# Dividend Portfolio



## wwwkp84 (Sep 7, 2012)

I currently have an 5 fund index portfolio, it's easy to maintain. I invest every month according to my asset allocation. 

I'm looking at dividend growth investing. My concern is when do I add new positions to this strategy? I read in the "Single Best Investment" that the author says to keep each of the stocks equal weight. Sounds costly in terms of adding new money into a diversified 15-20 stock portfolio.

Pretty confused on that front.

or should is VIG the better option?


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## james4beach (Nov 15, 2012)

What do you mean by dividend growth investing? Are the regular dividends like on the plain indices XIU and ZCN not enough? Those broad funds actually pay quite large dividends.

Is there a particular reason you want stocks that are heavy in dividends? Perhaps high cashflow for retirement...

The reason I ask is that while it can make good sense to have high dividend payouts for someone requiring the income cashflow, for other investors it does not necessarily make sense. For instance, I don't see why someone in the asset accumulation/growth phase would need to pursue high dividend stocks.

While considering your goals you may also want to read this article, The income illusion


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## My Own Advisor (Sep 24, 2012)

I use a blend of investing in dividend paying stocks and broad market ETFs.

@wwwkp84, VIG is a good product. I prefer to invest in many of the holdings VIG holds. It takes a while to gather enough shares but I'm convinced holdings some dividend paying stocks directly is worth it for the steady income and some capital appreciation.


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## wwwkp84 (Sep 7, 2012)

Dividend growth investing - Investing in high quality companies that have raised dividends for 10 years or more.

Currently I have a couch potato portfolio, and I have US equities invested via VTI which pays 1.97% dividends. I am thinking of moving from VTI (or at the very least cut it by 50%) to 15 or so dividend paying stocks that will generate higher dividend income + have new money invested into the portfolio.

I'm 29 years old. My time line is very long.


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## My Own Advisor (Sep 24, 2012)

Indeed you have a long timeline, which could work out very nicely if dividends are reinvested for decades 

I own VTI and have no intentions of selling any of it but I do look for U.S. equities to hold directly in the RRSP. I think I own about 10 U.S. stocks now, all big blue chips you can find in VIG, many in the top 30 VIG and VTI holdings. 

I do the same with my Canadian stocks, mostly blue-chips that have paid dividends for decades.

I think dividend investing is a great strategy.


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## CanadianCapitalist (Mar 31, 2009)

wwwkp84 said:


> I currently have an 5 fund index portfolio, it's easy to maintain. I invest every month according to my asset allocation.


If it ain't broke, why fix it?


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## wwwkp84 (Sep 7, 2012)

CanadianCapitalist said:


> If it ain't broke, why fix it?


To get better yields. 

My confusion lies in the increasing of positions. With the couch potato strategy, it's easy for me to simply invest on a monthly basis. With $1000/month to invest in a couch potato, its easy, 5 transactions among my asset allocation every month. I'm done.

With dividend investing do you accumulate the cash that you would have invested on a monthly basis in the couch potato strategy as "cash awaiting investment" and invest it when the time is right in the dividend stocks that you own equally or to select stocks that you want to? If you have 15 stocks, that's a lot of commissions. Do you need to keep the portfolio equal weight?


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## eulogy (Oct 29, 2011)

wwwkp84 said:


> To get better yields.
> 
> My confusion lies in the increasing of positions. With the couch potato strategy, it's easy for me to simply invest on a monthly basis. With $1000/month to invest in a couch potato, its easy, 5 transactions among my asset allocation every month. I'm done.
> 
> With dividend investing do you accumulate the cash that you would have invested on a monthly basis in the couch potato strategy as "cash awaiting investment" and invest it when the time is right in the dividend stocks that you own equally or to select stocks that you want to? If you have 15 stocks, that's a lot of commissions. Do you need to keep the portfolio equal weight?


What's the point of yield other than income? Like if that's what you're after (income) that's cool, but if you think you'll find alpha chasing yield, you'll be disappointed. The yield might make you think you're ahead, but it'll be just in your head. Total return is all that matters. Yield is a benign taxable distribution tool.


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## Sampson (Apr 3, 2009)

Try to maximize total returns, not simply yield.

That being said, many large cap dividend achievers really seems to be good proxies for broad indices at large. I think CC's comment is spot on. If your returns from your portfolio of 5 are good, don't complicate, don't chase yield. Be happy your total returns are high.


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## james4beach (Nov 15, 2012)

wwwkp84 said:


> To get better yields.


But... you don't need the yield, if you're that young and this isn't for retirement income.

Going for dividend stocks doesn't translate to greater total returns. It's total returns you're after on your time horizon

I also share CC's view, if it aint broke then why fix it? Personally I don't see any compelling reason to chase high dividend stocks in your situation


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## doctrine (Sep 30, 2011)

To answer your question, it's not as big of a deal as you might think to keep a roughly equal weighted portfolio of 15 stocks, especially if you have a decent dividend yield and are still contributing money. You don't need to sell your winners; simply use your dividends and new contributions to top up on your bottom holdings. It's also easier from a tax perspective to avoid selling, which can reduce returns through incurring taxes more than avoiding a little rebalancing.


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## andrewf (Mar 1, 2010)

But.... yield!


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## Sampson (Apr 3, 2009)

andrewf said:


> But.... yield!


how the heck have you gotten to 6000 posts?


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## andrewf (Mar 1, 2010)

One at a time.

Sorry. We have about two threads a week about yield 'investing'. I wasn't feeling constructive, and besides you, and james, and CC had already said what I would have. Carry on preaching the good word.


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## james4beach (Nov 15, 2012)

Anyone else concerned that there's a "mania" for dividend/yield chasing? Usually such things result in crowded trades...


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## gibor365 (Apr 1, 2011)

wwwkp84 said:


> I currently have an 5 fund index portfolio, it's easy to maintain. I invest every month according to my asset allocation.
> 
> I'm looking at dividend growth investing. My concern is when do I add new positions to this strategy? I read in the "Single Best Investment" that the author says to keep each of the stocks equal weight. Sounds costly in terms of adding new money into a diversified 15-20 stock portfolio.
> 
> ...


With VIG you pay o.1% MER, it's very low, but still you pay $100 annually on 100K portfolio that equal 14-15 trades in CIBC IE for example. Also, you can select the best stocks from the VIG that will pay you more than 2.16% . Just checked VIG and I'm holding 4 out of 5 top holdings of VIG.
I'd select ETF in specific sectors like VEA, CBO, ZRE.


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## Sampson (Apr 3, 2009)

james4beach said:


> Anyone else concerned that there's a "mania" for dividend/yield chasing? Usually such things result in crowded trades...


Been going on since 2009 my friend.

I personally own a lot of classic dividend achievers... as does Buffet.

I think the biggest thing people have to realize is that these really are value plays disguised as "dividend growth". As with an holding purchased based on favourable valuation, this really requires prudent fundamental analysis to minimize risk of entry price. Just because a company has been growing their dividend for years, bad top line and bottom line growth will kill that in a heart beat. Danger with dividend achievers is that when some people behind to exit, EVERYONE will exit.


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## wwwkp84 (Sep 7, 2012)

If you had $1,000 investable cash every month. Would you invest it across your dividend stocks equally or would you accumulate cash and invest into the the stock which has the right entry point and continue to buy positions?

For example. This month I would pick one of my 15 dividend stocks which I feel is a good entry point (assuming I have established my portfolio in the past 15 months) and buy $1,000 worth of its shares.


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## humble_pie (Jun 7, 2009)

www84 the answer must be self-evident? these are stocks ... brokers ... commissions ... no one would ever pay 15 separate brokerage commissions every month ...

actually $1k may itself be too small an amount to invest as cash. A great deal depends on what sort of commissions one is paying. If a commission is more than the standard $9.95 etc, perhaps accumulate until 3-5k has been collected, then go for one (just 1) attractive candidate whose price is low?


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## wwwkp84 (Sep 7, 2012)

humble_pie said:


> www84 the answer must be self-evident? these are stocks ... brokers ... commissions ... no one would ever pay 15 separate brokerage commissions every month ...
> 
> actually $1k may itself be too small an amount to invest as cash. A great deal depends on what sort of commissions one is paying. If a commission is more than the standard $9.95 etc, perhaps accumulate until 3-5k has been collected, then go for one (just 1) attractive candidate whose price is low?




That's what I've originally thought... the part that threw me off was keeping each of the holdings "equal weight"....


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## doctrine (Sep 30, 2011)

The smallest I will typically invest is $2500 in a position. At ~$5 a trade, that's 0.2% for the trade which is fine by me. Any more i.e. $5k and it's even smaller. Even at 0.2%, a 5% dividend yield stock will repay the fee in about 2 weeks. But there is definitely no need to sell and as I said above, it's best to avoid selling for tax purposes. Perhaps every two months with contributions plus dividends you can make a trade which may work out to as little as $30-40 a year in trading fees.


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## Synergy (Mar 18, 2013)

james4beach said:


> Anyone else concerned that there's a "mania" for dividend/yield chasing? Usually such things result in crowded trades...


Could the "mania" have something to do with baby boomers searching for income in retirement? Additionally, young DIY's / new investors may be drawn to large cap, stable companies that just happen to pay out dividends (Banks, Telco's, etc.). Just a thought.


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## Sampson (Apr 3, 2009)

I would also suggest not buying in amounts less than $2000-$3000.

with a small portfolio, the relatively influence/drag caused by fees will be a very important concern. Keep the portfolio small and concentrated until it gets sizeable.

If you want to diversify at this point, buy and ETF to round out the portfolio.


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## Sampson (Apr 3, 2009)

Synergy said:


> Could the "mania" have something to do with baby boomers searching for income in retirement? Additionally, young DIY's / new investors may be drawn to large cap, stable companies that just happen to pay out dividends (Banks, Telco's, etc.). Just a thought.


I think also stems from:

a) Derek Foster
b) flight to safe (blue chip) stocks during and after the great recession - look how consumer staples performed during the recession compared to other economic sectors
c) mis-education and hype of 'pay-daddy', 'get paid while you wait' and other non-sense in the media
d) perception that companies that pay dividends are more stable and secure

All these reasons are poor ones in my mind.


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## Eclectic12 (Oct 20, 2010)

Sampson said:


> ... All these reasons are poor ones in my mind.


If it's a mania - then by definition, aren't the reasons going look poor in hind sight?


Certainly my co-worker who jumped into the tech stock mania in 2000 or so because "he knew tech and could stay on top of it" - wasn't of the same opinion nine months later when he'd cut the value just short of half.


Cheers


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## warp (Sep 4, 2010)

eulogy said:


> What's the point of yield other than income? Like if that's what you're after (income) that's cool, but if you think you'll find alpha chasing yield, you'll be disappointed. The yield might make you think you're ahead, but it'll be just in your head. Total return is all that matters. Yield is a benign taxable distribution tool.


With all due respect, you may be missing the trees for the forest.

