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Frequent Contributor

Re: What if dividends dry up?


@ECEPROF wrote:

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.


My posts are generic while your post pertain to YOUR way and since there are many other posters they must see another and more COMMON opinion.

So, not all bonds are treasuries and many people are looking for some ballast and bonds are where they should be.

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Re: What if dividends dry up?


@KathieL wrote:

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.


Again, you are the exception to the rule. You never own bond funds? Enough said.  I guess you never heard the term risk-adjusted returns.

So, you post and I will just make a more common response that is being implemented by most serious financial advisors and retiree experts.

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Re: What if dividends dry up?


@Win1177 wrote:

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.


VDADX has less than 2% in divvy, what's up with that?

Wait, you didn't own any high tech stocks in the last 20 years?

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Re: What if dividends dry up?

I am a big fan of dividend paying companies in general.  But I'm not religious about it.  Long time former Iowa football coach Hayden Fry had one of his sayings that he likes to "scratch where it itches."  I love that.  In other words, take what the opponent (or in this case the market) is giving you.

Before the financial crisis, I was big in fixed income.  But it became increasingly clear to me with the low interest rate structure after the crisis that without $30 million, one couldn't make a living on bonds even though they might smooth the ride.  Smoothing the ride on a guaranteed trip to the poorhouse is not what I considered to be a good investment strategy.  So I transitioned heavily to dividend paying stocks.

But not just any company that pays dividends.  More steady companies with cash flows that wouldn't crash and become unsustainable in bad times.  You need to monitor them closely to separate the wheat from the chaff, unless you just throw a net over all of them, and then you'll get some garbage with the good stuff.  

Another benefit of dividend paying stocks, as @ECEPROF said, is the tremendous tax benefit from qualified dividends over taxable interest from bonds.  This alone saves me thousands of dollars of taxes every year.  

And I have the potential for income growth which drives capital gains over the long term.  Yes, volatility is the tradeoff, which is why I keep fairly high cash reserves to get through the tough times.

For certain mature companies without infinite opportunities to reinvest cash flows at high ROIC, paying out dividends is actually preferable than di-worseifying through M&A or investing in lousy opportunities.

However, for some companies with huge vistas for high ROIC reinvestment, dividends can wait because they can do so much more with the money than giving it to shareholders.  AMZN is a great example.  Companies like this I feel great letting the management have use of the cash.  I am not allergic to capital gains.

But all businesses are not equal, so you can't demand the same thing out of all of them.

Dividend paying stocks are not perfect, nothing is.

But for people who criticize retirees who try to build a paycheck replacement, I have one question for you.  Have you ever received a paycheck?  Did you like it?  Wasn't it nice to be able to pay recurring bills without wondering if you were going to be able to make it?

And for some of the quant type fools like the guy in the world of finance (forget his name) who came out recently and said all dividends should be variable, I say fine.  But only if all wages and salaries are also variable.  No rational person would accept this.  Why is it okay to want regular income before retirement from one's job, but not while in retirement?

Now again, I'm not religious about it.  In good times like most of the last 12 years, I raised cash by incrementally selling highly appreciated and overvalued securities during particularly good times.  But I can do that opportunistically, and don't have to sell into the teeth of a bear market, which is how people blow up their retirement plans.

Anyway, we are all on a journey.  I doubt any of us started out with the investment beliefs and plans we currently have when we were 25.  People and circumstances evolve.  I am always trying to learn.  And I congratulate anyone who succeeds in providing for themselves in retirement in a way that they can sleep soundly at night, no matter the means they choose.  This is the only success that really matters, Sharp ratios, backtests, and the horserace with the S&P be darned.

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Re: What if dividends dry up?

"Another benefit of dividend paying stocks, as @ECEPROF said, is the tremendous tax benefit from qualified dividends over taxable interest from bonds.  This alone saves me thousands of dollars of taxes every year.  "

I was a TIAA (annuity) guy before 2014 although I have had my taxable account with Vanguard since early 90's. Since my interest income became "pittance," I moved my entire portfolio to Vanguard brokerage. Guess what? I saved about $6000 in expenses alone in the first year. That will pay my grocery bill for the entire year. Then, the dividends started growing and became double within 5 years and that was more than my pension. That is how I learnt the power of dividend income over a fixed income from the stable value fund with TIAA. That is because dividend income keeps growing unlike fixed income. Besides, I had already converted my 403(b) money to ROTH. My taxes did not go up as much either. The rest is history now. I also keep my "taxable other income" small so that only part of my SS income is taxed. My effective tax rate is just 1-1.5% of my income. I just reinvest back into equity ETFs. I will be doing some of it tomorrow and Monday - every month.

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Re: What if dividends dry up?

FD1001,

Of course I’ve owned some “tech” stocks- GOOG/ GOOGL, MSFT, PYPL, AAPL. In fact, our single largest position now is AAPL. Never bought AMZN, FB, Netflix, or some of the others that have been “hot”, just always seemed too expensive to me. But the majority of our stocks are strong wide moat dividend growers.

