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Follower ○○

What if dividends dry up?

I am not a dividend investor but I find the concept intriguing. For those that are, don't you worry that corporations will severely cut or eliminate the dividend?

Thanks,                                                                                                                                                                            Jon

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Explorer ○○

Re: What if dividends dry up?

As a dividend oriented investor:

Dividends and distributions never dry up and this was so during the 2008/2009 debacle. One of the things many income investors learned was that those securities paying dividends did not decline in MktPrc that fast. Those securities paying distributions, were continuing to reduce their distributions Qtr-toQtr, and was not a hold during down markets [dropped quickly]....

 Many of us are INCOME driven with CapGains secondary and trade the market accordingly. Another plus is that during any market correction the "cash" keeps coming in. Not for everyone as most of us have computer driven programs on buy/sell activity and follow the market [each week]....

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Frequent Contributor

Re: What if dividends dry up?


@luckyinvestor wrote:

I am not a dividend investor but I find the concept intriguing. For those that are, don't you worry that corporations will severely cut or eliminate the dividend?

Thanks,                                                                                                                                                                            Jon


        Populations increase seeking more goods and services whose mix changes. Long term inflation alone raises values of individual stocks. Management’s seek profits above inflation and to attract capital. Investors supply some and want to be paid back over time. Patience and investing in well managed market innovators and leaders helps assure an investor gets paid for his risk, dividends or capital gains.

         Aren’t you afraid of running out of money long term when MM interest will always be below your personal inflation rate? We invested for income in excess of needs (way ahead of needs for us) to cover the very situation you propose. Problem solved.

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Explorer ○○○

Re: What if dividends dry up?

That's why it's important to screen companies before you buy.  That's also why some people invest only in dividend aristocrats.

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Frequent Contributor

Re: What if dividends dry up?


@luckyinvestor wrote:

I am not a dividend investor but I find the concept intriguing. For those that are, don't you worry that corporations will severely cut or eliminate the dividend?

Thanks,                                                                                                                                                                            Jon


Div income depend mostly on the number of shares but not on the market price. Even if the market price goes down by 40%, the div cut may be cut at the most 10% of very solid companies. Sometimes, like GE, there could be a severe div cut as it happened recently but the market price also went down quite a bit. However, if you own ETFs and mutual funds, you will not feel the cuts at all because the dividends of some companies will even go up. Even though the market prices of the ETFs (VTI and VIG that I own) went down and came back this month, the distributions in the second quarter (June 2020) were pretty much along my estimated values. I use estimates to pay my taxes - I adjust may tax payment on a monthly basis instead of quarterly. That is my two cents.

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Participant ○○

Re: What if dividends dry up?

Dividends are MUCH more stable than stock prices.  During the financial meltdown, I had only one dividend cut and my income from dividends actually went up!  So far in this downturn, I've had two dividend cuts (and several increases).  Contrary to the post a couple of weeks ago stating that no one could afford to just live off of dividends, my income from dividends is still sufficient for my needs.

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Frequent Contributor

Re: What if dividends dry up?


@KathieL wrote:

 Contrary to the post a couple of weeks ago stating that no one could afford to just live off of dividends, my income from dividends is still sufficient for my needs.


 

 I could also live off my dividends if I choose to.

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Frequent Contributor

Re: What if dividends dry up?


@KathieL wrote:

Dividends are MUCH more stable than stock prices.  During the financial meltdown, I had only one dividend cut and my income from dividends actually went up!  So far in this downturn, I've had two dividend cuts (and several increases).  Contrary to the post a couple of weeks ago stating that no one could afford to just live off of dividends, my income from dividends is still sufficient for my needs.


This is what I told in a thread in the bond squad. I also told them that it is tax efficient instead of depending on the US Bonds. Invest in stocks and collect a ton of money. Then, you can just use the dividends to make a living. It is hard to convince people who have invested in bonds for "safety." US bonds pay pittance and then take away some cash as taxes as earned income.

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Frequent Contributor

Re: What if dividends dry up?

Jon

Here is a news item that answers your question directly.

Exxon, a 'dividend aristocrat,' plans more cuts to protect dividend: report

The large companies have a reputation to maintain.

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Explorer ○○

Re: What if dividends dry up?

If we wanted to be in the oil sector currently, some of us would currently be in HESM [like some of us are]. Getting a increasing dividend, while waiting for any oil sector improvement, could be worth the wait....

https://finance.yahoo.com/news/hess-midstream-lp-reports-estimated-120000963.html 

https://www.fool.com/investing/2020/07/30/this-oil-stock-has-big-time-upside-if-oil-keeps-re.aspx 

 

One single opinion of the many I am sure....

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Frequent Contributor

Re: What if dividends dry up?


@xray wrote:

If we wanted to be in the oil sector currently, some of us would currently be in HESM [like some of us are]. Getting a increasing dividend, while waiting for any oil sector improvement, could be worth the wait....

https://finance.yahoo.com/news/hess-midstream-lp-reports-estimated-120000963.html 

https://www.fool.com/investing/2020/07/30/this-oil-stock-has-big-time-upside-if-oil-keeps-re.aspx 

 

One single opinion of the many I am sure....


