John Bogle on Dividends

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HanSolo
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Re: John Bogle on Dividends

Post by HanSolo »

GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
We see that there are many kinds of tilters, as well as non-tilters, on this forum (SCV, TIPS, etc.). It's not a problem.

The fact is, there's nothing wrong with a dividend tilt. And there's nothing wrong with an anti-dividend tilt. And there's nothing wrong with sticking with the broad-market index.

So the answer to your question is, some people are obsessed with telling other people that they're wrong.

And I suppose that behavior isn't wrong either... freedom of speech and all... and everyone needs a hobby.

It's all good.
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JakeyLee
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Re: John Bogle on Dividends

Post by JakeyLee »

I’ve never quite understood the contentious dividend arguments on this fine forum. Reminds me of the “should I pay off my mortgage early” threads.

I’ve never “chased” dividends.. quite frankly, within mutual funds (active funds designed with high yield dividend stocks) it seems that they historically underperform index funds. However, I accept that I’m going to receive payment ona quarterly schedule from companies that pay them out to stock holders. For me, even in a S&P index, it amounts to a sizable chunk of money per year. Doesn’t hurt too bad, as the vast majority of my holdings are in tax protected accounts.

I see both sides of the dividend argument. We should all be aware by now that dividends are not a free lunch. As the value of said stock goes down with each payout. Sometimes I wish a company would use that cash to expand their business. But that’s not always possible. So returning profit to shareholders doesn’t exactly upset me. What does concern me is the current trend of CEOs using company cash for buybacks… these are often the same CEOs (and execs) that take the bulk of their compensation in company stock. Sure that helps the stockholder in the short term in run up stock price. But often hurts the same stockholder in the long run with lack of innovation, acquisitions, and expansion. Not
Much I can do it about it. But I’m aware this exists in the current market place.

So I will just take what they give me, and keep reinvesting said dividends; knowing that I will be cashing them in sooner than later.
Cash is King
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Re: John Bogle on Dividends

Post by Cash is King »

dbr wrote: Wed Oct 13, 2021 3:42 pm
Cash is King wrote: Wed Oct 13, 2021 3:30 pm
dbr wrote: Wed Oct 13, 2021 11:27 am
Also, this forum is not opposed to "dividend investing." The forum is opposed to the idea that dividend investing involves a special sauce that evades the principles of investing. The most extreme form of that is the illusion that dividends are free money but there are plenty of other illusions. None of this is opposed to someone who knows what they are doing selecting stocks by dividend or setting spending equal to dividends if they want to.
:annoyed Maybe it would easier to say you're opposed to dividend investing instead of repeating the free money angle and other illusions. In my opinion, the issue is the word "Index" is missing.
But I am not opposed to dividend investing whether by index funds or stock picking if someone wants to do it. What would it even mean to be opposed to someone investing whatever way they want?
Okay. I'm not interested in playing. We can agree to disagree.
skierincolorado
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Re: John Bogle on Dividends

Post by skierincolorado »

olyveoil wrote: Wed Oct 13, 2021 3:29 pm
skierincolorado wrote: Wed Oct 13, 2021 3:21 pm
olyveoil wrote: Wed Oct 13, 2021 3:16 pm
skierincolorado wrote: Wed Oct 13, 2021 11:36 am
olyveoil wrote: Wed Oct 13, 2021 11:11 am

I fail to see where he advocated for "dividend chasing". But, you read what you want to hear. That is fine.
Me? I will build some dividend payers 6 years prior to retirement and gladly take those "risky--bad" dividends during retirement.
So you'll do exactly what Bogle advised not to do - deviate from the market.

If you want a CEO to return your principal to you on her schedule, rather than returning principal to yourself on your schedule, that's your call.
1.) I don't proclaim to be an all in boglehead.
2.) The operative word in my declarative statement is "some"
3.) Are you doing exactly what Bogle advised to do regarding dividends in the OP?
I'm going to do what is rational, which is return my principal to myself on my schedule, rather than the schedule decided upon by a CEO. I think that's consistent with what Bogle said. Deviating significantly from the market portfolio is not.
Except for what he said 6 short years ago in the OP.
Where did Bogle say not to invest in market funds? The only thing he said NOT to do in the OP is to deviate significantly from market funds.

He said it would be "OK" to deviate a little if someone wanted more dividends - but he doesn't really provide a reason for doing so other than it being easy.

I think you are misunderstanding something. He says to "bet on the dividends" .. but he's not talking about deviating from a market portfolio.. he's talking about the dividends you get from a market portfolio. This is clear in context with the rest of the interview posted later in the thread. When asked if it makes sense to deviate from the market portfolio he says "yes and no"... he provides a reason for the "no" ("it increases the odds of falling significantly behind the market") but he does not provide a reason for "yes" - other than it would be "attractive" to investors - by which I assume he means psychologically attractive because there is no financial benefit.


Look this is simple. We can simulate a retirement on blue chip dividends vs selling shares of SPY. There's no benefit in these backtests to owning blue chip dividends.
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HanSolo
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Re: John Bogle on Dividends

Post by HanSolo »

skierincolorado wrote: Wed Oct 13, 2021 5:07 pm There's no benefit in these backtests to owning blue chip dividends.
Person A owns Company A, but doesn't work there, just owns it. Person B does same with Company B. The difference is that Person A tells his company to cut him a check regularly, and Person B doesn't.

Are you going to tell Person A that he's wrong?