Many studies have shown conclusively that dividend growth strategies beat the over market over many time frames.
Studies also show that dividend paying stocks beat non-payers by a big margin over time as well.
Investors who choose to chase the elusive alpha tend to do much worse than steady dividend investors, although a small percentage will certainly do better, simply by luck.

I read today in fact that SO ( Southern Company), a boring dividend paying US Utility stock has beaten Berkshire in the last 20 years...( total return)
Imagine a "widows and orphan" stock, beating the great Warren Buffett

Stick to your knitting WWW...you will do well in the long run by buying solid stable dividend stocks, with a good initial yield, that also have a good history of increasing the dividend over many years . Buy them when they are selling at reasonable or good valuations.
Alas, there are many good choices in the US, but not many here in Canada.


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## andrewf (Mar 1, 2010)

Dividend investing strategies are mostly just value tilts. Any value tilt (dividend paying or not) gives the alpha (outperformance). This is necessarily true because value companies tend to have low P/Es and can support high yields. High P/E companies cannot be high yielding.


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## wwwkp84 (Sep 7, 2012)

Thank you to those who have helped me with the question of how to deal with purchasing positions. Seems like it's best to let the cash sit as cash, accumulate and then add positions over time. Generally on "dips" and if the company is solid. 

I have been investing into a 5-fund couch potato portfolio. I should leave it as is (to avoid capital gains tax), continue to invest into those funds on a monthly basis but trim back the percentage into VTI and start to look at picking up actual shares of high quality companies as part of my "dividend portfolio".

I think I am on the right path?

I saw Kevin O'Leary on CNBC the other day, one thing that really stuck out to me was that he said that he invests only in dividend paying stocks -- because the CEO always has the shareholder on his mind as he has to cut a check every 90 days.


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## liquidfinance (Jan 28, 2011)

It all depends on who you invest with. If it's Questrade and you want ETF's then a minimum investment is of no concern as the ETF is free to buy.

For stocks I tend to have a rule of thumb around $1000


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## andrewf (Mar 1, 2010)

I would not recommend taking Kevin O'Leary's investing advice. If you want proof, look at the relative performance of his mutual funds.

Kevin O'Leary is a circus clown first and foremost.


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## My Own Advisor (Sep 24, 2012)

I'm not sure we're talking about the same things here. Some dividend investors (myself) buy KO stock and round out their portfolios with VTI.

Buying KO is different that listening to Kevin O'Leary or Jim Cramer.


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## wwwkp84 (Sep 7, 2012)

I'm looking at picking up KO, MCD, PG, T, WMT, XOM, 3M, CAT, etc...


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## Sampson (Apr 3, 2009)

Eclectic12 said:


> If it's a mania - then by definition, aren't the reasons going look poor in hind sight?


Hindsight? Aren't we in the midst presently?

The point so many of us try to drive home is that there isn't anything particularly special about dividend growth investing. It has been clearly shown that the benefits are based on value, not on the dividend per se.

I'm saying above that dividend growth investing can be good if other metrics of good valuation are concurrently used. The reasons in my list, are bad ones. I was in fact specifipcally think about O'Leary with my pay-daddy, etc comments.

Getting into dividend investing is good given the right reasons, but yield and the dividend alone are not reason enough.


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## Echo (Apr 1, 2011)

The first rule of dividend investing is: You do not talk about dividend investing on the Canadian Money Forum.


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## My Own Advisor (Sep 24, 2012)

echo said:


> the first rule of dividend investing is: You do not talk about dividend investing on the canadian money forum.


lol.


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## liquidfinance (Jan 28, 2011)

andrewf said:


> I would not recommend taking Kevin O'Leary's investing advice. If you want proof, look at the relative performance of his mutual funds.
> 
> Kevin O'Leary is a circus clown first and foremost.



:biggrin: so true!


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## eulogy (Oct 29, 2011)

warp said:


> With all due respect, you may be missing the trees for the forest.
> 
> Many studies have shown conclusively that dividend growth strategies beat the over market over many time frames.
> Studies also show that dividend paying stocks beat non-payers by a big margin over time as well.
> ...


Many studies have shown dividend stocks have beaten the market mainly because you can't properly measure these things. How do you measure the dividend growth of a company that stops paying dividends. Or a dividend growth company that goes out of business? You're stuck with a performance bias as you can really only measure what has succeeded. Buy dividend stocks with good yield and a history of increasing dividends, you'll be a big winner. Am I the only one that finds such a statement completely useless? Why not a study on, buy companies that grow 20% a year... studies I bet would show that it beats the market... probably by twice as much. Studies that validate picking winners over losers will always show you the winner.

I do, however, know that dividends are typically paid out by large caps that have run out of room for growth. Which is fine. But small caps typically outperform over the long run because they have the room to grow. Some would say there is a higher risk and with more risk comes a better return.

A Southern Company beat Berkshire eh. Do you need me to find a company that beat Berkshire that doesn't pay a dividend? I don't understand what cherry picked data does for this discussion.

At the end of the day, dividends are a completely benign distribution tool. They don't mean anything. My boss pays me by direct deposit. If he paid me by check, I wouldn't think I was further ahead because a distribution method was different.


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## Echo (Apr 1, 2011)

eulogy said:


> My boss pays me by direct deposit. If he paid me by check, I wouldn't think I was further ahead because a distribution method was different.


But if my boss promised to pay me some unknown amount at an unknown time, I'd look for a new job.


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## CanadianCapitalist (Mar 31, 2009)

Echo said:


> But if my boss promised to pay me some unknown amount at an unknown time, I'd look for a new job.


Stocks are liquid. You can sell a small portion if one wants income. Hence the comparison to how one gets paid (whether by dividends or share sales.

Whatever stock investing strategy one follows, one ultimately has a bunch of stocks. The *total* return from the set of stocks is equally unknown for everyone.


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## BlackThursday (Apr 25, 2011)

CanadianCapitalist said:


> Stocks are liquid. You can sell a small portion if one wants income.


Probably the point is that the price of your stock in a company can vary widely from day to day and hour to hour as the market reacts to events that may or may not be truly relevant to the company. Compared to a dividend whose payment is determined consciously by the company itself based on events that directly impact the business of the company, you can obviously see which one would provide more stability for an individual requiring regular periodic income from the stock.

This doesn't dispute the fact that one's focus should be on total return. It simply attempts to correct the fallacy that selling stock is equivalent to being paid a dividend.


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## CanadianCapitalist (Mar 31, 2009)

BlackThursday said:


> It simply attempts to correct the fallacy that selling stock is equivalent to being paid a dividend.


Of course, stock prices fluctuate. That's easy to see for anyone who can pull up a stock chart. What isn't easy to see is that a stream of income from dividend paying companies is also quite volatile. Standard Deviation of dividend income in real terms from US & UK came in 15 percent. SD of total real returns from US & UK stocks is 20 percent. (Source: Triumph of the Optimists).

Heck, forget 101 years of data. Just pull up the spreadsheet from Shiller's website below on S&P 500 price, earnings, dividends etc. Real dividends on 12/2008: $31.66. On 12/2009: $24.33. That's a drop of 24%.

http://www.econ.yale.edu/~*shiller*/*data*/ie_*data*.xls‎


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## BlackThursday (Apr 25, 2011)

CanadianCapitalist said:


> Of course, stock prices fluctuate. That's easy to see for anyone who can pull up a stock chart. What isn't easy to see is that a stream of income from dividend paying companies is also quite volatile. Standard Deviation of dividend income in real terms from US & UK came in 15 percent. SD of total real returns from US & UK stocks is 20 percent. (Source: Triumph of the Optimists).
> 
> Heck, forget 101 years of data. Just pull up the spreadsheet from Shiller's website below on S&P 500 price, earnings, dividends etc. Real dividends on 12/2008: $31.66. On 12/2009: $24.33. That's a drop of 24%.
> 
> http://www.econ.yale.edu/~*shiller*/*data*/ie_*data*.xls‎


This is a lot of posts for me in one day (I should get back to work) so I'm going to give you the last word after this..

You seem quick to jump at something I'm saying as obvious but you didn't take the time to determine if what you are saying contradicts my statement or not.
I'll give you a hand: it does not.

I am not saying dividend payment isn't volatile and companies are not wont to cut their dividend if they experience financial trouble.
I am saying that it is LESS volatile and I am saying the dividend would be adjusted based ONLY on events that impact the company in the opinion of the company itself. 
The end result is a RELATIVELY more stable source of income.


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## liquidfinance (Jan 28, 2011)

BlackThursday said:


> The end result is a RELATIVELY more stable source of income.


Yes. A much better source of income than selling assets and reducing your level ownership.


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## andrewf (Mar 1, 2010)

Echo said:


> But if my boss promised to pay me some unknown amount at an unknown time, I'd look for a new job.


When you receive a dividend, you can't divorce the dividend from the capital gain/loss. So when you receive a dividend, you receive some unknown amount = dividend payment+capital gain/loss. In other words, the total return.


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## andrewf (Mar 1, 2010)

BlackThursday said:


> Probably the point is that the price of your stock in a company can vary widely from day to day and hour to hour as the market reacts to events that may or may not be truly relevant to the company. Compared to a dividend whose payment is determined consciously by the company itself based on events that directly impact the business of the company, you can obviously see which one would provide more stability for an individual requiring regular periodic income from the stock.
> 
> This doesn't dispute the fact that one's focus should be on total return. It simply attempts to correct the fallacy that selling stock is equivalent to being paid a dividend.


You can get a highly predictable income from selling stocks. Just sell however many shares are necessary to produce the income. Yes, there is a possibility of depleting your capital by doing this, but the probability is not substantially different whether you hold high dividend paying stocks or the market index. 

If you have a dividend portfolio and withdraw 5%+ per year in dividends, over time you have a high probability of declining income in real terms. People think dividend income is a safe way of guaranteeing their future income. This is why people fall in love with distributions. But it is just an illusion of safety.


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## amitdi (May 31, 2012)

wwwkp84 said:


> I'm looking at picking up KO, MCD, PG, T, WMT, XOM, 3M, CAT, etc...


I am in a similar position as you in that 
- I am 30
- I dont have a whole lot of money to have a 15-20 stock portfolio. Less money in each would mean a relatively higher % in commissions

What I am planning to do is -
- continue to invest in the ETFs until your net worth grows with returrns+capital allocation. 
- Once you think you have a sizeable money, go down the stock portfolio path.


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## Toronto.gal (Jan 8, 2010)

My Own Advisor said:


> Indeed you have a long timeline, which could work out very nicely if dividends are reinvested for decades....I think dividend investing is a great strategy.


On this ever famous [NOT] dividend topic, I only dare to agree/respond to you, coz I know u understand me very well. :chuncky:

As wwwkp is 29, dripping some of the companies already mentioned, would be a great strategy, so I would say focus on having enough shares of each, in order to be able to buy free shares every quarter [or monthly if applicable], which you can do commission free! Do not underestimate the exponential power of compounding! 