I thought that HESM was a good buy but it is an LP. Thanks, no thanks. I will not touch it.

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Frequent Contributor

Re: What if dividends dry up?


@ECEPROF wrote:

@KathieL wrote:

Dividends are MUCH more stable than stock prices.  During the financial meltdown, I had only one dividend cut and my income from dividends actually went up!  So far in this downturn, I've had two dividend cuts (and several increases).  Contrary to the post a couple of weeks ago stating that no one could afford to just live off of dividends, my income from dividends is still sufficient for my needs.


This is what I told in a thread in the bond squad. I also told them that it is tax efficient instead of depending on the US Bonds. Invest in stocks and collect a ton of money. Then, you can just use the dividends to make a living. It is hard to convince people who have invested in bonds for "safety." US bonds pay pittance and then take away some cash as taxes as earned income.


1) Why do we have to repeat it so many times.  US bonds DO NOT pay pittance because not ALL bonds are treasuries.

Example: PIMIX pays over 5%, PTIAX + OPTAX (Muni with no Fed taxes) pay over 3.5%.  

2) Why invest only in HIGHER div stocks when the high tech companies made so much more with low-no dividends.  Why not look at ALL stocks. If I hold it in a taxable account I don't pay taxes with no dividends.  T is one of the most used high dividend stock, is it anywhere near the FAANG+MSFT?

Why do I care if I can live just on dividend when the only thing that matters is total return? again T vs MSFT.  Is it so hard to sell some shares when I need to when my regular distributions are not enough?  Most retirees have bond + stock funds.  When stocks go down you can sell bond funds, when stocks go up you sell stocks.  

Higher Div stocks can't even guarantee better volatility.

MSFT vs T for 10 years

msft-1.PNG

MSFT vs T for YEAR-TO-DATE

msft-2.PNG

Using ONLY higher dividend stocks is a myth that must be debunked because it has no legs.

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Frequent Contributor

Re: What if dividends dry up?

SP500 dividend declines so far are minor compared to the drop off in 2008-09. But this may change.

YBB
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Frequent Contributor

Re: What if dividends dry up?

FD

I make my money in my way, and you can make your money in your way. In my book, growth and growth rates are important to make money in the long run. So, unless US bonds pay at least 5% (1% goes to pay the taxes), people cannot make a living investing in US bonds. So, I will not touch US bonds, not just 10 ft pole, not even with a 50 ft pole. That is the end of story. Does not matter to me what else you have to say.

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Participant ○○

Re: What if dividends dry up?

Yes, we each have our own approaches to making money.  As a retiree, I mostly look for reliable income, which I get from dividend-paying stocks.  I also cash in on big capital gains from time to time - Apple has been my reliable generator of cap gains.    I do not now - nor have I ever - purchased bonds or bond funds.  They simply don't pay enough in interest nor do they generate the kinds of capital gains that stocks do.

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Participant ○○

Re: What if dividends dry up?

My OXY quarterly dividend dried up, going from $234 to $3. That's going to be an dividend loss of $925 annually. I've had those shares since 1989. Oh well. We could see the signals last year when they bought Anadarko.

However, the other dividend payers look OK, so on we go,

 

 

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Follower ○○

Re: What if dividends dry up?

Why not put all one's eggs in an Eaton Vance CEF like ETY or EOS?

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Frequent Contributor

Re: What if dividends dry up?

Jon

True. I do not know about Eaton Vance. However, since last year, I have PCI and KIO that bring an income = SS+Pension. Remember that these are leveraged, good quality and yield more than 10%. I reinvest this income in equity funds not back there but sometimes back into the same if there is a good discount. Yet, my income from equity ETFs are solid and have been growing. Only recently, I jumped into CEFs.

One more point: Most (all) of my income that come from CEFs and BDCs are from ROTH accounts that are not taxable. In my book, tax efficiency is also important.

I do not have RMDs. I get only qualified dividends from my taxable accounts and I pay probably 0-5% tax on this part.

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Frequent Contributor

Re: What if dividends dry up?

Agree with KathieL, dividends are MUCH more stable than capital appreciation/ capital gains. Especially if one picks solid wide moat companies with at least 10 years of dividend increases, strong financials, and lower payout ratios. Some of my money is in VDADX, and the rest is in individual strong dividend growers.

So far, have had a couple of dividend cuts (WFC, D, HSBC, WY), but far more dividend increases. Best thing is my portfolio is large enough (combination of aggressive savings and capital gains) that my wife and I can live off the dividend income when we retire.

Win
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Frequent Contributor

Re: What if dividends dry up?

Doc "my wife and I can live off the dividend income when we retire."

You are my man. Good for you. It is also tax efficient. Unfortunately, I did not learn this stuff before 2005 when I chose Tenn. Retirment pension and paid them huge sum to get in there. It is ok.

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