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Dividend Stocks - Good Piece Here
creepycoug
Member Posts: 23,633
https://www.barrons.com/articles/yes-you-can-retire-on-dividends-10-stocks-to-build-an-income-stream-for-the-long-haul-51616752801
I thought this piece was a pretty good write-up on the idea of retiring on dividend stock. Pretty fair and balanced. Fine points on both sides. Gives an honest assessment of the FOMO risk of market gain differential. As you'd expect, during periods of market gains, you're going to miss out relative to growth ... that's the game. You still get gain; but it lags the total market. OTOH, you're getting income ... real money in your account.
It also has a good "beware" on chasing the highest yield play. As a securities lawyer who has represented a lot of yield stock companies, I can tell you that you need to pay attention to the financials and focus on liquidity disclosure. You also need to make sure the company is 'earning' its dividend. Don't make the mistake of focusing 100% on free cash flow (whether it's FFO, EBITDA, FAD, etc.). Remember, not all "non-cash" charges are equally irrelevant to cash flow. You gotta know your company or you're caught with your pants down when they slash the dividend:
Higher yields, of course, are alluring to some investors, but they can signal value traps—where a stock that appears cheap can trade at depressed levels or decline for an extended period of time. Such stocks are the subject of much debate in dividend-investing circles, but investors should do their due diligence before deciding whether a high-yielding stock is worth the risk.
I thought this piece was a pretty good write-up on the idea of retiring on dividend stock. Pretty fair and balanced. Fine points on both sides. Gives an honest assessment of the FOMO risk of market gain differential. As you'd expect, during periods of market gains, you're going to miss out relative to growth ... that's the game. You still get gain; but it lags the total market. OTOH, you're getting income ... real money in your account.
It also has a good "beware" on chasing the highest yield play. As a securities lawyer who has represented a lot of yield stock companies, I can tell you that you need to pay attention to the financials and focus on liquidity disclosure. You also need to make sure the company is 'earning' its dividend. Don't make the mistake of focusing 100% on free cash flow (whether it's FFO, EBITDA, FAD, etc.). Remember, not all "non-cash" charges are equally irrelevant to cash flow. You gotta know your company or you're caught with your pants down when they slash the dividend:
Higher yields, of course, are alluring to some investors, but they can signal value traps—where a stock that appears cheap can trade at depressed levels or decline for an extended period of time. Such stocks are the subject of much debate in dividend-investing circles, but investors should do their due diligence before deciding whether a high-yielding stock is worth the risk.
Comments
VYM is an exceptional ETF for those nearing retirement and looking for income and growth. This fund comes close to the 4% withdrawal yardstick without touching the principal and you get growth. You could look at a strategy of 80% dividend stocks and mix in some REITS and or bonds (horrible investment ask Warren Buffett) and approach 4% without having to dip into principal
Here's a good view of the holdings --notice the weighting percentage column. Lots of familiar stable companies. 3.1% current yield. Historically it usually hovers at 3.3 -3.4% yield.
The beauty here is you get 411 stocks under one roof at a minuscule expense rate of 0.06%. If you're paying a money manager 1% to make your picks they better deliver alpha. Most don't.
Dividends, year-over-year. Notice they've more than doubled in 10 years and the principal has, too.
Even more sweet is this assumes you spent the dividends. Had you reinvested you'd end up with more shares and hence more income. If your goal is compounding there are better ways to go but this is a great vehicle for income with moderate growth.
For more on VYM, click here: https://investor.vanguard.com/etf/profile/portfolio/vym
@creepycoug your welcome.
It's chintresting your point about the 1% AUM. I struggle with justifying that ... a lot. Right now all my "stuff" is at Morgan Stanley. A guy who took over my account after the last big crash made a deal with me: move my portfolio "back" over there, and he wouldn't charge me any fees until he started doing the buying. Good chunk of company stock there that I also insisted I'm not paying an AUM for because he's not going to "manage" a stock I know much more about than does he.
Anyway, there's another Morgan Stanley group based in Cali ... forget where ... and they have a few guys in Bellevue. Their WHOLE pitch is putting together the dividend portfolio for people like me who are interested in that approach to retirement. The sample portfolio they showed me looked similar to those holdings. So, yeah, why do I need to pay 1% for the same return.
Question: are you taking this approach - yield that is - as a primary "real retirement fund" investment approach, with the individual speculative play a one off here and there? Or do you think yield isn't enough?
It all depends on your time horizon for retirement and what your needs are. $100k a year your first year of retirement requires $3 million in VYM. If historical trends continue, in year 10 the dividend income is over $200k per year, you haven't touched the principal and the starting amount ($3 million) in VYM has doubled.
the QQQ is up 572% over the past 10 years compared with 305% for the SP (dividends not reinvested)
Current composite of QQQ
I have some money with a private advisor due to a former partnership and I've beaten his returns over the past ten years, a lot of it because of their firm's ~1% yearly mgmt. fee.
Unless their fund eclipses VYM's 10 year and since inception returns by 2% or more you're getting boned
1. "You don't have time to do this. We analyze the market all day, have access to research you don't, ...."; and
2. It's not always about return ... it's also loss avoidance. We know when it's time to exit an investment (implication - you don't).
I have some liquidity now ... I really am going to check to this out. I assume this is available through the discount and self-directed shops (TD, Schwab, etc.)?
As someone who has somewhat followed the dividend market, that is a very good lineup. And the fund manager is worth something there because they will watch cash flow, analyze the non-GAAP free cash flow markers for bullshit and the liquidity disclosure ... all the things that portend a dividend cut.
TImber/Industrial feel pretty good. Mortgage and office/retail don't feel like good moves, although the office/retail must be trading at steep discounts. I've not looked.
I've owned for 10+ years and its up only 64% (total) and my effective yield is 6.5%. Not good but what comes around goes around. In retrospect I should have went stronger on Starbucks instead of this dog. I'm taking the dividends and capital return and investing in my flavors of the month
last 14 years you have average 8.3% in it, add the 3% dividend and bang. Wash rinse repeat.
If the Gov't would simply take 4k when every child is born and put it into funds like this, not let it be touched by them (or the gov't which will be the hard part) until retirement the social security funding problem is gone.
Will absolutely make that part of my portfolio going forward.
Most the companies in VYM continued paying dividends throughout the 2008-2009 crisis, except for the banks.
Have you run a comparison vs. the SDY to see which one has performed better. Expense ratios on both are negligible so don't really have to factor those in?
572% the last 10 years vs. VYM's 264%. (all my numbers don't include dividend reinvestment because I allocate dividends to the most attractive investment at the time)
The SP 500 is up 305%
I use VOO which carries a lower expense ratio than SPY (see the difference this makes over time below)
I guess what I am saying is I don't plan on being retired for only a year or two which is the amount of time that the djia has stayed down.
Split your retirement money into aggressive and safe buckets - if you want to maximize your return. Or not.
I will.