and $10.

Could you be so kind to tell me how this is different than simply selling 1 share for $10, leaving you with 9 shares of a $10 stock and $10?

Are you saying the one that paid the dividend is now more likely to grow its price than the other? How?!

The message you quoted isn’t agreeing with you. You are wrong. We are trying to help.

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Re: VTI dividend drop

Post by TN_Boy » Wed Mar 25, 2020 7:17 pm

Fortitude wrote:
Wed Mar 25, 2020 4:05 pm
To the contrary, I made no such mistake thinking VTI’s dividend behaves like a bond. Yes, I do agree with MotoTrojan that, in theory that with no market impact to VTI’s share price, there’s an immediate hit to VTI’s share price in the amount of the dividend per share. But the share prince recovers with market growth sometimes very quickly (i.e. a day or two; sometimes longer depending on the specific equity and market conditions) given existing market conditions. If one assumes that the dividend hit to share price is never recouped due to market growth, since he believes continues to stay flat (or even decrease) and share price continues to take a hit every time the dividend is paid and growth never recovers it, then a person with this kind of thinking truly doesn’t understand the relationship between the portfolio’s number of shares and how the shares’ prices move pursuant to dividends and share price growth and should stay away from equities altogether.
Think about it this way. A stock's total return is a combination of share price appreciation and dividends.

My question to you: is there evidence that the total return of stocks selected on the basis of dividends outperform non-dividend stocks (with similar characteristics around size, etc).

If the answer to my question is no, then dividends have to be affecting share price.

If the answer to my question is yes, you should hunt around and show us the data. We have indexes of stocks which are selected on the basis of dividend yield, so one could start looking there.

Note that if the answer is yes, then dividends are a magic money machine for investors, since you get periodic payments and the same share price appreciation that you'd get without the dividend.

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Re: VTI dividend drop

Post by grog » Wed Mar 25, 2020 7:29 pm

Fortitude wrote:
Wed Mar 25, 2020 6:11 pm
grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Very well stated! Hopefully, this should provide some common sense to another who just can’t seem to grasp this simple concept.
Hi, Fortitude. Welcome to the forum!

I will second what mega317 said up thread. Dividends are a frequent topic of debate.

There are some who look at dividends in a strictly arithmetic way and who see no reason for them at all (or are indifferent to them). This is the total return philosophy. The idea is that money is money. What matters is the total return and you shouldn't care if it comes from a dividend or from the share price going up. There are others who tend to be practical investors and who, by golly, like getting their dividends. These groups tend to talk past each other somewhat. Mathematically, the total return argument is irrefutable and correct, so far as it goes. But I think it does miss a few things like the earnings retention issue, stock selection, and the feedback between earnings and the dividend.

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Re: VTI dividend drop

Post by Thesaints » Wed Mar 25, 2020 8:01 pm

Dividend yield hit an all-time high of almost 14% in May 1932.

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Re: VTI dividend drop

Post by Fortitude » Wed Mar 25, 2020 8:03 pm

MotoTrojan wrote:
Wed Mar 25, 2020 6:42 pm
Fortitude wrote:
Wed Mar 25, 2020 6:11 pm
grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm
mega317 wrote:
Wed Mar 11, 2020 2:17 pm

It does if the investor is "living off the dividends".
That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Very well stated! Hopefully, this should provide some common sense to another who just can’t seem to grasp this simple concept.
You have 10 shares of a $10 stock. It provides a $1 dividend, leaving you with 10 shares of a $9 stock and $10.

Could you be so kind to tell me how this is different than simply selling 1 share for $10, leaving you with 9 shares of a $10 stock and $10?

Are you saying the one that paid the dividend is now more likely to grow its price than the other? How?!

The message you quoted isn’t agreeing with you. You are wrong. We are trying to help.
I completely agree with everything you’ve said in this last post above. However, you haven’t stopped at that simple example above when describing your position. You’ve been arguing that taking the dividend is the same as forced selling and that one is eroding the portfolio by living off of the dividends instead of electing to reinvest them in additional shares. I assume you’re aware of the basic fact that the equity market has returned a 10% - 11% average annual return since 1926; including dividends. As another member and I have tried to tell you, with a conservative equity fund such as VTI that covers the broad market and pays around a 1.95% yield, existing shares that remain in the portfolio will continue to grow at a rate higher rate than the dividend rate. Again, historically that rate has been 8%-9% net of the dividend. If one feels that there’s not much more growth to gain than the 2% dividend yield regardless of what 90+ years of history has demonstrated, then the investor should go with God and plow the entire portfolio into bonds. If left in the broad equity market, the shares will continue to grow while “living off the dividends”. The portfolio won’t erode, it’s not ignorant nor is it reckless to take the dividend as you’ve accused. As another member stated, this characteristic is inherent in conservative equity funds discussed in this forum and I’ll go as far as saying it applies to high quality equities that pay a strong and stable yield. The current market environment offers plenty of opportunity and I’m not suggesting putting cash into industries that are at risk of not coming out on the other side of the current health crisis. I don’t know how else to teach all of this to you. From your response to the other member’s post, it seemed that you grasped this. Apparently you didn’t. As difficult as it might be, please refrain from attempting to offer your “help” on this matter any longer. I‘m sure you’ll feel better if you focus your efforts on an audience that agrees with your platform and can provide you with the attention that you seem to crave.