Objectively, neither one is wrong for doing what they do. They are both having their companies do what they want their companies to do.

And so it is for those who own dividend stocks, and those who own non-dividend stocks. What's good for the 100% owner is good for the fractional shareholder.

It's all good.
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Misenplace
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Re: John Bogle on Dividends

Post by Misenplace »

A contentious post was just deleted. Let's keep it civil, and not derail yet another dividend thread.

This forum is about debating theory, don't get personal.
Carol88888
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Re: John Bogle on Dividends

Post by Carol88888 »

HanSolo wrote: Wed Oct 13, 2021 3:43 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
We see that there are many kinds of tilters, as well as non-tilters, on this forum (SCV, TIPS, etc.). It's not a problem.

The fact is, there's nothing wrong with a dividend tilt. And there's nothing wrong with an anti-dividend tilt. And there's nothing wrong with sticking with the broad-market index.

So the answer to your question is, some people are obsessed with telling other people that they're wrong.

And I suppose that behavior isn't wrong either... freedom of speech and all... and everyone needs a hobby.

It's all good.
I like your attitude. Many roads go to Dublin and all that.

Also, I think people are discounting the psychological benefit on focusing on dividends rather than on stock prices that gyrate more wildly. Even during the 1929 crash, dividends went down only 6%!

There is a security in having that money come in when prices are swooning. And in some cases, I believe that having a dividend tilt might allow someone to stay invested in the market with a greater proportion of equities.

After all, the best portfolio is the one that you can hold on to throughout the ups and downs.
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GoneOnTilt
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Carol88888 wrote: Wed Oct 13, 2021 6:27 pm
HanSolo wrote: Wed Oct 13, 2021 3:43 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
We see that there are many kinds of tilters, as well as non-tilters, on this forum (SCV, TIPS, etc.). It's not a problem.

The fact is, there's nothing wrong with a dividend tilt. And there's nothing wrong with an anti-dividend tilt. And there's nothing wrong with sticking with the broad-market index.

So the answer to your question is, some people are obsessed with telling other people that they're wrong.

And I suppose that behavior isn't wrong either... freedom of speech and all... and everyone needs a hobby.

It's all good.
I like your attitude. Many roads go to Dublin and all that.

Also, I think people are discounting the psychological benefit on focusing on dividends rather than on stock prices that gyrate more wildly. Even during the 1929 crash, dividends went down only 6%!

There is a security in having that money come in when prices are swooning. And in some cases, I believe that having a dividend tilt might allow someone to stay invested in the market with a greater proportion of equities.

After all, the best portfolio is the one that you can hold on to throughout the ups and downs.
^^This right here.
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Re: John Bogle on Dividends

Post by Da5id »

GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
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Re: John Bogle on Dividends

Post by Ferdinand2014 »

I view dividends as the less volatile (about 50% less) portion of total return - historically. Although the current yield is low, the actual dividends in dollars has been steadily rising at a pace faster than inflation over many years. However, I continue to invest in an agnostic stock index fund independent of its yield or dividend growth (S&P 500 and TSM) as total return is ultimately what matters. Come drawdown, I will mostly rely on social security, fixed income and dividends (because of its historical lower volatility), along with no debt. The bonus will be real capital growth.

Real 12 month dividend (inflation adjusted each July) of the S&P 500.

https://www.multpl.com/s-p-500-dividend

Real 12 month dividend growth of the S&P 500 back to 1989.
Largest drawdown was about 21% vs about 50% for the total return.

https://www.multpl.com/s-p-500-dividend ... le/by-year
Last edited by Ferdinand2014 on Wed Oct 13, 2021 7:39 pm, edited 1 time in total.
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JoMoney
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Re: John Bogle on Dividends

Post by JoMoney »

I've posted this before, but here's a snip of one of the model portfolios Mr. Bogle had in "Bogle On Mutual Funds"
Image
...Equity income funds seek to provide a major portion of total return through income and invest in stocks with yields that are generally well above average...
This was for a late-stage investor in the distribution phase, for earlier accumulators the model portfolio had a growth/value balance with a tilt towards growth.

I think it's a reasonable theory/story around the idea that stocks that distribute regular dividends could represent a lower duration security relative
to a non-dividend paying growth stock. Analogous to a bond paying regular coupon interest relative to a zero-coupon bond where all the interest is paid at maturity. The coupon paying bond, and similarly a dividend paying stock, are returning cash to the investor sooner in time. This works to the advantage of the investor in a period of rising interest rates where the cash can be invested in the now higher rates available, and is a disadvantage in a period of falling interest rates where the cash can only be re-invested at now lower rates. For the retiree living off the income, they're not reinvesting, they're spending the money now and in the near future so there may be good reason to be less concerned with the internal compounding of the investment and more of a focus on getting cash now...
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Re: John Bogle on Dividends

Post by WyomingFIRE »

JoMoney wrote: Wed Oct 13, 2021 7:33 pm I've posted this before, but here's a snip of one of the model portfolios Mr. Bogle had in "Bogle On Mutual Funds"
Image
...Equity income funds seek to provide a major portion of total return through income and invest in stocks with yields that are generally well above average...
This was for a late-stage investor in the distribution phase, for earlier accumulators the model portfolio had a growth/value balance with a tilt towards growth.