Think about this example, but for simplicity purposes, assume no taxes/no dividend decreases/increases: [and no market crashes, lol] 

Assuming an 8% stock appreciation, and 3% reinvested dividend yield: an investment of $4K, would grow at year 20, to $32,249.25.

Without reinvesting the dividends, the investment would grow to $18,643.83 vs $32,249.25. 

On a less optimistic view, assuming just a 4% annual stock appreciation, then the reinvestment would grow to $15,478.74 vs $8,764.49, without dividend reinvestment.

So what you have above is the stock appreciation + the reinvested div. working together, ie: 8% + 3% [or 4% + 3%].

I wrote this fast, so check the math, but that's what I got using a DRIP calculator [assuming I entered the correct info.]


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## My Own Advisor (Sep 24, 2012)

@amitdi,

Or do both. 

1. Always invest in broad-market ETFs, and never stop (that gives you mostly unknown capital appreciation over time and some known distribution/income), and
2. As you have sizable money to invest (>$100,000), buy and hold companies that have paid dividends for many decades (going down the stock portfolio path as you put it). This way, you get some unknown capital appreciation and mostly, as others have said, relatively and I mean relatively dependable income.

The catch: If you're ever unsure or worried about #2, you should always invest via #1 (indexing).


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## doctrine (Sep 30, 2011)

> Heck, forget 101 years of data. Just pull up the spreadsheet from Shiller's website below on S&P 500 price, earnings, dividends etc. Real dividends on 12/2008: $31.66. On 12/2009: $24.33. That's a drop of 24%


I couldn't access the link, but what were those same dividends in 2012 as compared to 2008? 



> If you have a dividend portfolio and withdraw 5%+ per year in dividends, over time you have a high probability of declining income in real terms.


Although not impossible, I somewhat disagree. Real returns have averaged around 7%, therefore removing 5% dividends should leave 2% capital appreciation which over a long period of time is a good margin of error.


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## CanadianCapitalist (Mar 31, 2009)

doctrine said:


> I couldn't access the link, but what were those same dividends in 2012 as compared to 2008?


The current dividend is $34.44, which is 15% higher than year ago dividends.



Toronto.gal said:


> On a less optimistic view, assuming just a 4% annual stock appreciation, then the reinvestment would grow to $15,478.74 vs $8,764.49, without dividend reinvestment.


I hope I'm allowed to comment. You are making the case for reinvesting dividends. That's a good strategy for all investors, whether or not they follow the dividend strategy.


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## blin10 (Jun 27, 2011)

it seems like you're playing with not much money (below $50k), so in your case having 15-20 stocks is way too many... even at 100k i'd just have 5-6 stocks, the key is pick the best or second best in the group... funny thing is, I know few people and the guy with 400k portfolio (which consists of 8 top quality stocks) outperformed a guy that has 30 low quality stocks with 200k portfolio by a huge margin.. it sure can go other way, but I noticed by having too many stocks my portfolio suffers



wwwkp84 said:


> I currently have an 5 fund index portfolio, it's easy to maintain. I invest every month according to my asset allocation.
> 
> I'm looking at dividend growth investing. My concern is when do I add new positions to this strategy? I read in the "Single Best Investment" that the author says to keep each of the stocks equal weight. Sounds costly in terms of adding new money into a diversified 15-20 stock portfolio.
> 
> ...


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## andrewf (Mar 1, 2010)

doctrine said:


> I couldn't access the link, but what were those same dividends in 2012 as compared to 2008?
> 
> 
> 
> Although not impossible, I somewhat disagree. Real returns have averaged around 7%, therefore removing 5% dividends should leave 2% capital appreciation which over a long period of time is a good margin of error.


What are the real returns on equity portfolios constructed to have a yield of >5%?


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## praire_guy (Sep 8, 2011)

Echo said:


> The first rule of dividend investing is: You do not talk about dividend investing on the Canadian Money Forum.


LOL!!! BEST reply ever!

I've also read the single best investment. I lent it out to a friend, so I can't confirm, but if I recall, Miller just says to have a portfolio of stocks, not that they have to be equal weighted. 

You may also want to check out dividendgrowth.ca. Lots of helpfull info.


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## My Own Advisor (Sep 24, 2012)

Or my site


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## GoldStone (Mar 6, 2011)

^^^ One line self-promotion posts with zero content = SPAM


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## My Own Advisor (Sep 24, 2012)

ouch. Will do more, point taken!


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## Sampson (Apr 3, 2009)

This discussion comes up time and time again.

Dividend people say dividends are great, others give pitfalls of the strategy and suggest total retun is what is important.

Not once havs there been an argument stating why the latter is bad. Give me higher total returns anyday over steady growing, lower return dividend portfolio.


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## humble_pie (Jun 7, 2009)

Sampson said:


> Give me higher total returns anyday over steady growing, lower return dividend portfolio.



dividends + capital gains + cap gains option premiums = significant total return


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## Eclectic12 (Oct 20, 2010)

Sampson said:


> .... Give me higher total returns anyday over steady growing, lower return dividend portfolio.


Depending on what one's choices are at the time - higher total returns could be a dividend payer as some I've bought have doubled or triple or gone up 5x in a year or two (while increasing dividends) or in about eight years have split 1 for 4 where the trading price was 4x the purchase price. None of the non-dividend payers at the time - did as well. 

Even if there was a non-dividend payer that did better - unless I was looking at it, there's no point anyway.


To put it another way - a bargain is a bargain, whether there's dividends involved or not.


Cheers


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## Toronto.gal (Jan 8, 2010)

Eclectic12 said:


> 1. higher total returns could be a dividend payer as some I've bought have doubled or tripled or gone up 5x in a year or two (while increasing dividends) or in about eight years have split 1 for 4 where the trading price was 4x the purchase price. None of the non-dividend payers at the time - did as well.
> 
> 2. To put it another way - a bargain is a bargain, whether there's dividends involved or not.


*1.* Indeed the case!!

But I don't think anyone has said that the reverse is 'bad'. I personally have a good % of my portfolio with non-dividend paying stocks. Again, there need not be a single strategy.

*2.* You read my mind. :encouragement:

*MOA:* you should have laughed it off, as you're hardly a spammer. :rolleyes2: It's not like you showed up just to write a one liner [that had been what the complainer did though]; you helped by writing a few here already.

Btw, I'm not a reader of blogs, but I have read yours!


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## andrewf (Mar 1, 2010)

In which case we should be talking about value investing, good value stocks, etc. *without regard to yield*. What am I missing?


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> In which case we should be talking about value investing, good value stocks, etc. *without regard to yield*.
> What am I missing?


 ... I thought that was implied by the "total returns is all that matters".

Which IMO, also implies that yield will be a variable considered instead of something to be avoided.


Cheers


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## Sampson (Apr 3, 2009)

Eclectic12 said:


> Depending on what one's choices are at the time - higher total returns could be a dividend payer as some I've bought have doubled or triple or gone up 5x in a year or two (while increasing dividends) or in about eight years have split 1 for 4 where the trading price was 4x the purchase price. None of the non-dividend payers at the time - did as well.
> 
> Even if there was a non-dividend payer that did better - unless I was looking at it, there's no point anyway.


I'm pretty sure that's what the "don't look only at yield" camp has been saying all along. We don't dispute that a dividend growth stock could be the one that provides great return, but the pro dividend side doesn't say this. They typically argue that dividend growers are inherently better.

We really should have all these types of threads amalgamated. Same thing over and over and over, althought it would probably reduce the total number of threads on this forum by half.

I will now live by the mantra
"supporters of dividend growth investing strategies need to demonstrate that their strategy outperforms holdings that have higher total returns"

do this and we will all be converts...

follow the yield, follow the yield.


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## doctrine (Sep 30, 2011)

Dividends and dividend yield are a criteria, but not everything. I have studied a lot of portfolio theory that includes trying to make rules out of dividend yields for buying and selling etc. I find that to be not very useful. But dividends and dividend yield can tell you a lot of things about a company that are very useful. They are real cash, and in a world of sometimes complicated accounting, I feel they have value towards indicating how business is going.

As I've stated before whenever this tangent erupts, there are not a lot of companies that pay zero dividends that are great companies. I more than welcome anyone to provide such a list and I'd be happy to take a look.

I have invested in companies with low dividend yields. I bought 250 shares of Home Capital Group in May 2013 at $52 a share. That has provided a return of about 40% in 5 months. The yield when I bought was just 2%, now it's down to 1.5% but the total return has far exceeded the dividend payments. As Eclectic12 has stated, sometimes the capital gains on a dividend stock far outweigh the dividend return. Sometimes it's the other way. 

The theory goes that a company without dividends can reinvest the capital in the company to grow faster. I prefer to think that I'd like to invest in a company that is already generating excess cash flows and capital. Often times these companies can still get 5-10%/year growth. Often times the "reinvest capital" companies are priced too high on an earnings basis to be a profitable investment.


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## Sampson (Apr 3, 2009)

doctrine, while I don't believe you necessarily need to justify, in all honesty, a very large proportion of my portfolio is held in classic dividend growth stocks, many people don't have a complex understanding.

i don't want to speak for others, but my logic is only that many dividend growth strategy followers don't have your insight and select on the basis of yield alone. In fact, what usually triggers these tangents are the response from some investors that they want to invest a certain way because of higher yield.


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## Echo (Apr 1, 2011)

The OP asked about dividend growth investing and then james4beach immediately jumped to the conclusion that he or she was chasing yield:



james4beach said:


> I don't see why someone in the asset accumulation/growth phase would need to pursue high dividend stocks.


Perhaps it's not the dividend investors who are confused as to what dividend growth investing means (i.e. it's not about high yield at all). Doctrine pointed out a fine example - HCG - which has a yield of 1.5%, yet grows its dividend by 15-20% per year.


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## doctrine (Sep 30, 2011)

I believe that outsized returns in high yield stocks are mostly because of the value aspect, as andrewf stated. I have had great returns from high yield stocks, but in all cases they also had very low P/Es. Finding zero-dividend, low P/E stocks is much more difficult than low P/E stocks which happen to have high dividends. Most zero-dividend stocks have high P/Es and thus not good investments from my perspective.


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## andrewf (Mar 1, 2010)

Sampson said:


> i don't want to speak for others, but my logic is only that many dividend growth strategy followers don't have your insight and select on the basis of yield alone. In fact, what usually triggers these tangents are the response from some investors that they want to invest a certain way because of higher yield.


This. It drives me crazy. I should just stop interjecting, but I can't help it. And people talking about the need for 'income'.


"But...yield!"


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## andrewf (Mar 1, 2010)

doctrine said:


> I believe that outsized returns in high yield stocks are mostly because of the value aspect, as andrewf stated. I have had great returns from high yield stocks, but in all cases they also had very low P/Es. Finding zero-dividend, low P/E stocks is much more difficult than low P/E stocks which happen to have high dividends. Most zero-dividend stocks have high P/Es and thus not good investments from my perspective.