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Re: VTI dividend drop

Post by alex_686 » Wed Mar 25, 2020 8:19 pm

grog wrote:
Wed Mar 25, 2020 7:29 pm
But I think it does miss a few things like the earnings retention issue, stock selection, and the feedback between earnings and the dividend.
Could you please expand on these.

I will start out by saying that I am deeply skeptical of this path. I have had a fair amount of formal training and practical experience in this area. The correct formulation in my mind is Total Returns and Free Cash Flow to Equity.

Dividends fall into neither of these. As you say, they are emotionally satisfying - but not is emotion, not reason. They are deceptively easy to understand and intuitive to use. I suspect a fair number of people are going to grappling with their dividend checks cut by a 1/3 or 1/2 or nothing at all. VTI will be closer to 1/3 mark.

Total Returns and FCFE are more abstract. But they also form a cohesive complete package. Dividends on the other hand can be manipulated.

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Re: VTI dividend drop

Post by MotoTrojan » Wed Mar 25, 2020 9:34 pm

Fortitude wrote:
Wed Mar 25, 2020 8:03 pm
MotoTrojan wrote:
Wed Mar 25, 2020 6:42 pm
Fortitude wrote:
Wed Mar 25, 2020 6:11 pm
grog wrote:
Wed Mar 25, 2020 5:25 pm
MotoTrojan wrote:
Wed Mar 11, 2020 2:18 pm


That is about as well thought out of a strategy as rolling a dice and selling that % of your portfolio each year in my opinion.
I wouldn't overstate the case for this. Dividends are not random. If the company is well-managed, the dividend is paid out of as a portion of earnings and the dividend is seen as an ongoing commitment. But I would agree that the dividend amount can be an arbitrary withdrawal rate. For something like VTI, "living off the dividends" is pretty conservative and you will likely see long-term share appreciation. At the other end of the spectrum, if you chase stocks with really high yields you'll probably end up with stocks that are essentially liquidating themselves and the dividend won't be sustainable. But for most of the popular funds around here (including the income oriented ones) I doubt you'd have that sort of issue.
Very well stated! Hopefully, this should provide some common sense to another who just can’t seem to grasp this simple concept.
You have 10 shares of a $10 stock. It provides a $1 dividend, leaving you with 10 shares of a $9 stock and $10.

Could you be so kind to tell me how this is different than simply selling 1 share for $10, leaving you with 9 shares of a $10 stock and $10?

Are you saying the one that paid the dividend is now more likely to grow its price than the other? How?!

The message you quoted isn’t agreeing with you. You are wrong. We are trying to help.
I completely agree with everything you’ve said in this last post above. However, you haven’t stopped at that simple example above when describing your position. You’ve been arguing that taking the dividend is the same as forced selling and that one is eroding the portfolio by living off of the dividends instead of electing to reinvest them in additional shares. I assume you’re aware of the basic fact that the equity market has returned a 10% - 11% average annual return since 1926; including dividends. As another member and I have tried to tell you, with a conservative equity fund such as VTI that covers the broad market and pays around a 1.95% yield, existing shares that remain in the portfolio will continue to grow at a rate higher rate than the dividend rate. Again, historically that rate has been 8%-9% net of the dividend. If one feels that there’s not much more growth to gain than the 2% dividend yield regardless of what 90+ years of history has demonstrated, then the investor should go with God and plow the entire portfolio into bonds. If left in the broad equity market, the shares will continue to grow while “living off the dividends”. The portfolio won’t erode, it’s not ignorant nor is it reckless to take the dividend as you’ve accused. As another member stated, this characteristic is inherent in conservative equity funds discussed in this forum and I’ll go as far as saying it applies to high quality equities that pay a strong and stable yield. The current market environment offers plenty of opportunity and I’m not suggesting putting cash into industries that are at risk of not coming out on the other side of the current health crisis. I don’t know how else to teach all of this to you. From your response to the other member’s post, it seemed that you grasped this. Apparently you didn’t. As difficult as it might be, please refrain from attempting to offer your “help” on this matter any longer. I‘m sure you’ll feel better if you focus your efforts on an audience that agrees with your platform and can provide you with the attention that you seem to crave.
I never once said you’d go broke by living on dividends but they are literally forced withdrawals from your portfolio. Just because you don’t go broke doesn’t change that fact and pretending it does is indeed quite ignorant. Saying you can live on dividends today is just saying you can live on a 2% withdrawal. Apologies if I confused you and we are talking past each other but it’s quite fundamental investing math to realize that taxes aside, a dividend payment is equivalent to a proportional sale of an imaginary dividend-free version of your fund (an accumulating ETF for example).