I think it's a reasonable theory/story around the idea that stocks that distribute regular dividends could represent a lower duration security relative
to a non-dividend paying growth stock. Analogous to a bond paying regular coupon interest relative to a zero-coupon bond where all the interest is paid at maturity. The coupon paying bond, and similarly a dividend paying stock, are returning cash to the investor sooner in time. This works to the advantage of the investor in a period of rising interest rates where the cash can be invested in the now higher rates available, and is a disadvantage in a period of falling interest rates where the cash can only be re-invested at now lower rates. For the retiree living off the income, they're not reinvesting, they're spending the money now and in the near future so there may be good reason to be less concerned with the internal compounding of the investment and more of a focus on getting cash now...
+1

Thank you for this

Are there back-tested data to support it? I look at those pie charts and my eyes gloss over. Do passive investors really manage their portfolios so closely?

Between 1986 and circa 2013, we were 100/0/0, with everything in BH-acceptable funds. Since then, we have tapered down to circa 65/32/3

We are currently at 47x on the retirement off ramp

I read the dividend threads and, again, my eyes gloss over

I want investing to be easy, not hard

And for those of us who have been playing the long game for decades, most of what appears here is noise

The fundamental thing I learned decades ago was that it is more important to control that which a person can control (e.g., spending and savings) than obsessing about things which a person can’t control (which is, of course, the future)
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Da5id wrote: Wed Oct 13, 2021 6:41 pm I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.
A bridge too far? It was an excerpt. A quote from Jack Bogle. Hardly overreaching.

Argument against owning just index funds? Can you point that out? I missed it. Dividend investing is a choice among many. I didn't see in Jack's comments, nor did I make, an argument against owning just index funds.
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Re: John Bogle on Dividends

Post by abuss368 »

Ferdinand2014 wrote: Wed Oct 13, 2021 7:05 pm Come drawdown, I will mostly rely on social security, fixed income and dividends (because of its historical lower volatility), along with no debt. The bonus will be real capital growth.
Love it Jon! Successful plan for transition to retirement. I am following your lead.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: John Bogle on Dividends

Post by Cash is King »

Da5id wrote: Wed Oct 13, 2021 6:41 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
Is it possible you have the misconceptions ? I don't recall anyone mentioning special and dividends in the same sentence. Maybe I missed it. By the way, I don't think there is anything wrong in owing Index funds.
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Re: John Bogle on Dividends

Post by Da5id »

GoneOnTilt wrote: Wed Oct 13, 2021 8:09 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.
A bridge too far? It was an excerpt. A quote from Jack Bogle. Hardly overreaching.

Argument against owning just index funds? Can you point that out? I missed it. Dividend investing is a choice among many. I didn't see in Jack's comments, nor did I make, an argument against owning just index funds.
You can quote Bogle on many things in many contexts. But if you take the totality of what he says, I'd say a better summary really is "all you need are simple index funds" than "you should think about owning dividend funds, they are great".
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Re: John Bogle on Dividends

Post by Da5id »

Cash is King wrote: Wed Oct 13, 2021 8:38 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
Is it possible you have the misconceptions ? I don't recall anyone mentioning special and dividends in the same sentence. Maybe I missed it. By the way, I don't think there is anything wrong in owing Index funds.
A number of people who advocate for dividend focused investing seem to think dividends provide the special sauce. This is the source of most back and forth arguments in threads about dividend, do you actually not think that to be the case?
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Da5id wrote: Wed Oct 13, 2021 9:10 pm
GoneOnTilt wrote: Wed Oct 13, 2021 8:09 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.
A bridge too far? It was an excerpt. A quote from Jack Bogle. Hardly overreaching.

Argument against owning just index funds? Can you point that out? I missed it. Dividend investing is a choice among many. I didn't see in Jack's comments, nor did I make, an argument against owning just index funds.
You can quote Bogle on many things in many contexts. But if you take the totality of what he says, I'd say a better summary really is "all you need are simple index funds" than "you should think about owning dividend funds, they are great".
Let me ask again. Can you give support to your assertion, and point out where Jack Bogle argued against owning just index funds?
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Re: John Bogle on Dividends

Post by abuss368 »

Ferdinand2014 wrote: Wed Oct 13, 2021 7:05 pm I view dividends as the less volatile (about 50% less) portion of total return - historically. Although the current yield is low, the actual dividends in dollars has been steadily rising at a pace faster than inflation over many years. However, I continue to invest in an agnostic stock index fund independent of its yield or dividend growth (S&P 500 and TSM) as total return is ultimately what matters. Come drawdown, I will mostly rely on social security, fixed income and dividends (because of its historical lower volatility), along with no debt. The bonus will be real capital growth.

Real 12 month dividend (inflation adjusted each July) of the S&P 500.

https://www.multpl.com/s-p-500-dividend

Real 12 month dividend growth of the S&P 500 back to 1989.
Largest drawdown was about 21% vs about 50% for the total return.

https://www.multpl.com/s-p-500-dividend ... le/by-year
Jon -

What are your thoughts on iShares Preferred Stock & Income (PFF) with US companies and offering a 4.47% yield.

Would this be considered in your retirement cash flow funding?