That's fine, but I don't see why dividend should be a criteria, since you're looking for value characteristics, and dividend yield is a mediocre indicator.

I think Meb Faber's concept of shareholder yield has a lot of merit. It's mostly just another value screen, but looks beyond dividends to include share buybacks and debt repayment as other ways companies return cash to their shareholders.


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## Sampson (Apr 3, 2009)

andrewf said:


> That's fine, but I don't see why dividend should be a criteria, since you're looking for value characteristics, and dividend yield is a mediocre indicator.
> 
> I think Meb Faber's concept of shareholder yield has a lot of merit. It's mostly just another value screen, but looks beyond dividends to include share buybacks and debt repayment as other ways companies return cash to their shareholders.


But this is the inherent irony in our argument. Searching for yield can be a very effective metric of value. Like I say, I'm not even a closet dividend investor and actually full tilt if you look at my portfolio, but the reasons I subscribe to the strategy are purely from a fundamental value perspective.

But it still irks me every time someone simply wants higher yield - especially when they quote O'Leary or any other non-sensical rubbish.


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## MrMatt (Dec 21, 2011)

andrewf said:


> That's fine, but I don't see why dividend should be a criteria, since you're looking for value characteristics, and dividend yield is a mediocre indicator.


Dividend investing is getting companies with good strong dividends. You can't pay out a decent dividend for a long period of time unless the company is in good shape.

Look at the dividend history of the big banks, strong growing dividend = incredible results.


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## andrewf (Mar 1, 2010)

How did the US banks look in 2007?


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## wwwkp84 (Sep 7, 2012)

I mentioned Yield as one of the criteria, but I wasn't being oblivious to the total return. Obviously I want high total return.

What if you've accumulated a good sized chunk of cash, let's say $500,000. Regardless of age.

Would you be in index investing or would you be purchasing individual dividend stocks (high quality stocks that pay dividends that stay continue to grow).


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## CanadianCapitalist (Mar 31, 2009)

wwwkp84 said:


> What if you've accumulated a good sized chunk of cash, let's say $500,000. Regardless of age.
> 
> Would you be in index investing or would you be purchasing individual dividend stocks (high quality stocks that pay dividends that stay continue to grow).


The question shouldn't be what someone else would do. The question is which method would keep you on the path. When you own indexed funds, active mutual funds, dividend stock portfolio or whatever, you ultimately have a bunch of stocks. As long as you keep costs down and your turnover low, the experience of investors employing these methods will more or less be the same. The stocks can and do drop steeply every once in a while. When they do which method will keep you on track? Pick that and stick to it through thick and thin. 

It seems to me that you already index, so why are you trying to change to something else? Let's say you are now convinced that investing for dividends is the way to go. What would you do when it under-performs? Jump to something else?


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## My Own Advisor (Sep 24, 2012)

Good response CC. 

As you know, I do a blend of both indexing and dividend investing. I'm pretty sure if I was 100% one approach vs. the other, I'd have trouble sticking to my plan.


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## wwwkp84 (Sep 7, 2012)

CanadianCapitalist said:


> The question shouldn't be what someone else would do. The question is which method would keep you on the path. When you own indexed funds, active mutual funds, dividend stock portfolio or whatever, you ultimately have a bunch of stocks. As long as you keep costs down and your turnover low, the experience of investors employing these methods will more or less be the same. The stocks can and do drop steeply every once in a while. When they do which method will keep you on track? Pick that and stick to it through thick and thin.
> 
> It seems to me that you already index, so why are you trying to change to something else? Let's say you are now convinced that investing for dividends is the way to go. What would you do when it under-performs? Jump to something else?


Right, that totally makes sense. I definitely am invested in index funds and am globally diversified and to be honest, I love it. No stress approach, dump money in and go play golf. 

I just want to be certain that I'm not making a mistake in that I could benefit more by investing directly with high quality companies, collecting dividends and then re-investing by purchasing more of those companies.


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## Synergy (Mar 18, 2013)

wwwkp84 said:


> Right, that totally makes sense. I definitely am invested in index funds and am globally diversified and to be honest, I love it. No stress approach, dump money in and go play golf.
> 
> I just want to be certain that I'm not making a mistake in that I could benefit more by investing directly with high quality companies, collecting dividends and then re-investing by purchasing more of those companies.


Unfortunately there's no way to be "certain" - you could do better or you could end up doing worse by going the individual stock route. From what I've read it sounds to me like you're well suited for index investing. I personally do a little bit of both.


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## My Own Advisor (Sep 24, 2012)

@wwwkp84,

I certainly don't think you're "making a mistake" by only index investing. If anything, you might come out ahead of most in the long run (over any active investors including dividend investors). If I had a crystal ball, I could tell you. 

Again, sounds like you're a great candidate for indexing, maybe 90% of your entire portfolio and with the other 10%, invest in some dividend stocks if you feel you are missing the buzz.

I don't think many investors in here are pure indexers, but I could be wrong. I'm sure CC and FT the administrators might recall a thread on that. Could be a great poll:

How many CMF'ers own only broad-market indexed products? How many own a mix of ETFs? How many own some individual stocks and ETFs? etc. 

Mark


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## Four Pillars (Apr 5, 2009)

My Own Advisor said:


> How many CMF'ers own only broad-market indexed products?


Me - I'm pretty pure.


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## blin10 (Jun 27, 2011)

it's super easy, hard part is to stick to it and hold through good and bad times.... with 500k buy 10-15 high quality stocks that pay dividends from different sectors(which have potential to increase dividends), average safe yield will be around 4%, so you'll be yielding $1700/month... now, over time if they keep increasing dividends in 5-10 years you'll probably be yielding 6-7% which will be bringing $2600/month... do not buy garbage companies that pay more then what they make, only buy the best, do not play with small cap penny stocks and you'll do good... 



wwwkp84 said:


> I mentioned Yield as one of the criteria, but I wasn't being oblivious to the total return. Obviously I want high total return.
> 
> What if you've accumulated a good sized chunk of cash, let's say $500,000. Regardless of age.
> 
> Would you be in index investing or would you be purchasing individual dividend stocks (high quality stocks that pay dividends that stay continue to grow).


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## andrewf (Mar 1, 2010)

Holding only 15 companies gives you a lot more idiosyncratic company risk.


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## CanadianCapitalist (Mar 31, 2009)

My Own Advisor said:


> How many CMF'ers own only broad-market indexed products? How many own a mix of ETFs? How many own some individual stocks and ETFs? etc.
> Mark


Other than group rrsps all our portfolios are indexed.

Here's my question to dividend acolytes: Do you benchmark your "active" management? If you do, how is your stock picking measuring up to relevant benchmarks? If you don't benchmark, why not? If you are not beating your benchmarks, should you still be picking stocks?


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## blin10 (Jun 27, 2011)

andrewf said:


> Holding only 15 companies gives you a lot more idiosyncratic company risk.


and holding 30-40 companies forces you to buy garbage since there is only so many top dogs


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## andrewf (Mar 1, 2010)

There are only 15 companies worth owning?


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## blin10 (Jun 27, 2011)

andrewf said:


> There are only 15 companies worth owning?


many companies, but there's only so many td bank, royal bank, telus, bell, cn rails, transcanada, etc.... only way owning more without sacrificing quality is buying some usa blue chips but that comes at currency exchange expense, no tax credit, etc...


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## Echo (Apr 1, 2011)

CanadianCapitalist said:


> Here's my question to dividend acolytes: Do you benchmark your "active" management? If you do, how is your stock picking measuring up to relevant benchmarks? If you don't benchmark, why not? If you are not beating your benchmarks, should you still be picking stocks?


I measure my portfolio against CDZ. I use similar criteria to build my dividend growth stock portfolio, but it's not imposed as methodically as the dividend ETF so there's some judgement on my part. I compare the results to measure the value of that judgement.

I've explained it better here, with the help of Dan Bortolotti and Justin Bender - http://www.thedividendguyblog.com/2013/07/31/how-to-track-your-portfolio/

Surprisingly, my small portfolio had higher returns, better risk-adjusted returns, and lower volatility than the ETF.


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## My Own Advisor (Sep 24, 2012)

XDV is the best benchmark for my portfolio since most of my holdings are dividend payers, mostly blue-chippers. I'm not sure my holdings have lower volatility than the ETF but I'm not overly concerned about that (since I don't intend to sell any holdings).

YTD, I don't mind admitting the CDN banks, telcos and energy companies I own are trailing XDV returns a bit. I own a few lower yielding companies that aren't listed in XDV and some of the energy companies I own, are getting beat up this year. 

YTD performance of XDV is double-digits and I would be happy if my long-term performance of my portfolio is closer to XDV's 5-year average: around 9%.

Should I track my 'active' portfolio more? For sure. But I'm not really that 'active'. Buying and holding a bunch of CDN banks, telcos and energy companies and synthetically DRIPping them doesn't take much work. 

Now that I feel I have enough stocks, buying more lazy ETFs actually.


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## Sampson (Apr 3, 2009)

I would argue that a dividend ETF is not what you should be using as a benchmark.

By doing so, you are answering whether your dividend portfolio is worth-doing yourself, or whether the package is better. 

The more important question is whether the dividend approach is better than holding a broad "generic" index tracking ETF.


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## PatInTheHat (May 7, 2012)

Sampson said:


> I would argue that a dividend ETF is not what you should be using as a benchmark.
> 
> By doing so, you are answering whether your dividend portfolio is worth-doing yourself, or whether the package is better.
> 
> The more important question is whether the dividend approach is better than holding a broad "generic" index tracking ETF.


Highly agree with this but not a bad idea to track against both.


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## My Own Advisor (Sep 24, 2012)

So if most of my stocks are the same as XDV, this is not an appropriate benchmark?


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## doctrine (Sep 30, 2011)

XDV is the least bad of the dividend ETFs, but it's nearly 55% financials, which is hardly diversification from the TSX which is already extremely overweight at 35% financials. XDV will succeed or fail essentially purely on the success of financial companies. With that sector doing very well over the last year, XDV has done well also. However, it's hardly a broad based, diversified benchmark index. More like, Dow Jones looked at the Canadian market and decided that mostly financial companies met their "criteria", whatever they are (they're not published).


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## Sampson (Apr 3, 2009)

@ MOA
If you use XDV, then you test the hypothesis that your portfolio is better than that fund, but you cannot test whehther you are better off dropping the dividend approach in favor of a more classic couch potato style strategy, specifically a broad-index
Doesn't mean it is not suitable, but since our discussion has maninly been about whether the dividend approach is a favorable one, then I think a different ETF would be better in that context.


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## Sampson (Apr 3, 2009)

andrewf said:


> There are only 15 companies worth owning?


When one limits thenselves to the Canadian market only.... then options begin too be reduced
I woukld point to the research/studies done on the efficient frontier and suggest you get no where near it with 15 stocks.