Yes, VDADX has a low dividend yield, similar to the S and P 500 and the total stock market. Our portfolio has a total yield of 2.72%, which we can live off if we were retired. But we won’t retire until end of 2021. We own about 6% in bonds, 9% in cash (MM), rest is all equity.

Win
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Re: What if dividends dry up?


@DocWu wrote:

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,

 

 


Oxy made the mistake of over paying for Anadarko just to get more Permiun reserves because it Believed that there was going to be an increase in the price of oil. CVX wisely walked away and collected $1B breakup fee. I bought CVX when mkt crashed in March and can live off the 6.4% dividend.

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Re: What if dividends dry up?

There are two ways to think about the growth of dividends. The simplistic way is DIV/share. Here is the chart of div/share of VTI over a 20 year period from Dividend channel.

 

VTI Vanguard Total Stock Market ETF Dividend History Dividend Channel.png

Except for a small dip in 2009, look it keeps growing. So, if you keep accumulating shares by investing new cash and reinvesting the divs, you will have a lot of shares. Since both shares are growing and div/share is also growing, the rate of growth is indeed phenomenal as I found in later years.

Another way to look at the dividend growth is as follows:

I still own the share of VTI that I bought more than 10 years ago at $55/share. It earns roughly around $2.8/share now. What you do all think the yield of this share now? It is about 5.1%. The yield of this share has more than doubled in 10 years. Since 95% of this is qualified, I pay "pittance" on taxes. This yield is a lot superior than what TIAA or other SV funds pay and certainly what US Bonds pay.

I wish that I had learnt of this when I was TIAA guy because I would have switched my 403(b) and SRA accounts to Vanguard long before.

 

 

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Re: What if dividends dry up?


@FD1001 wrote:

@KathieL wrote:

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.


Again, you are the exception to the rule. You never own bond funds? Enough said.  I guess you never heard the term risk-adjusted returns.

So, you post and I will just make a more common response that is being implemented by most serious financial advisors and retiree experts.


A lot of investors with above average returns never Owned bond funds. I have never owned bond funds and done quite well without them. When Bernacke started pouring $3T into the economy in February 2009 I started buying beaten down stocks such as JPM at 20, BoA at 6 and VNQ at 44. I Just kept buying equities as the economy improved and never looked back. I did buy muni bonds of NJ, NYC and NYS at 5%+ yields to lower my taxes. But within 10 years all the bonds were called as interest rates declined and I invested the funds in FAANGM and dividend stocks such as T and VZ to replace the bon income.I have since added QQQ to the techs. When stocks crashed in March I sold under performing funds and stocks and added the Large cap growth stocks, FaangsM, QQQ, recovery stocks such as HD, WMT and CVX as as sleeper for future. 

FYI: AAPL reported great earnings and stock is up 5.8% today to 408. Same for AMZN Up 4.5% today to 3189.

Not too shabby.

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Re: What if dividends dry up?


@ECEPROF wrote:

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.


I concur. My investment income mostly from qualified dividends Is taxed at cap gains rates, along with SS, retirement distributions and other income is 50% Greater then my expenses. My IRA RMDs are taken as shares of stock and transferred to a taxable account instead of being spent. The dividends are used as extra income to invest or spend. I have a Roth IRA where I could take a $30K Non taxable RMD From my Roth if I needed income. The Roth IRA keeps me from going into a higher tax bracket and and paying a higher Medicare B premium.

there is no reason to invest in fixed income when yields are Less than the rate of inflation. Yield on 10 year treasury is 0.6%

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Re: What if dividends dry up?


@Intruder wrote:

@DocWu wrote:

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,


Oxy made the mistake of over paying for Anadarko just to get more Permiun reserves because it Believed that there was going to be an increase in the price of oil. CVX wisely walked away and collected $1B breakup fee. I bought CVX when mkt crashed in March and can live off the 6.4% dividend.


Looks like a good move so far, I own CVX too, but before the crash.   I would have sold the OXY, but there's no tax loss harvest. I'd be paying capital gains.  So I'll hold it. 

Our taxable dividend income has grown 4X since 2001, most of it from stocks paying your traditional 2-3%.

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Re: What if dividends dry up?


@DocWu wrote:

Our taxable dividend income has grown 4X since 2001, most of it from stocks paying your traditional 2-3%.

Exactly. That is equivalent of 12%. No one will pay this kind of income - not even PCI - unless you bouhgt PCI two months ago - recently. Simple math tells me that dividends have grown at 7.1% - doubles every decade. If you reinvest the dividends, the income will double even in 6 years. Fixed income people will never be able to claim this. For example, with 3% accumulation rate (like TIAA pays), it would take 24 years to double your money and pay taxes because it is an earned income.

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Participant ○

Re: What if dividends dry up?

Dividends have been drying up for several years now.  You could safely  earn 6 percent on a  muni bond about ten years ago. Today, you might ge 2 to 3 percent on the same bond.  Now if thats not dried up, i dont know what is.