The real key point was that an investor doesn’t lose a penny when a dividend is cut. Their total return hasn’t changed at all.

I’ll continue to help others, thanks though.
Last edited by MotoTrojan on Wed Mar 25, 2020 9:37 pm, edited 1 time in total.

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Re: VTI dividend drop

Post by TropikThunder » Wed Mar 25, 2020 9:37 pm

Fortitude wrote:
Wed Mar 25, 2020 1:40 pm
since the dividends that weren’t reinvested were never part of the existing portfolio to begin with.
I don't even know where to begin ..........

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Re: VTI dividend drop

Post by TropikThunder » Wed Mar 25, 2020 9:58 pm

Fortitude wrote:
Wed Mar 25, 2020 8:03 pm
As difficult as it might be, please refrain from attempting to offer your “help” on this matter any longer. I‘m sure you’ll feel better if you focus your efforts on an audience that agrees with your platform and can provide you with the attention that you seem to crave.
You've made quite an impression in your one day on the board. I'll leave it to others as to whether this is a compliment or not.

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Re: VTI dividend drop

Post by abuss368 » Wed Mar 25, 2020 10:05 pm

Thesaints wrote:
Wed Mar 25, 2020 8:01 pm
Dividend yield hit an all-time high of almost 14% in May 1932.
Just imagine that for a moment!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: VTI dividend drop

Post by grog » Thu Mar 26, 2020 12:25 am

alex_686 wrote:
Wed Mar 25, 2020 8:19 pm
grog wrote:
Wed Mar 25, 2020 7:29 pm
But I think it does miss a few things like the earnings retention issue, stock selection, and the feedback between earnings and the dividend.
Could you please expand on these.

I will start out by saying that I am deeply skeptical of this path. I have had a fair amount of formal training and practical experience in this area. The correct formulation in my mind is Total Returns and Free Cash Flow to Equity.

Dividends fall into neither of these. As you say, they are emotionally satisfying - but not is emotion, not reason. They are deceptively easy to understand and intuitive to use. I suspect a fair number of people are going to grappling with their dividend checks cut by a 1/3 or 1/2 or nothing at all. VTI will be closer to 1/3 mark.

Total Returns and FCFE are more abstract. But they also form a cohesive complete package. Dividends on the other hand can be manipulated.
I'll try to separate a few different issues. 1) Is it rational for shareholders to demand dividends and for companies to pay them?, 2) Is just taking the dividend yield a reasonable withdrawal strategy?, 3) Is it reasonable to favor dividend paying stocks in one's portfolio?

1) Firms should only retain and reinvest earnings if they have internal projects that are attractive enough to cover the shareholders' opportunity cost of capital. Otherwise they should pay the earnings out to shareholders. This is especially true if you believe that management needs to be constrained to some extent, i.e., if you think they tend to empire build, pursue pet projects, and so forth. The expectation to deliver a consistent dividend might help align the incentives a little better.

2) I don't think living off dividends is the worst withdrawal strategy, though it's probably overly conservative in most cases. Your savings would likely grow in perpetuity given current yields. Companies by and large have some headroom in what they pay out and there's usually future earnings growth on top of the dividend. One issue with setting an SWR is that you have to guess about future returns. If you rely on dividends, you are instead relying on the management/board to determine what they think they can deliver, and that might make sense if you think they have better information about this. Again, that amount will probably be on the low end, but you want to err in that direction anyway.

3) I have several decades till retirement and I personally favor the broader market in the accumulation phase. I don't care about dividend distributions at this point and they all get reinvested. I haven't heard a good argument for why dividend payers would have higher returns. Some dividend strategies might be a bit less volatile than the overall market and might have a bit better Sharpe ratio (as is the case with lower beta in typically). That said, empirically, dividends are associated with certain characteristics (larger, more established companies) and I think some people not only like the dividends, they also like the company characteristics that are part of the package. Sure, there are exceptions. Berkshire Hathaway pays no dividend even though characteristically it fits better with a lot of the dividend payers. But the overall pattern is clear. If people want precisely those kinds of stocks, I don't see the problem with that sort of tilt or whatever you want to call it. Also, it's a natural way of partially overcoming the problem with the very low withdrawal rate you'd get from TSM. If you tilt to dividend stocks that yield 3% rather than 2%, now you've got a little more realistic withdrawal rate.

The standard BH approach is to stick with total market and reduce risk by diluting with bonds and then set a withdrawal rate based on overall expected return, etc. That is a fine answer and it's probably the one I will end up doing. But I don't think the proverbial boomer who loves his Wellesley and lives off the distributions is being irrational or dumb for going with the income-oriented approach.

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