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## Jungle (Feb 17, 2010)

I like Dan Brotolotti's advice on dividend vs couch potato: the best strategy is the one you believe in, because it's the only one you'll stick with over the long haul. 

Taken from most recent moneysense article.


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## My Own Advisor (Sep 24, 2012)

@Sampson, OK, thanks, I see where you are coming from now. I thought for a second you were referring to XDV being a poor benchmark for my direct holdings.

@Jungle, for sure. There is no perfect portfolio for all investors. The perfect plan is the one you'll adhere to and make changes to that help you reach your goals. Although there are good saving, investing and tax rules of thumb, everyone is different - thank goodness


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## warp (Sep 4, 2010)

eulogy said:


> Many studies have shown dividend stocks have beaten the market mainly because you can't properly measure these things. How do you measure the dividend growth of a company that stops paying dividends. Or a dividend growth company that goes out of business? You're stuck with a performance bias as you can really only measure what has succeeded. Buy dividend stocks with good yield and a history of increasing dividends, you'll be a big winner. Am I the only one that finds such a statement completely useless? Why not a study on, buy companies that grow 20% a year... studies I bet would show that it beats the market... probably by twice as much. Studies that validate picking winners over losers will always show you the winner.
> 
> I do, however, know that dividends are typically paid out by large caps that have run out of room for growth. Which is fine. But small caps typically outperform over the long run because they have the room to grow. Some would say there is a higher risk and with more risk comes a better return.
> 
> ...


EULOGY:

There are many investment styles....and every investor uses the one he considers best for him or her. That's what makes a market,
However I do take 2 issues with your comments about dividend investing.

1) you state : "At the end of the day, dividends are a completely benign distribution tool. They don't mean anything".

Nothing could be further from the truth. In investing dividends mean a whole lot. In fact they may be the best pre-cursor of long term stability and success. If you want to ignore many years of proof, that's up to you.

2) you state in your post that I said as follows : "Buy dividend stocks with good yield and a history of increasing dividends, you'll be a big winner"

I never said "big winner". What I said was ....."you will do well in the long run by buying solid stable dividend stocks, with a good initial yield, that also have a good history of increasing the dividend over many years ."

In investing hard earned dollars one should stay away from hyperbole like "Bg Winner" and stay with reasonable expectations of "Do well in the long run.".........and that's just what I beleive you will do by buying solid dividend stocks, in Canada, the USA, and Internationally, that regualarly increase the dividend.........DO Well.


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## CanadianCapitalist (Mar 31, 2009)

Echo said:


> I've explained it better here, with the help of Dan Bortolotti and Justin Bender - http://www.thedividendguyblog.com/2013/07/31/how-to-track-your-portfolio/


Good for you that you are measuring the value delivered by your activeness. The next part is figuring out whether alpha was delivered through skill or luck.


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## Echo (Apr 1, 2011)

CanadianCapitalist said:


> Good for you that you are measuring the value delivered by your activeness. The next part is figuring out whether alpha was delivered through skill or luck.


Indeed! Only long-term results will answer that question.


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## Jagas (Feb 11, 2013)

My Own Advisor said:


> How many CMF'ers own only broad-market indexed products? How many own a mix of ETFs? How many own some individual stocks and ETFs? etc.
> 
> Mark


Mix here.
~15 individual Canadian stocks
~10 individual US stocks + a broad based US ETF (VTI)
+ VXUS to cover the rest of the world (minus the 8% or so Canadian content within)


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## My Own Advisor (Sep 24, 2012)

Sounds a lot like my portfolio Jagas, VTI, VXUS and a bunch of CDN and US stocks.


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## eulogy (Oct 29, 2011)

> 1) you state : "At the end of the day, dividends are a completely benign distribution tool. They don't mean anything".
> 
> Nothing could be further from the truth. In investing dividends mean a whole lot. In fact they may be the best pre-cursor of long term stability and success. If you want to ignore many years of proof, that's up to you.


The dividend has nothing to do with anything. The value of the business is what the value of the business is. Doesn't matter if the dividend is paid or not. A business isn't more profitable because it just happens to pay a dividend. Why? because it's a benign distribution tool. Why should anyone attach ANY VALUE to a business that has absolutely nothing to do with the way it makes money. 8% growth is guess what 8%, whether there is a dividend or not. 

I'm not exactly sure what your "proof" is. Are you denying that dividends are complete benign to the value/profitability/success of a business?



> 2) you state in your post that I said as follows : "Buy dividend stocks with good yield and a history of increasing dividends, you'll be a big winner"
> 
> I never said "big winner". What I said was ....."you will do well in the long run by buying solid stable dividend stocks, with a good initial yield, that also have a good history of increasing the dividend over many years ."


Okay. I said it though. I think it's better to invest in stocks that return 20% a year, but I'm essentially saying that investing in above average investments returns above average returns. It's completely useless advice, but it's true! Still doesn't mean the dividends are any less benign.



> In investing hard earned dollars one should stay away from hyperbole like "Bg Winner" and stay with reasonable expectations of "Do well in the long run.".........and that's just what I beleive you will do by buying solid dividend stocks, in Canada, the USA, and Internationally, that regualarly increase the dividend.........DO Well.


The big winner thing was a joke. But essentially you're saying you end up better because a benign distribution tool is used. Increasing dividends probably means things are good. But the advice is useless. Invest in businesses that increase profit. Invest in businesses that grow 20% a year. It's all true and good. But I've yet to figure out how a human being can make the right choices before these profitable events occur. What does the dividend have to do with this? Nothing. Not a damn thing. The business needs to make money... MONEY and dividends are how they MAY choose to distribute it.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> You can get a highly predictable income from selling stocks. Just sell however many shares are necessary to produce the income.
> 
> Yes, there is a possibility of depleting your capital by doing this, ...


Timing as well as the assets held will matter though ... when I look back at the dividend payers I held in Oct 2008, none of them cut their dividends. For trusts, about a third did with a cut of anywhere from 10% to 90%. Roughly lumping them together to get a conservative estimate - income would have dropped something close to 20% (I have to check the weighting - plus how does one evaluate a trust obtained as part of a buyout which cuts by 90%?).

At the same time, I have yet to find any stock I held that dropped less than 30%, with a high end drop found so far of 60%.


It seems pretty clear that selling stock for income would have been a significant capital depreciation, in my case.


Of course, I'm not depending on either one for income so I bought a mix of types (best was zero distributions for four months, then 30% of purchase price in monthly distributions and when sold, a 230% capital gain).


Cheers


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## andrewf (Mar 1, 2010)

Of course, if you have a balance portfolio for generating income, you're not going to be selling stocks after a 50% downturn. You'll be selling bonds to both buy stocks and generate income.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> Of course, if you have a balance portfolio for generating income, you're not going to be selling stocks after a 50% downturn. You'll be selling bonds to both buy stocks and generate income.


So in other words ... the recommendation is to use more than just stocks, whether the stocks be dividend paying or not.


Cheers


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## My Own Advisor (Sep 24, 2012)

"It seems pretty clear that selling stock for income would have been a significant capital depreciation, in my case."

I'm with you Eclectic12.


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> "It seems pretty clear that selling stock for income would have been a significant capital depreciation, in my case."
> 
> I'm with you Eclectic12.


 ... I'm curious as to how the weighting for the trusts will either increase or decrease the total cash flow from dividends plus cash distributions. I'm not sure when I'll have the time/energy to figure it out.

For example - one of the trusts that cut their payments by 90% was one that was paid out as part of a cash plus units buyout that resulted in a small number of units being held. So the 90% sounds high but likely impacts less than 0.5% of the total cash flow.


Cheers


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## andrewf (Mar 1, 2010)

My Own Advisor said:


> "It seems pretty clear that selling stock for income would have been a significant capital depreciation, in my case."
> 
> I'm with you Eclectic12.


This is only true if you hold the large majority of your portfolio in equities. As I pointed out, you won't be selling stocks in a downturn for income if you have a balanced portfolio.


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## My Own Advisor (Sep 24, 2012)

I suppose someone too heavy in equities could be inclined to sell when markets tank. I'm learning andrewf, to buy at these times but it's not always easy. If my portfolio can continue to grow, that will help.\

Yes, I suspect there is a bit of an illusion, getting paid via dividend income over capital appreciation alone but dividends are tangible and for about 50% of my portfolio they work for me.


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## nathan79 (Feb 21, 2011)

Interesting thread. What about the tax advantages of dividends? In BC there is -6.8% tax rate on eligible dividends for the lowest bracket.


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## brad_g (Apr 12, 2013)

In the dividends vs selling stock debate I used to think that there was some magical difference. Alas, not. Nor does "selling when the market has tanked" matter. It's no different than receiving a dividend payment. Selling vs dividend payout, in both cases the value of the shares you hold go down by the same amount. There's no risk of depletion if you're selling the same amount that would have been paid out in dividends.

There are of course some tax differences, as has been pointed out. This can be a benefit or a curse, depending on your marginal rate.

As to whether or not dividend paying stocks are better investment, that's a different question but there is scant evidence that makes the case and the excess returns are equally scant. Studies that suggest otherwise usually fail to look at straight returns rather than risk adjusted returns.

None of this is particularly consequential so long as your overall approach to investing is sound (diversification, risk appropriate asset allocation, low costs). But pursuing yield to the detriment of these factors is risk fraught path.


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## brad_g (Apr 12, 2013)

BTW - a very good Bogleheads.org thread on the common (mis)belief that, "Only dividends can help you avoid selling shares at the worst possible prices."

Dividends are Different


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## Cal (Jun 17, 2009)

In regards to the OP, between my wife and I we have 2 etf's for US and International exposure, and hold about 16-18 Canadian dividend payers. The etf's seem to be the simplest and cheapest way to get foreign holdings. The Canadian dividend payers seem to be the easiest way for us to measure our future income in retirement, as at the end of every year I calculate what our dividend income is and what it is on track to be.

This is what works for us, and we find it easiest for us to keep on track.


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## Jungle (Feb 17, 2010)

I think there is a difference seling shares during a market crash. The market can discount your shares but not the nominal value of cash it generates.


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## andrewf (Mar 1, 2010)

Whether you hold dividend paying stocks or not, you probably should not be selling them in a downturn for income in retirement. If you are, your equity allocation is probably way too high for your risk tolerance. This is a red herring.


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## Sampson (Apr 3, 2009)

Trying to get back the 'timing the market' question rather than the merits/shortfalls of dividend investing...



wwwkp84 said:


> I'm looking at dividend growth investing. My concern is when do I add new positions to this strategy?


Value averaging.

Ultimately, I think it depends on your target asset allocation and also how much you accumulate every month. (1) how much does it cost you to trade (try to minimize transaction fees, only you can decide what is an acceptable level), and (2) how much of a swing out of your target allocation will you tolerate.

Now point (2) is a pretty difficult question to answer since you could breakdown your holdings based on a variety of factors including but not limited to economic sector, geographic region etc. I allow sector allocations to vary off of target, but try to ensure my target allocations are met at a higher level (geographic region) are within about 10-30% (of it's weighting, e.g. 5% REIT allocation can be 3.5-6.5%).