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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GoneOnTilt
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Da5id wrote: Wed Oct 13, 2021 9:12 pm A number of people who advocate for dividend focused investing seem to think dividends provide the special sauce. This is the source of most back and forth arguments in threads about dividend, do you actually not think that to be the case?
Please:

1. Define "special sauce."

2. Provide specific quotes and references from threads supporting your argument that "people (in threads here) who advocate for dividend focused investing seem to think dividends provide the special sauce."
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Re: John Bogle on Dividends

Post by Da5id »

GoneOnTilt wrote: Wed Oct 13, 2021 9:26 pm
Da5id wrote: Wed Oct 13, 2021 9:10 pm
GoneOnTilt wrote: Wed Oct 13, 2021 8:09 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.
A bridge too far? It was an excerpt. A quote from Jack Bogle. Hardly overreaching.

Argument against owning just index funds? Can you point that out? I missed it. Dividend investing is a choice among many. I didn't see in Jack's comments, nor did I make, an argument against owning just index funds.
You can quote Bogle on many things in many contexts. But if you take the totality of what he says, I'd say a better summary really is "all you need are simple index funds" than "you should think about owning dividend funds, they are great".
Let me ask again. Can you give support to your assertion, and point out where Jack Bogle argued against owning just index funds?
Nowhere at all.

I took your original post to be implying that dividend focused investing (which generally means leaving broad market index funds) was supported by Bogle. If that wasn't what you were saying, great.
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Re: John Bogle on Dividends

Post by Ferdinand2014 »

abuss368 wrote: Wed Oct 13, 2021 9:27 pm
Ferdinand2014 wrote: Wed Oct 13, 2021 7:05 pm I view dividends as the less volatile (about 50% less) portion of total return - historically. Although the current yield is low, the actual dividends in dollars has been steadily rising at a pace faster than inflation over many years. However, I continue to invest in an agnostic stock index fund independent of its yield or dividend growth (S&P 500 and TSM) as total return is ultimately what matters. Come drawdown, I will mostly rely on social security, fixed income and dividends (because of its historical lower volatility), along with no debt. The bonus will be real capital growth.

Real 12 month dividend (inflation adjusted each July) of the S&P 500.

https://www.multpl.com/s-p-500-dividend

Real 12 month dividend growth of the S&P 500 back to 1989.
Largest drawdown was about 21% vs about 50% for the total return.

https://www.multpl.com/s-p-500-dividend ... le/by-year
Jon -

What are your thoughts on iShares Preferred Stock & Income (PFF) with US companies and offering a 4.47% yield.

Would this be considered in your retirement cash flow funding?

Tony
No, I would not consider this approach. I’ll take whatever dividends come my way via TSM/SP500. I like dividends only in as much as they have historically been the less volatile portion of total return and psychologically a direct connection to the profits of the many businesses that I have partial ownership of in my TSM/SP500 funds. I still view stock ownership in the light of total returns (dividends plus capital growth).

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Which would you want? VTI or PFF?
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Re: John Bogle on Dividends

Post by abuss368 »

Ferdinand2014 wrote: Wed Oct 13, 2021 9:53 pm
abuss368 wrote: Wed Oct 13, 2021 9:27 pm
Ferdinand2014 wrote: Wed Oct 13, 2021 7:05 pm I view dividends as the less volatile (about 50% less) portion of total return - historically. Although the current yield is low, the actual dividends in dollars has been steadily rising at a pace faster than inflation over many years. However, I continue to invest in an agnostic stock index fund independent of its yield or dividend growth (S&P 500 and TSM) as total return is ultimately what matters. Come drawdown, I will mostly rely on social security, fixed income and dividends (because of its historical lower volatility), along with no debt. The bonus will be real capital growth.

Real 12 month dividend (inflation adjusted each July) of the S&P 500.

https://www.multpl.com/s-p-500-dividend

Real 12 month dividend growth of the S&P 500 back to 1989.
Largest drawdown was about 21% vs about 50% for the total return.

https://www.multpl.com/s-p-500-dividend ... le/by-year
Jon -

What are your thoughts on iShares Preferred Stock & Income (PFF) with US companies and offering a 4.47% yield.

Would this be considered in your retirement cash flow funding?

Tony
No, I would not consider this approach. I’ll take whatever dividends come my way via TSM/SP500. I like dividends only in as much as they have historically been the less volatile portion of total return and psychologically a direct connection to the profits of the many businesses that I have partial ownership of in my TSM/SP500 funds. I still view stock ownership in the light of total returns (dividends plus capital growth).

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Which would you want? VTI or PFF?
Wow! Thanks for sharing that. Most of return for PFF is from dividend component.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: John Bogle on Dividends

Post by TropikThunder »

GoneOnTilt wrote: Wed Oct 13, 2021 9:26 pm Let me ask again. Can you give support to your assertion, and point out where Jack Bogle argued against owning just index funds?
What do you think Bogle meant by this:
If you really need the dividend income, I see nothing wrong with overweighting high-dividend stocks, knowing you’re taking a small risk of falling significantly behind the total market.
He's arguing in favor of overweighting individual blue chip stocks. As in, "arguing against owning just index funds".
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HanSolo
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Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Wed Oct 13, 2021 9:12 pm A number of people who advocate for dividend focused investing seem to think dividends provide the special sauce. This is the source of most back and forth arguments in threads about dividend, do you actually not think that to be the case?
GoneOnTilt wrote: Wed Oct 13, 2021 9:29 pm Please:

1. Define "special sauce."

2. Provide specific quotes and references from threads supporting your argument that "people (in threads here) who advocate for dividend focused investing seem to think dividends provide the special sauce."
I was wondering the same thing. I see that there was no response.

It appears that "the source of most back and forth arguments in threads about dividend" (as conjectured above) is actually people assuming things were said that weren't said.