You do what you have to do.  No fat government pensions and no golden eggs or parachute, you will find a way to get by, doing exactly what you must do.  Its not what you earn that matters, its what you keep.  If you max out the cap gains deduction annually, then youre left with muni bonds as your only choice, unless of course, you want to share your earnings with Uncle Sam.  They will gladly accept your hard earned dollars to fritter away on wasteful spending, if thats what you prefer.

If you end up paying 4 or 5 thousand dollars a year in Medicare premiums, you must find a way to pay for that too.  There is no free lunch.

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Re: What if dividends dry up?

hku, I consider the money paid on muni bonds, government bonds and corporate bonds to be interest - not dividends.  I consider the money paid on stocks to be dividends.  Those dividends have not been drying up, but there have been some dividend cuts and suspensions so far during the pandemic.  Despite a couple of cuts, my income from dividends has remained steady  as I also own stocks that have raised the dividend during the pandemic.  Take a look at the thread here entitled Dividend Increases 2020.

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Re: What if dividends dry up?

The list of dividend cuts has already been well documented, heres a list to refresh your memory, too many to count:

https://www.marketbeat.com/dividends/cuts/

It is not just dividend cuts, it is also interest payments that have been cut, FYI, bonds held in a mutual fund or a CEF, are paid as dividend payments, not as interest payments.  You can call it dividends, you can call it interest or whatever you prefer, if it is cut it is cut.  I call it money.

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Re: What if dividends dry up?

I became a dividend investor by default. This is because: (a) I need far more yearly cash than Social Security and Retirement provide and (b) I am extremely bad at predicting which investments will have capital appreciation - let alone how much. I was lucky that I was able to amass enough savings in order to make this work.

I have no argument at all with the total return folks. Obviously you guys are right and one should include capital appreciation as a factor in deciding what to invest in - and if I had the ability to do this I would.

My dividend strategy is fairly simple:

1. Determine how much AFTER TAX income I need and translate this to an after tax yield (based on how much I am able to invest). My spread sheet is set up with my marginal tax rates and I've fed in last year's income type breakdown for each item on my watch list (different from this year obviously, but it gives me an estimate). I update with the price and any dividend changes and it spits out a sub list of things that will probably pay enough.

2. I research each of these as best I can: How likely are they to cut dividends? Any bad news? What are the gurus on the M* and Fidelity boards saying? Etc., etc. This gives me a final buy (or sell) list.

I've found based on my income needs that CEFs are pretty much the only things that work for me now. They are very volatile and when dividend cuts occur they can sometimes be huge. This is why I invest in large numbers of them over many sectors with each only being a small percent of my portfolio.

Over the last 5 years I have been able to decrease my minimum post-tax yield need from 6% to 5%. With ZIRP everlasting, the amount I CAN easily get has gone down too - but I'm still OK.

Dividends ARE drying up. So far not too fast.

Flute   

     

 

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Re: What if dividends dry up?


@luckyinvestor wrote:

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


Whatever floats your boat.

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Re: What if dividends dry up?

It works best for me to have a lot (more then 40) stocks paying dividends so that when one gets cut then I have another one to pick up load. Seems to me now that the 3-4% yield stocks will be the ones to add. 

I still think Cracker Barrel is a good stock, but when they stopped their dividend I sold them in my Roth account and split the money between Duke and Southern co. and got the same dividend as I was getting from CBRL. Buy and Watch for me is the way to go!

Copie

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Re: What if dividends dry up?


@ECEPROF wrote:

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.


 

Additional observation.
FD is acting like Brantley comparing apples and oranges by showing graphs and charts of the performance of T, a high dividend stock to MSFT, a growth stock with different performance metrics. I own T as a bond proxy which pays a 7% qualified dividend. I own MSFT Because it is a high growth stock. I prefer receiving the T dividends because I dont have to sell shares to cover expenses when prices decline as happened from March to May. Dividends kept rolling in. Appreciation on my T shares Will be passed on to my heirs as stepped up basis. For growth I own AAPL, AMZN, NFLX, MSFT, QQQ, HD, WMT and pharma.

 

 

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Re: What if dividends dry up?


@Intruder wrote:

@ECEPROF wrote:

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.


 

Additional observation.
FD is acting like Brantley comparing apples and oranges by showing graphs and charts of the performance of T, a high dividend stock to MSFT, a growth stock with different performance metrics. I own T as a bond proxy which pays a 7% qualified dividend. I own MSFT Because it is a high growth stock. I prefer receiving the T dividends because I dont have to sell shares to cover expenses when prices decline as happened from March to May. Dividends kept rolling in. Appreciation on my T shares Will be passed on to my heirs as stepped up basis. For growth I own AAPL, AMZN, NFLX, MSFT, QQQ, HD, WMT and pharma.

 

 


 Trudy,

 Stop with your poorly formed and misleading theories. Inserting my name in your posts while claiming not to engage me is both non-productive and abusive. Using established market benchmarks is accepted practice on Wall Street, academia, and retail investing. I have never compared MSFT to anything EVER!

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