I save up money, and add when the value is right. I don't mind accumulating the cash because I have had a very higher allocation to equities over the past few years, and this ensures transaction fees are minimal.


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## BlackThursday (Apr 25, 2011)

andrewf said:


> Whether you hold dividend paying stocks or not, you probably should not be selling them in a downturn for income in retirement. If you are, your equity allocation is probably way too high for your risk tolerance. This is a red herring.


You have neatly cut the Gordian knot by saying that stocks should not be used for income. Well done. 
The stockholders of the world will be notified accordingly.
Now the rest of you should just go about your previous business.


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## jcgd (Oct 30, 2011)

BlackThursday said:


> You have neatly cut the Gordian knot by saying that stocks should not be used for income. Well done.
> The stockholders of the world will be notified accordingly.
> Now the rest of you should just go about your previous business.


You twisted his words.


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## BlackThursday (Apr 25, 2011)

jcgd said:


> You twisted his words.


I don't think so ..but I may be wrong. How so?


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## Spudd (Oct 11, 2011)

BlackThursday said:


> I don't think so ..but I may be wrong. How so?


He said you shouldn't sell your stocks in a downturn (because you should be selling bonds then), not that you shouldn't sell stocks for income ever.


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## My Own Advisor (Sep 24, 2012)

Agreed - "Whether you hold dividend paying stocks or not, you probably should not be selling them in a downturn for income in retirement."


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## andrewf (Mar 1, 2010)

BlackThursday said:


> You have neatly cut the Gordian knot by saying that stocks should not be used for income. Well done.
> The stockholders of the world will be notified accordingly.
> Now the rest of you should just go about your previous business.


I don't think this characterizes what I said well. 

At the end of the day, you get a total return, and your income comes out of that total return. A portfolio with withdrawals larger than the total return is not sustainable.


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## Eclectic12 (Oct 20, 2010)

brad_g said:


> In the dividends vs selling stock debate I used to think that there was some magical difference. Alas, not.
> 
> Nor does "selling when the market has tanked" matter. It's no different than receiving a dividend payment.
> 
> Selling vs dividend payout, in both cases the value of the shares you hold go down by the same amount. There's no risk of depletion if you're selling the same amount that would have been paid out in dividends.


Really?

I can understand the point about a balanced portfolio allowing bonds to be sold for both income and stock accumulation, during the down market.

I just can't figure out how selling a few stocks to make up a 10% of the cash flow drop from trusts cutting their cash distributions apparently works out to "no different than receiving a dividend payment" when the opposite end of spectrum is selling to come up with 100% of the cash flow, at the same time as most shares are down 30% to 60%. 

Also bearing in mind that some stocks took six months to start recovering - it doesn't look the same to me.


I must be missing some other factor or consideration that is being assumed here ...


I'm more in line with having bonds so that only absolute dogs or capital loss captures are being sold into the down market.




brad_g said:


> None of this is particularly consequential so long as your overall approach to investing is sound (diversification, risk appropriate asset allocation, low costs). But pursuing yield to the detriment of these factors is risk fraught path.


Pursuing yield is bad ... ignoring a good investment just because it has yield IMO is going to work against good total returns.


Cheers


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## andrewf (Mar 1, 2010)

^ I don't think anyone is suggesting that one should avoid yield. It just should not be the basis for investing. This comes up because people ask about dividend investing, with the implicit or explicit assumption that higher dividends are better or that dividend returns are superior.


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## james4beach (Nov 15, 2012)

I'm really two minds about this whole thing. andrewf has convinced me, over time, that fundamentally speaking the dividends are a moot point. And I agree on the fundamental side... a divided is just cash that a company chooses to pay out, instead of retaining and reinvesting.

Dividends aren't free money. If dividends are not paid (for example Berkshire Hathaway) the money is simply reinvested in the company... potentially at very good returns. Buffett makes a very compelling argument in this letter of why Berkshire shareholders are better off not receiving dividends.

But then there's the practical side for people who want their portfolio to provide cashflow. So people like retirees want to see steady cashflow from their assets. Dividends provide that in a very simple, efficient way. You don't have to go through the hassle (and cost) of selling shares. So for the people who particularly want that cashflow I can understand the appeal of the dividend portfolios. It's automatic.

What I don't understand, though, are why people who are far from retirement and in capital accumulation phase seek dividends. These people are after total returns, and dividends should be a moot point. For instance why would somebody seek a high dividend fund and then reinvest (DRIP) the distributions? That doesn't make sense to me. _I suspect that people think they're getting free money_. I read an analysis on this with XTR... someone who invests in XTR and then reinvests the distribution might think they're achieving a 6% compound return (they're obviously not though).

In fact there are some shocking stats out there like some of those monthly income funds with high distributions actually have a lot of DRIP enrollment. To me that's evidence that people misunderstand what's going on. Why are they paying higher MER for the luxury of high dividends/distributions, and then just reinvesting the distributions?


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## doctrine (Sep 30, 2011)

Berkshire Hathaway doesn't pay dividends, but invests in companies that do. In fact, Warren Buffet makes a point of highlighting all the dividends he's received in his financial reports (as per your link) and how he is looking forward to increased dividends in the future. Berkshire doesn't solely reinvest capital though. They regularly buy back stock, as do most S&P 500 companies, so they are not a pure "re-invest all capital" company.


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## Charlie (May 20, 2011)

Berkshire's expertise is finding good investments. And they're disciplined to not overpay for their own stock.

I'm not so sure that's true for most otherwise mature, cash flow rich companies. 

Dividends are not free...but they keep a company focused on sustainable cash flow positive business. This should lessen the volatility (and risk) of the stock. At least for those that have grown to that stage.

I'd be curious is there's been a study on whether companies that have reached that level of operations preform better or worse when management is left with a surplus of cash at their disposal? Buffet seems to like his portfolio companies to distribute their excess earnings....


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## andrewf (Mar 1, 2010)

Returning cash to shareholders is often a good sign. But dividends are not the only way of returning cash to shareholders (two other ways are share buybacks or net debt repayment), so looking at dividends in isolation means you are missing some companies that are doing a good job of returning cash to their shareholders. See SYLD, for instance.


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## Charlie (May 20, 2011)

Dividends are a much more systematic way of returning cash....and represent an implied commitment based on the company's operations rather then stock price. A sustainable dividend should help maintain a floor for a stock. Buybacks can help inflate or sustain an otherwise overvalued stock. 

Different strategies are appropriate for different businesses. I was simply suggesting that dividends are neither moot nor benign, and can be an important factor in evaluating a stock and a business.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> ^ I don't think anyone is suggesting that one should avoid yield. It just should not be the basis for investing.
> 
> This comes up because people ask about dividend investing, with the implicit or explicit assumption that higher dividends are better or that dividend returns are superior.


That's where at times it can be hard to tell because I've noticed few disclaimers or emphasis on assigning a dividend it's place in the total returns equation.
Some of the blanket statements seem to be counter-acting the overemphasis on dividends with a zero value. 




james4beach said:


> What I don't understand, though, are why people who are far from retirement and in capital accumulation phase seek dividends. These people are after total returns, and dividends should be a moot point.


If they are seeking dividends at the expense of growth, then sure.

On the other hand - if there's value in something like Agrium or Sobeys that pays dividends, unless one can find & believe a non-dividend paying alternative will perform better, there's no harm in the choice. After all, dividends are moot right? So if the value is there - paying or not paying dividends won't be the end all & be all.




james4beach said:


> For instance why would somebody seek a high dividend fund and then reinvest (DRIP) the distributions?
> That doesn't make sense to me. _I suspect that people think they're getting free money_ ...
> 
> Why are they paying higher MER for the luxury of high dividends/distributions, and then just reinvesting the distributions?


I suspect you are right that they are confusing the dividends/distributions with "free" money.



Of course - though all of the pro and con discussion, there is a limit here that seems be being ignored.

If one believes that a say a Canadian top tier bank or major pipeline company provides value - I'm not aware of a long list that don't pay dividends/cash distributions. Maybe in a larger stock market like the USA, there may be apples to apples companies with different dividend policies but in Canada, the most common scenario seems to be for just about everyone in the field (except smaller companies) to have the same policy/features to court similar investors.


Cheers


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## Eder (Feb 16, 2011)

I normally only buy companies that pay a growing dividend and also provide growth...weeds out most of the chafe. So I never owned Netflix or Google or Iomega (too soon? lol) etc but I make a reliable living.


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## brad_g (Apr 12, 2013)

Eclectic12 said:


> I just can't figure out how selling a few stocks to make up a 10% of the cash flow drop from trusts cutting their cash distributions apparently works out to "no different than receiving a dividend payment" when the opposite end of spectrum is selling to come up with 100% of the cash flow, at the same time as most shares are down 30% to 60%.
> 
> Also bearing in mind that some stocks took six months to start recovering - it doesn't look the same to me.


I may not be understanding your example of making up a funding shortage by selling shares. My point is is that if a company pays a dividend and an otherwise identical company does not, selling the latter's shares to equal the dividend payout is no different. This is true when shares are high, or low.




Eclectic12 said:


> Pursuing yield is bad ... ignoring a good investment just because it has yield IMO is going to work against good total returns.
> 
> 
> Cheers


My full quote was, "...pursuing yield _to the detriment of these factors_ is risk fraught path." If one chases yield and loses sight of sound investment philosophy along the way (diversification in particular), then their position is compromised, risk increased and/or return lowered. It's easy to let this happen when chasing yield, for example by overweighting, say, financials and concentration of investment in few companies.

Some good reading about dividend chasing dangers from Larry Swedroe:
http://www.cbsnews.com/8301-505123_162-57576075/theres-no-reason-to-chase-dividends/


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## Eclectic12 (Oct 20, 2010)

brad_g said:


> I may not be understanding your example of making up a funding shortage by selling shares. My point is is that if a company pays a dividend and an otherwise identical company does not, selling the latter's shares to equal the dividend payout is no different. This is true when shares are high, or low.


So where there is a broad 30% downturn, having to sell an extra 30% of the non-dividend paying stock for the income is not a concern where the dividend paying stock share price is dropping by an extra 5% for the dividend payment?


Cheers


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## BlackThursday (Apr 25, 2011)

Spudd said:


> He said you shouldn't sell your stocks in a downturn (because you should be selling bonds then), not that you shouldn't sell stocks for income ever.


So.. I can own stocks for income but I can't sell them during a downturn. Makes sense to me. 
But pity the fool who can't accurately predict when a downturn will end (as we all can) and yet has the utility bill coming in regularly month after month. 

To put it another way for you to understand: if you say "yes you can own stocks for income but can only sell them when it is 'good' to sell them" how does that strategy provide a reliable income from stocks when a 'good' time is unpredictable and may not ever occur in the remainder of your life?