How to deal with the issue at its source?
TropikThunder wrote: Thu Oct 14, 2021 1:11 am
GoneOnTilt wrote: Wed Oct 13, 2021 9:26 pm Let me ask again. Can you give support to your assertion, and point out where Jack Bogle argued against owning just index funds?
What do you think Bogle meant by this:
If you really need the dividend income, I see nothing wrong with overweighting high-dividend stocks, knowing you’re taking a small risk of falling significantly behind the total market.
He's arguing in favor of overweighting individual blue chip stocks. As in, "arguing against owning just index funds".
There's a logical flaw in your assertion. Saying "there is nothing wrong with vegetarianism" does not imply "there is something wrong with eating everything."
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Re: John Bogle on Dividends

Post by sycamore »

I probably missed something but it appears "index funds" is sometimes being used to mean "total market index funds" and other times just "index funds", yes?

One could be in favor of overweighting blue-chip stocks through an appropriate index fund, like the Vanguard S&P 500 Index Fund. Thus, one could be in favor of both overweighting blue-chip stocks and using index funds at the same time.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

deleted.
Last edited by GoneOnTilt on Thu Oct 14, 2021 8:51 am, edited 1 time in total.
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Re: John Bogle on Dividends

Post by LadyGeek »

I removed a contentious post and reply. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
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Re: John Bogle on Dividends

Post by Cash is King »

Da5id wrote: Wed Oct 13, 2021 9:12 pm
Cash is King wrote: Wed Oct 13, 2021 8:38 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
Is it possible you have the misconceptions ? I don't recall anyone mentioning special and dividends in the same sentence. Maybe I missed it. By the way, I don't think there is anything wrong in owing Index funds.
A number of people who advocate for dividend focused investing seem to think dividends provide the special sauce. This is the source of most back and forth arguments in threads about dividend, do you actually not think that to be the case?
I can't say that''s the case because it's impossible for me to know what people are thinking. I could make an assumption but in my opinion, that is what leads to the back and forth arguments.
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Re: John Bogle on Dividends

Post by olyveoil »

Da5id wrote: Wed Oct 13, 2021 6:41 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
Well. No one took that bridge.
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Re: John Bogle on Dividends

Post by olyveoil »

Da5id wrote: Wed Oct 13, 2021 9:12 pm
Cash is King wrote: Wed Oct 13, 2021 8:38 pm
Da5id wrote: Wed Oct 13, 2021 6:41 pm
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
I feel like invoking Bogle as a trump card in an argument *against* owning just index funds seems like a bridge too far.

There may be good behavioral reasons some people like dividends. There are also many misconceptions about the nature of dividends. Those who like dividends are welcome to do so, the issues come when dividends are said to be special or in some way better than investing for total return.
Is it possible you have the misconceptions ? I don't recall anyone mentioning special and dividends in the same sentence. Maybe I missed it. By the way, I don't think there is anything wrong in owing Index funds.
A number of people who advocate for dividend focused investing seem to think dividends provide the special sauce. This is the source of most back and forth arguments in threads about dividend, do you actually not think that to be the case?
Like who?
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Re: John Bogle on Dividends

Post by burritoLover »

I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
^^This. As I wrote above, we all aren't Buffett-like investing machines. Emotions are a huge part of investing for most people (I heard Mr. Buffett say he never got frightened when it came to money and investing).
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Re: John Bogle on Dividends

Post by dbr »

burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
The question is whether this mitigates behavioral effects or exacerbates them. It depends a lot on exactly what investment dividends are in question.

It would be better for the investor to have a clear and complete picture of how his portfolio works, starting with total return accounting. Setting the amount of withdrawal is important and should not be left to what the dividends paid turn out to be. A behavioral error could be taking an inappropriate withdrawal just because it is a dividend. The error can be too large or too small.

It could be in balance there isn't that much really going on here as lots of investor practices end up with about the same results.

You are also right that Mr. Bogle is good at setting out solutions that are most helpful for lots of investors.

The one thing that puzzles me about the psychological benefit of having a check in the mail is that usually that can be arranged from most brokers without taking the around about path of cashing dividend checks:

https://www.fidelity.com/bin-public/060 ... 20accounts.

https://www.fidelity.com/bin-public/060 ... ctancy.pdf

But note retirement plans don't issue dividend checks as such anyway, so the issue is moot unless it is taxable accounts.
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Re: John Bogle on Dividends

Post by burritoLover »

dbr wrote: Thu Oct 14, 2021 10:17 am
burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
The question is whether this mitigates behavioral effects or exacerbates them. It depends a lot on exactly what investment dividends are in question.

It would be better for the investor to have a clear and complete picture of how his portfolio works, starting with total return accounting.

Probably in balance there isn't that much really going on here as lots of investor practices end up with about the same results.

You are also right that Mr. Bogle is good at setting out solutions that are most helpful for lots of investors.

The one thing that puzzles me about the psychological benefit of having a check in the mail is that usually that can be arranged from most brokers without taking the around about path of cashing dividend checks:

https://www.fidelity.com/bin-public/060 ... 20accounts.

https://www.fidelity.com/bin-public/060 ... ctancy.pdf

But note retirement plans don't issue dividend checks as such anyway, so the issue is moot unless it is taxable accounts.
I've never seen any of the "dividends are not spending down the principal" investors on this forum change their position to agree that a dividend is the equivalent to selling shares. Despite numerous arguments presented and many heated discussions, they will clutch to their dividend beliefs till' death it seems. And those are frequent forum posters that have a greater knowledge of investing than the average person who couldn't hope to even remotely understand the argument you are trying to present - all they know is they have this money being deposited in their account and their number of shares don't change.
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Re: John Bogle on Dividends

Post by dbr »

burritoLover wrote: Thu Oct 14, 2021 10:26 am
dbr wrote: Thu Oct 14, 2021 10:17 am
burritoLover wrote: Thu Oct 14, 2021 10:00 am I've come to realize that Bogle was a master at recognizing the behavioral mistakes of common investors and coming up with solutions to help them stay the course, even though those solutions weren't optimal in the strictest sense. That dividend check "coming in the mail" for the retiree can have a huge psychological influence even though it is the functional equivalent of selling shares in the portfolio.
The question is whether this mitigates behavioral effects or exacerbates them. It depends a lot on exactly what investment dividends are in question.

It would be better for the investor to have a clear and complete picture of how his portfolio works, starting with total return accounting.

Probably in balance there isn't that much really going on here as lots of investor practices end up with about the same results.

You are also right that Mr. Bogle is good at setting out solutions that are most helpful for lots of investors.

The one thing that puzzles me about the psychological benefit of having a check in the mail is that usually that can be arranged from most brokers without taking the around about path of cashing dividend checks:

https://www.fidelity.com/bin-public/060 ... 20accounts.

https://www.fidelity.com/bin-public/060 ... ctancy.pdf

But note retirement plans don't issue dividend checks as such anyway, so the issue is moot unless it is taxable accounts.
I've never seen any of the "dividends are not spending down the principal" investors on this forum change their position to agree that a dividend is the equivalent to selling shares. Despite numerous arguments presented and many heated discussions, they will clutch to their dividend beliefs till' death it seems. And those are frequent forum posters that have a greater knowledge of investing than the average person who couldn't hope to even remotely understand the argument you are trying to present - all they know is they have this money being deposited in their account and their number of shares don't change.
Therein does lie a mystery.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

burritoLover wrote: Thu Oct 14, 2021 10:26 am I've never seen any of the "dividends are not spending down the principal" investors on this forum change their position to agree that a dividend is the equivalent to selling shares.
I've never seen any of the "dividends are not spending down the principal" investors on this forum at all.

Can you provide specific threads, quotes and references from the forum where people claim that "dividends are not spending down the principal"?

Thanks.

Dividends are part of the total return. Some people prefer them. John Bogle preferred them for his charity (he used the Vanguard High Dividend Yield Fund for the dividends).
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Re: John Bogle on Dividends

Post by Oicuryy »

GoneOnTilt wrote: Thu Oct 14, 2021 10:47 am I've never seen any of the "dividends are not spending down the principal" investors on this forum at all.

Can you provide specific threads, quotes and references from the forum where people claim that "dividends are not spending down the principal"?
Here is one.
viewtopic.php?t=276554

Ron
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Re: John Bogle on Dividends

Post by loghound »

JakeyLee wrote: Wed Oct 13, 2021 3:46 pm I’ve never quite understood the contentious dividend arguments on this fine forum. Reminds me of the “should I pay off my mortgage early” threads.

I’ve never “chased” dividends.. quite frankly, within mutual funds (active funds designed with high yield dividend stocks) it seems that they historically underperform index funds. However, I accept that I’m going to receive payment ona quarterly schedule from companies that pay them out to stock holders. For me, even in a S&P index, it amounts to a sizable chunk of money per year. Doesn’t hurt too bad, as the vast majority of my holdings are in tax protected accounts.

I see both sides of the dividend argument. We should all be aware by now that dividends are not a free lunch. As the value of said stock goes down with each payout. Sometimes I wish a company would use that cash to expand their business. But that’s not always possible. So returning profit to shareholders doesn’t exactly upset me. What does concern me is the current trend of CEOs using company cash for buybacks… these are often the same CEOs (and execs) that take the bulk of their compensation in company stock. Sure that helps the stockholder in the short term in run up stock price. But often hurts the same stockholder in the long run with lack of innovation, acquisitions, and expansion. Not
Much I can do it about it. But I’m aware this exists in the current market place.

So I will just take what they give me, and keep reinvesting said dividends; knowing that I will be cashing them in sooner than later.
This thread has gone in some weird directions but I like the way @JakeyLee (and others) have tried to summarize it. Try to avoid chasing dividends but take them happily.

The one thing in this post that caught my eye was the stock buy-back comment. At some level the company has an obligation to return earnings back to shareholders, they can do that as stock buybacks or dividends (probably lots of other options but let's just keep it simple). I know I've seen studies for stock buybacks that both claim they are good for investors and others that claim they are not as good for investors.

I would throw out one interesting study that I saw just the other day about Apple and share buybacks (chart reproduced below)

Image

2012 was both the year it started doing share buybacks, but also when they started paying dividends and I have to think that it's served their shareholders well in both regular quarterly income but also price appreciation, I'll note that Apple also invested heavily (and continues to) in ways to further grow their business. Apple is perhaps not typical so I'm not trying to draw broad conclusions to say the stock buybacks don't get abused, just to point out that you can return value to shareholders both ways.
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Re: John Bogle on Dividends

Post by Cash is King »

Oicuryy wrote: Thu Oct 14, 2021 10:51 am
GoneOnTilt wrote: Thu Oct 14, 2021 10:47 am I've never seen any of the "dividends are not spending down the principal" investors on this forum at all.