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## Spudd (Oct 11, 2011)

BlackThursday said:


> So.. I can own stocks for income but I can't sell them during a downturn. Makes sense to me.
> But pity the fool who can't accurately predict when a downturn will end (as we all can) and yet has the utility bill coming in regularly month after month.
> 
> To put it another way for you to understand: if you say "yes you can own stocks for income but can only sell them when it is 'good' to sell them" how does that strategy provide a reliable income from stocks when a 'good' time is unpredictable and may not ever occur in the remainder of your life?


Because you should sell bonds, not stocks, when stocks are down. You should have a balanced portfolio. That is what he is saying.


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## Eclectic12 (Oct 20, 2010)

BlackThursday said:


> So.. I can own stocks for income but I can't sell them during a downturn. Makes sense to me.


It's not that you can't - it's that it is a bad time to do so and should be avoided as much as possible.

To use a car analogy - if one has noticed that the gas stations sell a litre of oil for $5 where the local grocery store has a sale on for $2, one would want to pick up a few litres and carry it with them on a long trip, right? If you don't and buy the needed oil at a gas station - you are paying more than you need to.

In the same way - if one is going to depend on investments as a major source of income, one wants a balanced portfolio so that the risks of the extreme situations are minimised.




BlackThursday said:


> But pity the fool who can't accurately predict when a downturn will end (as we all can) and yet has the utility bill coming in regularly month after month.
> 
> To put it another way for you to understand: if you say "yes you can own stocks for income but can only sell them when it is 'good' to sell them" how does that strategy provide a reliable income from stocks when a 'good' time is unpredictable and may not ever occur in the remainder of your life?


It does not take much effort (or reading this thread) to understand that to be depending only on stocks for income is extremely risky. 

Consider that for some trusts in 2009 - the market in general went down 30% or so, some Canadian trusts cut their cash payments by 60% and as investors were unhappy the payments had been cut, the trust dropped far more than 30%. This would not be a great situation to have to sell for income.


This is why there is a lot of talk about balancing one's portfolio - especially when one is depending on it for income.


Bear in mind that part of the challenge of this thread is that people are discussing extreme situations to illustrate what *can* happen. The prudent investor is going to have a plan to avoid these pitfalls.


Cheers


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## andrewf (Mar 1, 2010)

BlackThursday said:


> So.. I can own stocks for income but I can't sell them during a downturn. Makes sense to me.
> But pity the fool who can't accurately predict when a downturn will end (as we all can) and yet has the utility bill coming in regularly month after month.
> 
> To put it another way for you to understand: if you say "yes you can own stocks for income but can only sell them when it is 'good' to sell them" how does that strategy provide a reliable income from stocks when a 'good' time is unpredictable and may not ever occur in the remainder of your life?


If you are using a conservative asset allocation, you wouldn't be selling stocks after a correction to generate income. You would be selling bonds (and buying stocks when they are cheap).


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## andrewf (Mar 1, 2010)

PS, I like the scenario where stocks fall significantly and stay down, yet a portfolio of 100% dividend paying stocks merrily keeps spinning out the same amount of income as if nothing happened.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> PS, I like the scenario where stocks fall significantly and stay down, yet a portfolio of 100% dividend paying stocks merrily keeps spinning out the same amount of income as if nothing happened.


My crystal ball was off ... *grin*

... for the dividend/cash distribution portion I was pretty much 50 - 50 in 2008. The dividend paying 50% did keep spinning out 100% of the dividend income, while the share prices dropped 40-50%. Though most didn't stay that low for more than an month or two. It did take a while to return to at or bit less/more than what it had been.


Cheers


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## james4beach (Nov 15, 2012)

andrewf said:


> PS, I like the scenario where stocks fall significantly and stay down, yet a portfolio of 100% dividend paying stocks merrily keeps spinning out the same amount of income as if nothing happened.


I like that aspect too.


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## Four Pillars (Apr 5, 2009)

Eclectic12 said:


> ... for the dividend/cash distribution portion I was pretty much 50 - 50 in 2008. The dividend paying 50% did keep spinning out 100% of the dividend income, while the share prices dropped 40-50%. Though most didn't stay that low for more than an month or two.


The problem is that 2008 was not a good test for dividend payers. Canada's economy was doing fine, the dividend payers were doing fine and the prices went down because of fear & uncertainty around the US banking system. As you say, the stock price downturn was very temporary.

A true test of a dividend payer would be if the economy goes into the crapper for an extended period of time and profits of those companies are reduced (or not).


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## mrPPincer (Nov 21, 2011)

During the 2008/09 dip both equities and bonds were down so if you had to sell either for income you would have been doing reverse dollar cost averaging, selling more when the price was down and less when it's up for the same dollar amount, not a happy scenario, but if you had enough dividend payers for income they would have chugged right through the entire two years that it took equities to fully recover share value..


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## Sampson (Apr 3, 2009)

While Eclectic's portfolio managed to not suffer any dividend decreases, simply look at the turnover of dividend growers and achievers in the S&P500. Perhaps Eclectic's portfolio should be the model, but it cannot represent an average dividend growth investing account - it had no US banks, and these were some of the biggest components of most of these types of portfolios.

That list has been as tumultuous as every other equity market crash. Well over 30% turnover. That's means 30% of those stocks cut or stopped dividends.


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## Four Pillars (Apr 5, 2009)

mrPPincer said:


> During the 2008/09 dip both equities and bonds were down so if you had to sell either for income you would have been doing reverse dollar cost averaging, selling more when the price was down and less when it's up for the same dollar amount, not a happy scenario, but if you had enough dividend payers for income they would have chugged right through the entire two years that it took equities to fully recover share value..


In retirement, William Bernstein recommends having 5 years of payments (ie how much money you want to withdraw from your portfolio in the next 5 years) in near-cash investments like gics/short term bonds etc.

That strategy is easy to implement for someone with a balanced asset allocation, however if you want to be 100% equities, then you probably won't want to do it.

The point is that relying on equities for income (via selling shares or dividends or some combination) is riskier than relying on safer instruments. Equity prices can go down, dividends can be cut (which would require selling shares instead). Bernstein's theory is that 5 years is enough to get past any bad periods of depressed equity prices/dividend cuts etc so you aren't selling stock low and increasing the odds of running out of money before you die.

I have nothing against dividend investing, but one risk that some of the more fanatical dividend investors take is that they just don't believe that dividends can be cut on a wide scale for any length of time. It is possible to have wide spread major declines in dividend payouts. If that happens and you are 100% into dividend stocks and relying on the dividends for most of your income, then the results could be very bad. 

I'm not suggesting this will happen anytime in the future or what the odds might be, but this is why diversification is a good thing.


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## mrPPincer (Nov 21, 2011)

Couldn't agree more about diversification. 
In my situation I do like some dividend payers in my non-registered account because of favourable tax treatment. Bought some VDY when it became available because I think their screening method tilts it towards value, and also noticed that it had the materials sector pretty much screened out, and the price of gold had looked pretty much parabolic at the time.
(Balanced that sector somewhat by buying POT after the price plunged on news of the cartel breakup).


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## Toronto.gal (Jan 8, 2010)

Eder said:


> I normally only buy companies that pay a growing dividend and also provide growth...weeds out most of the chafe. So I never owned Netflix or Google or Iomega (too soon? lol) etc but I make a reliable living.


I don't seek companies for their dividends per se, rather, the companies I bought, paid sustainable dividends [don't have anything currently that pays above 5% or 6%, I don't think, and definitely would not buy anything that pays double digits], and where possible, I do reinvest simply because I'm in the accumulation phase, and because of the impact of reinvesting over a longer period of time, particularly reinvesting in turbulent market cycles when stocks have been deeply undervalued [many still are & where my focus is]. 

Also, because of the crisis, there are many companies now that have adopted a more cautious approach to spending, are hoarding cash, and despite dividend payments/dividend increases/share buybacks, the cash reserves have hit record highs or highest in about 50 or so years, the ones that Mulclair was recently complaining about. :02.47-tranquillity:

*'There is $800B of dead money out there.....because companies are allowed to stockpile...' *
http://fullcomment.nationalpost.com...-pot-of-gold-at-end-of-corporate-tax-rainbow/

So with all that money, why wouldn't investor interest in them continue?

How many non-dividend paying companies are in a typical investor's portfolio? Indeed how many hold GOOG type companies as you mentioned? And if dividends were so irrelevant [not that anyone is saying that], how come many companies pay & continue to increase it? 

Simply chasing a stock for yield, is obviously not prudent, but what many investors do [many examples here on CMF].

I think everybody knows already, that there are advantages and disadvantages with any strategy, but it's how you understand/balance it all, to suit your goals/needs that is important.


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## brad_g (Apr 12, 2013)

Eclectic12 said:


> So where there is a broad 30% downturn, having to sell an extra 30% of the non-dividend paying stock for the income is not a concern where the dividend paying stock share price is dropping by an extra 5% for the dividend payment?


That's right. In making the dividend payment, the company is reducing it's value by the same % as the amount your selling in shares of the non-dividend paying stock. Yes, you're selling more shares but similarly the dividend payer is giving out a larger % of the company value. Remember, these companies are otherwise identical.

A company can pay a dividend or you can sell an equal value of shares. In either case you're left with the same value of company. You'll have fewer shares if you sell, but those fewer shares will each be worth more because they contain the retained earnings, resulting in your holding the same value of the company.

Cheers


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## andrewf (Mar 1, 2010)

mrPPincer said:


> During the 2008/09 dip both equities and *bonds were down *


Wait, what? Bonds had a slight tick down in October 2008--like, a 3% drawdown for XBB between Aug 30 2008 and October 31 2008, which it recovered by mid December. This strikes me as a really flimsy argument.


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## mrPPincer (Nov 21, 2011)

I went to 100% equity at the time so I wasn't in bonds but I seem to remember a lot of people complaining about everything dropping simultainiously and talk of no safe haven.

I admit I don't have any hard numbers on it.
Bonds were down along with equities during the crash I guess but the way I phrased it could imply that they were down during the whole two year period that it took equity share price to recover, and I don't know that to be true.

Lately as I've mentioned before I've been using HISAs for the fixed income component and I've had little interest in following bonds with the yields being so low.

I did have a slight second-guess about the phrasing when I hit the enter key, but I think the concept is still somewhat valid.
Thanks for spotting that Andrew.


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## james4beach (Nov 15, 2012)

Wow look at the 15 pages that sprouted from this topic posted just 11 days ago.

I'm strongly tempted to mine the CMF topics by keyword, and focus in on the topics that generate the _least_ popular interest. In a contrarian sense perhaps those could be winning investments?  I'm half joking


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## favelle75 (Feb 6, 2013)

Four Pillars said:


> In retirement, William Bernstein recommends having 5 years of payments (ie how much money you want to withdraw from your portfolio in the next 5 years) in near-cash investments like gics/short term bonds etc.