Can you provide specific threads, quotes and references from the forum where people claim that "dividends are not spending down the principal"?
Here is one.
viewtopic.php?t=276554

Ron
When you read a lot of those responses your head explodes because the information is wrong.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Oicuryy wrote: Thu Oct 14, 2021 10:51 am
GoneOnTilt wrote: Thu Oct 14, 2021 10:47 am I've never seen any of the "dividends are not spending down the principal" investors on this forum at all.

Can you provide specific threads, quotes and references from the forum where people claim that "dividends are not spending down the principal"?
Here is one.
viewtopic.php?t=276554

Ron
Yes. There's one. Definitely a misunderstanding. Dividends are an important part of total return, which also includes earnings growth and what Jack Bogle liked to call "speculative return" (what investors are willing to pay for each dollar of earnings).

There's nothing wrong with having a liking for the dividends portion of the total return. I'm always happy the day dividends hit. And when I retire in a few years they'll all go into my settlement fund, then to my cash management account, to put food on the table and keep the lights on.
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Re: John Bogle on Dividends

Post by dbr »

GoneOnTilt wrote: Thu Oct 14, 2021 10:47 am
burritoLover wrote: Thu Oct 14, 2021 10:26 am I've never seen any of the "dividends are not spending down the principal" investors on this forum change their position to agree that a dividend is the equivalent to selling shares.
I've never seen any of the "dividends are not spending down the principal" investors on this forum at all.

Can you provide specific threads, quotes and references from the forum where people claim that "dividends are not spending down the principal"?

Thanks.

Dividends are part of the total return. Some people prefer them. John Bogle preferred them for his charity (he used the Vanguard High Dividend Yield Fund for the dividends).
Here is a list of searches of the forum on the term "spending down the principal." Probably many of the posts correct the idea that there is something good about not spending down the principal, but here is the list: https://www.google.com/search?sitesearc ... +principal

Of course it is just a matter of definitions. If "principal" is defined as the original holding in shares, and you never sell anything while taking and spending the dividends, then indeed one is not "spending down" the principal. The idea places great importance on still having the shares but ignores what the value of a share has become. But the real point in people lecturing about doing the accounting using the notion of total return is that the idea of "principal" measured in number of original shares goes away. There is only an initial investment in dollars and then returns, contributions, and withdrawals. A part of the definition is that taking a dividend is a withdrawal. The value of total return account is that it is a necessary, a sufficient, and a simple way to understand what is happening to one's investment. It is also the conventional set of definitions used in the investment industry whether in the form of CAGR or when there are contributions and withdrawals expressed as personal return, technically IRR or time weighted return. Because return is defined in total return accounting as market value changes and dividends the assumption in the math is that dividends are reinvested and buy more shares. That means that spending the dividend is to "not buy" more shares, or, in effect, to have sold the shares "not bought."

I suspect that part of the issue is historic going back to the default that owners of stock are sent dividend checks and owners of bond clip of actual coupons with scissors and take them to the bank. Trying to get periodic payments by selling shares was awkward and expensive and really a big deal in terms of cutting down the investment position in the obligatory lot of 100 shares. Bonds in turn would be held to maturity and redeemed. Back in the days in England the upper class family might own an estate which was entailed and could not be sold. In that case the value of the estate for consumption lies in the income from rents, farming, etc. and a person's wealth can be meaningfully expressed by stating his income.

I am not sure why or for what reason people sometimes talk about the benefit or the security of not spending the principal. For anyone starting out today from scratch to study investing the set of definitions and arithmetic of total return are the default and the source for the idea of not spend the principal becomes a little mysterious. That is one reason one finds the quote from Mr. Bogle that starts this thread to be odd, along with the reference to going to the mailbox to pick up checks. For a few years of my life I lived on 140 acres in the country and we did in fact walk out to the mailbox to get the mail. Most of my life, though, the mail comes through a slot into the house. Even the "walk out" part seems odd to me. It is a kind of "back in the day" think and yet Mr. Bogle himself is one of the great innovators of the financial system we individual investors use today. I think sometimes Mr. Buffett, the other great hero of investing is a little bit the same with his "old fashioned" virtues and the mystique of the Midwest about him. But no one should be deceived about either of those gentlemen. It is still true that both are known for some odd snippets of interview that cause much consternation here on this forum.

Also, I am old enough these comments here are not coming from some young "whippersnapper." I am one who has gotten dividend checks in the mail and kept a bundle of 100 share certificates in a safe-deposit box and signed the back in ink and took them by hand to a broker to sell shares. I never clipped coupons though. I think I'm going to get a little soda-bicarb to settle the stomach now.
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Re: John Bogle on Dividends

Post by sycamore »

dbr wrote: Thu Oct 14, 2021 3:33 pm ...I am not sure why or for what reason people sometimes talk about the benefit or the security of not spending the principal.
There are probably various reasons. My guess is for some people it is due to lack of knowledge about investments, dividends, accounting, etc. But for other people it's more about psychological/behavioral issues, like maybe they perceive spending of principal as a "loss". Either way, it helps to explain total return accounting as you've done so people can learn what's going on and get the best mental model of things.
dbr wrote: Thu Oct 14, 2021 3:33 pm ...For a few years of my life I lived on 140 acres in the country and we did in fact walk out to the mailbox to get the mail. Most of my life, though, the mail comes through a slot into the house. Even the "walk out" part seems odd to me...
Going off topic...