That to me sounds like the best advice I have heard in a LONG time. Everyone says you can't "time the market"...but with this strategy, you can certainly minimize losses by not having to sell at lows when you don't have to. Brilliant, yet obvious at the same time.

Dividend income, capital appreciation, and bonds/GIC's...done properly, even a modest income can have a great retirement!


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## Spudd (Oct 11, 2011)

Here's a graph of bonds vs stocks through 2008 to today.

https://www.google.ca/finance?chdnp...dms=0&q=TSE:XBB&ntsp=1&ei=JHhiUsjhK4mvqgH5pQE


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## Echo (Apr 1, 2011)

favelle75 said:


> That to me sounds like the best advice I have heard in a LONG time. Everyone says you can't "time the market"...but with this strategy, you can certainly minimize losses by not having to sell at lows when you don't have to. Brilliant, yet obvious at the same time.
> 
> Dividend income, capital appreciation, and bonds/GIC's...done properly, even a modest income can have a great retirement!


Sandi Martin, a fee-only planner from Ontario, wrote about something similar last week - http://www.boomerandecho.com/buckets-glidepaths-money-retirement/

"_The first bucket is the one you’ll spend from in the first few years of retirement, when you’re most vulnerable to sudden drops in value. The second bucket is the one that holds the rest of your nest egg, invested in equities and therefore continuing to grow throughout the twenty or so years of average life-expectancy you’ll have after the office door swings shut behind you for the last time._


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## mrPPincer (Nov 21, 2011)

I stand corrected, gov't and high quality corporate bonds did not move in tandem with equity during the crash, 
there was only a small hicup, but look at this, below is your graph with junk bonds added, 

and I think these were a popular item for the yield chasers back then;
https://www.google.ca/finance?chdnp...s=0;0&q=TSE:XBB&ntsp=1&ei=5qFiUqiKFMnDqgG33QE

Or, since JNK is US$ bonds and XIU is CDN equity, a more accurate comparison in equity would be with the US etf VTI, shown here;
http://www.google.com/finance?chdnp...0&q=NYSEARCA:JNK&ntsp=0&ei=MqFiUrjAHMW6qgGnPg


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## Four Pillars (Apr 5, 2009)

I just want to add one small point about bond performance - lumping all bonds together is very inaccurate. I use XSB (short term bonds) for my bond allocation and it might as well be in a different asset class compared to long bonds.


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## andrewf (Mar 1, 2010)

Certainly junk bonds tanked, but they are generally considered part of the risk side of portfolio. And that was a particularly bad downturn for junk bonds, with credit spreads ballooning out to historic highs because the crisis was probably a debt and liquidity crisis. Investment grade fixed income was relatively unaffected.

On the subject of using buckets, I think someone recently posted a paper by Moshe Milevsky questioning whether they really help or are just an exercise in framing. Here's the link:
www.ifid.ca/pdf_newsletters/PFA_2006OCT_Buckets.pdf


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## warp (Sep 4, 2010)

mrPPincer said:


> I stand corrected, gov't and high quality corporate bonds did not move in tandem with equity during the crash,
> there was only a small hicup, but look at this, below is your graph with junk bonds added,
> 
> and I think these were a popular item for the yield chasers back then;
> ...


The graph shssowing perforance of JNK is interesting.....now imagine if you hade of bought JNK in the middle of 2008....you would have a great return, and you would have ben collecting a 15-20% yield on cost every year since. Add that into the mix and HNK does not look so bad,

I was looking at JNK back then and certainly did notice the historically high yield at that time due to the bank problems etc,,,,and hesitated. I bought JNK in the beginning of 2010...and have happoly been collecting a nice yield ever since, as well as a small cap gain to date. However the yields on new junk bonds being issued are falling and so the yield on JNK these days is closer to 5.5-6 %.....still a reasonable spread over investment grade corps...but now low by historical standards.
I have always maintained that there is a place for junk bonds for a small part of your fixed income allocation, and still do.


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## favelle75 (Feb 6, 2013)

Echo said:


> Sandi Martin, a fee-only planner from Ontario, wrote about something similar last week - http://www.boomerandecho.com/buckets-glidepaths-money-retirement/
> 
> "_The first bucket is the one you’ll spend from in the first few years of retirement, when you’re most vulnerable to sudden drops in value. The second bucket is the one that holds the rest of your nest egg, invested in equities and therefore continuing to grow throughout the twenty or so years of average life-expectancy you’ll have after the office door swings shut behind you for the last time._


Brilliant. I love it and I hope to impart the same strategy....only 20 years to go!


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## james4beach (Nov 15, 2012)

Yes junk bonds tanked, and they do have a very high correlation with stocks. I basically group them with equity exposure in portfolios which is why when I look at an ETF like XTR I have to remark that it's much more like a risky equity fund than a bond/income fund. (One reason I get nervous about XTR for investors sakes)

Personally when I do bond investments, I stick to government bonds only. Why so conservative in my bonds? Because equities take care of all the risk exposure. This is an approach I have heard recommended by others too as the general idea is that your fixed income -- bonds and GICs -- are supposed to be your super safe component of your portfolio. So I don't bother with any corporates at all, only govt bonds.

The risky component of your portfolio is equities so instead of reaching for yield/risk with certain bonds, just put that money straight into equities.


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## mrPPincer (Nov 21, 2011)

Interesting perpective, keeping only the most rock solid gov't bonds plus a pure equity component, though it's far more conservative than what my strategy has evolved into.

To decide my fluctuating fixed income percentage I've been using a sort of home-made algorithm (old school pencil & paper style, not computerized) that evolved naturally as I adjusted to the changing market conditions over the years.

I'm not anti-bond, but my current strategy calls for me to possibly be 100% equity in case of a 50% or so drop in equity, so for me that calls for keeping it all in good old easily accessible cash.
(It's been working well for me so far so this weekend I graphed out the rules with an online tool and adjusted the curve to be a lot steeper, changing my 'slider' from 0-22% cash to 0-43% cash).

re JNK, I totally agree warp, late 2008 - early 2009 would have been a great time to pick some up if one had the cash, I wish I had.


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## james4beach (Nov 15, 2012)

By the way here's someone else who uses the method of only holding conservative bonds so apparently it's supported by long term modeling calculations: 
Merriman's Ultimate Buy-and-Hold Strategy

"Our recommended tax-deferred bond portfolio is exclusively in government bond funds . . . Why do we exclude corporate bond funds? In a nutshell, corporate bond funds entail some risk of default – a risk that tends to increase at the very times we most want stability. We believe in taking calculated risks on the stock side of the portfolio and being very conservative on the bond side. U.S. Treasury and government securities have historically been very safe. Making these changes completes Step Two. From 1970 through 2012, this portfolio would have had an annualized return of 8.4% and a standard deviation of 11.0%. The modifications to the bond component give the portfolio more stability (less risk) with similar return."


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## mrPPincer (Nov 21, 2011)

James, don't know if you know this, but that pdf is out of date now.

"The people behind this research include Harry Markowitz, a 1990 Nobel laureate; Rex A. Sinquefield,
who started the first index fund; and Eugene F. Fama, the Robert R. McCormick Distinguished Service
Professor of Finance at the University of Chicago Booth School of Business."

Harry Markowitz is not the only Nobel laureate of the three above credited for their research.
Just one week ago today it was announced that Fama would be awarded the Nobel Memorial Prize in Economic Sciences jointly with Robert Shiller and Lars Peter Hansen.

http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2013/press.pdf


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## james4beach (Nov 15, 2012)

Oh that's right... Fama got the Nobel prize just recently. Even bigger reason to take that method seriously then!


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## lonewolf (Jun 12, 2012)

james4beach said:


> Oh that's right... Fama got the Nobel prize just recently. Even bigger reason to take that method seriously then!


 The great thinker Galileo would have never won a nobel prize in his day. When everyone thinks your a genius perhaps you are the dumbest person in the herd.


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## Butters (Apr 20, 2012)

lonewolf said:


> The great thinker Galileo would have never won a nobel prize in his day. When everyone thinks your a genius perhaps you are the dumbest person in the herd.


A group of people can not be classified as a herd.
j/k


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## warp (Sep 4, 2010)

james4beach said:


> By the way here's someone else who uses the method of only holding conservative bonds so apparently it's supported by long term modeling calculations:
> Merriman's Ultimate Buy-and-Hold Strategy
> 
> "Our recommended tax-deferred bond portfolio is exclusively in government bond funds . . . Why do we exclude corporate bond funds? In a nutshell, corporate bond funds entail some risk of default – a risk that tends to increase at the very times we most want stability. We believe in taking calculated risks on the stock side of the portfolio and being very conservative on the bond side. U.S. Treasury and government securities have historically been very safe. Making these changes completes Step Two. From 1970 through 2012, this portfolio would have had an annualized return of 8.4% and a standard deviation of 11.0%. The modifications to the bond component give the portfolio more stability (less risk) with similar return."


That would make some sense if you could get some yield fron govr bonds,
These days you are probably better off to just get into a HISA with your safe money allocation.

There is nothinh wrong with corp bonds, by the way, if you stick to high rated strong companie/bonds. Of course the yields there are also very small. remember that there are seveeral companies that are right now rated higher than the US Govt...JNJ and MSFT to name 2....both rated AAA ,,,,the US govt rated AA.

Also, you must realize that if interest rates move up....and bond will get hurt, and bond funds, and bond ETF's will drop in value. If you own individual bonds, you will have to hold to maturity, and accept the lower yields, or sell at a loss if you need the money.


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## willow1044 (Jan 30, 2012)

OK, having read all 17! pages of this thread maybe I should resist bringing such a contentious topic back to life...Still, a couple of points are worth mentioning. 

On the pro stock side of the debate posters imply that companies that reinvest their cash automatically become more valuable. I don't think there's any justification for this assumption. MUCH of a companies profits are straight up squandered and committing to a dividend would enforce some discipline.

A few examples:

1. AOL Time Warner merger - $100 BILLION write off
2. Microsoft Windows ME, Vista and windows CE, mobile and 8: all bombs
3.target's expansion into Canada - epic fail
4. Microsoft Zune player and Kim phones all flops
5. And so on...

Having said that, equities appreciate tax free until they are sold, unlike dividends which are paid and taxed regularly. They then make great assets to hold outside a registered account.


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## HaroldCrump (Jun 10, 2009)

Add Blackberry to that list as well...never paid a dime in dividends.

That being said, the _committing to a dividend would enforce some discipline_ could cut both ways.
Sometimes in order to maintain a dividend, companies end up making bad long term decisions, such as increasing debt, issuing more shares, etc. just to avoid cutting the dividend.
In some cases, it is indeed better to cut the dividend, take the stock price hit, and focus on growing the company.

An example of this latter strategy is Manulife Financial - they cut their dividend in 2008 crisis when they suffered heavy losses due to unhedged positions and certain types of insurance products.
After nearly 6 years, they are now starting to raise the dividend again.
Their stock has nearly doubled from its 2011/12 lows.


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