Growing up, we got mail through a slot in the door. In my own house, we get mail in a mailbox at the curb. Have you seen the US Postal Service's Centralized Mail Delivery Installations? Not just for apartment complexes, but new residential developments need to coordinate with the USPS on where mail gets delivered... some residents now have to go for a stroll to get their mail.
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Re: John Bogle on Dividends

Post by BGeste »

Here's another quote from Bogle on dividends.

John Bogle in his book Bogle on Mutual Funds, section Total Return on Common Stocks wrote:

I want to emphasize that stock returns are driven by two critical factors: dividends and earnings. Without dividends, which are made possible by earnings, an investment in any stock would be purely speculative in nature. Why are dividends and earnings so vital to stock returns? The most basic way to answer that question is to recall that a share of company stock represents a share in a business firm. If you are considering purchasing shares in a firm, you have two broad expectations for that firm: (1) it will pay annual dividends and the amount of these dividends will grow over time; or (2) rather than paying dividends, it will retain its earnings so as to build the business.
While the second expectation suggests that dividends need not always be a critical determinant of the returns on stocks, even when a company
does not pay a dividend, investors implicitly value the firm’s stock based on the presumption of future dividends. When the earnings of a business
are retained each year, investors expect that the earnings will increase over time, resulting in future dividends that will be higher than if they had been distributed currently. In sum, while the consideration of stock returns may encompass any number of qualitative and quantitative factors, any valuation judgment must ultimately rely on dividends and earnings.
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Re: John Bogle on Dividends

Post by Oicuryy »

GoneOnTilt wrote: Thu Oct 14, 2021 12:23 pm There's nothing wrong with having a liking for the dividends portion of the total return.
If you say so. But please don't get hung up on a gimmicky high-dividend fund like this guy did.
viewtopic.php?t=3648

ADVDX was a popular fund among dividend investors back then. Three years after that was posted a share of that fund had lost two-thirds of its value and has never recovered.

Ron
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Re: John Bogle on Dividends

Post by bondsr4me »

BGeste wrote: Thu Oct 14, 2021 5:14 pm Here's another quote from Bogle on dividends.

John Bogle in his book Bogle on Mutual Funds, section Total Return on Common Stocks wrote:

I want to emphasize that stock returns are driven by two critical factors: dividends and earnings. Without dividends, which are made possible by earnings, an investment in any stock would be purely speculative in nature. Why are dividends and earnings so vital to stock returns? The most basic way to answer that question is to recall that a share of company stock represents a share in a business firm. If you are considering purchasing shares in a firm, you have two broad expectations for that firm: (1) it will pay annual dividends and the amount of these dividends will grow over time; or (2) rather than paying dividends, it will retain its earnings so as to build the business.
While the second expectation suggests that dividends need not always be a critical determinant of the returns on stocks, even when a company
does not pay a dividend, investors implicitly value the firm’s stock based on the presumption of future dividends. When the earnings of a business
are retained each year, investors expect that the earnings will increase over time, resulting in future dividends that will be higher than if they had been distributed currently. In sum, while the consideration of stock returns may encompass any number of qualitative and quantitative factors, any valuation judgment must ultimately rely on dividends and earnings.
+100 on the above….totally agree with Jack on this.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Oicuryy wrote: Thu Oct 14, 2021 5:18 pm
GoneOnTilt wrote: Thu Oct 14, 2021 12:23 pm There's nothing wrong with having a liking for the dividends portion of the total return.
If you say so. But please don't get hung up on a gimmicky high-dividend fund like this guy did.
viewtopic.php?t=3648

ADVDX was a popular fund among dividend investors back then. Three years after that was posted a share of that fund had lost two-thirds of its value and has never recovered.

Ron
Oy! :shock: Never. I don't even own a "high dividend" fund. I do own Wellesley Income Fund. And another managed large value fund. The other 75 percent of my portfolio is indexed.
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Re: John Bogle on Dividends

Post by GoneOnTilt »

Oicuryy wrote: Thu Oct 14, 2021 5:18 pm
GoneOnTilt wrote: Thu Oct 14, 2021 12:23 pm There's nothing wrong with having a liking for the dividends portion of the total return.
If you say so. But please don't get hung up on a gimmicky high-dividend fund like this guy did.
viewtopic.php?t=3648

ADVDX was a popular fund among dividend investors back then. Three years after that was posted a share of that fund had lost two-thirds of its value and has never recovered.

Ron
I think we all just got punched by a straw man and hit in the head with a red herring. Feels like a Monty Python skit! In this discussion on dividends I don't recall anyone claiming a fund like the above is worthwhile.

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Vanguard Study on Dividends

Post by Taylor Larimore »

Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
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Re: Vanguard Study on Dividends

Post by Cash is King »

Taylor Larimore wrote: Thu Oct 14, 2021 6:48 pm Bogleheads:

I have long favored "Total Return Investing." Last June Vanguard experts did a Study titled: "Total-Return Investing: A Smart Response to Shrinking Yields." I am happy to see that it confirms what I have been doing:

https://personal.vanguard.com/pdf/total ... esting.pdf

There is more than one road to Dublin.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “The greatest enemy of a good plan is the dream of a perfect plan.”
Taylor, Thanks for all you do. I think the attached study is a good example of confirmation bias. Cheers.
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