Buying dividend stocks

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nbseer
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Buying dividend stocks

Post by nbseer »

With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
Doctor Rhythm
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Re: Buying dividend stocks

Post by Doctor Rhythm »

The typical Boglehead portfolio includes several thousand dividend paying stocks from dozens of countries. These add diversification to the other several thousand stocks in the portfolio that don’t pay as much dividend but keep your money invested in equity instead.

Or are you saying you want to substitute dividend stocks for bonds given current low yields?
Last edited by Doctor Rhythm on Mon Mar 29, 2021 10:49 am, edited 1 time in total.
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retired@50
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Re: Buying dividend stocks

Post by retired@50 »

nbseer wrote: Mon Mar 29, 2021 10:30 am With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
Stocks (dividend or otherwise) are not bonds, and they don't behave like bonds. If you substitute dividend stocks for bonds, you'll be taking on more volatility and risk in your portfolio. Many retirees don't relish the idea of seeing their retirement investment balances shrink during a market downturn.

Bonds are for protecting the wealth you already have.

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KlingKlang
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Re: Buying dividend stocks

Post by KlingKlang »

nbseer wrote: Mon Mar 29, 2021 10:30 am With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
Unfortunately nothing lasts forever. General Electric is an excellent example of a company that paid and raised dividends for over a hundred years and then cut them.
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David Jay
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Re: Buying dividend stocks

Post by David Jay »

nbseer wrote: Mon Mar 29, 2021 10:30 amSeems a lot of people think buying stocks just for the dividends is a bad idea.
Buying stocks because bond yields are (currently) low is not a great plan. Stocks and bonds have different characteristics, beyond income streams. They serve a different purpose in a portfolio.

The plan of “holding forever” doesn’t work. Go back 30 or 40 years and look at some of the great, dividend paying stocks: Kresge, Kodak, Sears, Polaroid, Strohs, etc.
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dbr
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Re: Buying dividend stocks

Post by dbr »

It would be a good idea to recognize that a necessary and sufficient characterization of what an investment does uses the notion of return rather than the notion of investment income to understand what is going on. "Return," by the way also includes "risk" because risk is the variability over time of return.*

*To illustrate, even CDs have risk because the available interest rate changes. The risk on CDs might be +/-2%, meaning the yield tends to be in range of 1%-5%. The risk on dividend paying stocks is huge compared to the risk on bonds. The return on stock is the sum of the dividend and the price change, both of which can vary, even both of them becoming zero (GM did that in recent memory.).
Sukhumvit
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Re: Buying dividend stocks

Post by Sukhumvit »

nbseer wrote: Mon Mar 29, 2021 10:30 am With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
Coincidentally, I've been reading a lot about dividend investing lately. I have no debt and if I retire overseas I will have a very low cost of living compared to the USA. For some people, living on a combination of social security, dividends, LT capital gains, ST capital gains would be feasible.

Here's a very interesting website I found which is specifically for dividends
https://www.simplysafedividends.com/
Boglegrappler
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Re: Buying dividend stocks

Post by Boglegrappler »

If you want to try that, you need to be aware that the higher the dividend yield on the stock, the lower the dividend growth (the market is forecasting). It may even reflect some expectation of a dividend cut at some point.

The dividend stocks of companies with solid growth prospects and good finances are generally yielding less than 2.5%, I'd say. So be careful. There is no free lunch, and dividends can be and are lowered or eliminated in times of stress for the companies.
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CyclingDuo
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Re: Buying dividend stocks

Post by CyclingDuo »

nbseer wrote: Mon Mar 29, 2021 10:30 amWith bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
There are plenty of people that hear you. The yield on a 50/50 portfolio has not been going in a favorable direction.

Image

https://www.barrons.com/articles/yes-yo ... eid=yhoof2

Barron's lists some stocks that they say are the types of reliable dividend paying companies as examples from a variety of sectors.

We keep a mix of index funds and stocks (plenty that pay dividends, and plenty that do not) which are all passively managed. There are also plenty of funds and ETFs available to investors that hold a more diverse basket of dividend paying companies (NOBL, PEY, VIG, VYM, etc...). The larger the portfolio, the easier it is to produce enough income to live off of, so it depends on the individual investor, other sources of income (SS, pension, royalties, rental income, etc...) and whether or not the strategy would work for you. One can also sell shares of their index funds/ETFs or individual stocks to create their own "dividend" when some income is needed.

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Admiral
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Re: Buying dividend stocks

Post by Admiral »

Dividends = unnecessary tax to be paid.

Buy index funds that don't distribute capital gains. If you need money, sell shares.

Dividend-paying stocks are not the same as bonds, and dividends are not interest.
NativeTxn
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Re: Buying dividend stocks

Post by NativeTxn »

Admiral wrote: Mon Mar 29, 2021 2:29 pm Dividends = unnecessary tax to be paid.

Buy index funds that don't distribute capital gains. If you need money, sell shares.

Dividend-paying stocks are not the same as bonds, and dividends are not interest.
$10,000 of qualified dividends is no different than selling index funds and having $10,000 of LTCG from a tax perspective (at least at this time, as tax law are always subject to change).

Some people prefer all dividends so that they have a sense of how much they will receive annually (knowing that some companies may lower dividends while others will increase it). Others prefer all index or other funds and selling when they need cash. Others do both.

I prefer a combination - I know that a certain amount will be generated by the dividend stocks, and I know that I can sell a certain amount of funds if needed. It's also nice to know that if there is a bear market, you're still getting a certain level of dividends on the shares you own and you're not necessarily forced to sell as much when the markets are down. Now, obviously companies can cut or do away with their dividends, especially in a bear market, but some of the that is also up to each person to keep an eye on their individual dividend paying stocks to determine if that is likely to happen.

I agree with the last part that dividend paying stocks should likely not be viewed as a bond replacement for a retiree; however, I don't think it presents a full picture to state that dividends are unnecessary tax to be paid without acknowledging that capital gains have to factor into the equation if you're suggesting just selling shares when you need cash. And another note is that if the money is coming from a tax deferred account, the tax implications are still going to be the same whether you're talking dividends or cap gains.
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patrick013
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Re: Buying dividend stocks

Post by patrick013 »

nbseer wrote: Mon Mar 29, 2021 10:30 amI'm talking stocks that would hopefully not cut their dividends.
Vanguard Dividend Growth Fund (VDIGX) was closed for a time it
was so popular but I see it has reopened. Not a high yield
fund but a quality stock fund where dividends have increased
for the stocks invested in. Only 41 stocks so it is very
selective. Seems like a new fund ticker QDIV in a way but with
a more current available history.

Indexes serve dividend tilts well if so desired. High Yield being
something like ticker SPYD rather than individual stocks. Most
dividend funds have been able to keep payouts steady rather than
decrease them due to COVID.
age in bonds, buy-and-hold, 10 year business cycle
Admiral
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Re: Buying dividend stocks

Post by Admiral »

NativeTxn wrote: Mon Mar 29, 2021 3:23 pm
Admiral wrote: Mon Mar 29, 2021 2:29 pm Dividends = unnecessary tax to be paid.

Buy index funds that don't distribute capital gains. If you need money, sell shares.

Dividend-paying stocks are not the same as bonds, and dividends are not interest.
$10,000 of qualified dividends is no different than selling index funds and having $10,000 of LTCG from a tax perspective (at least at this time, as tax law are always subject to change).

Some people prefer all dividends so that they have a sense of how much they will receive annually (knowing that some companies may lower dividends while others will increase it). Others prefer all index or other funds and selling when they need cash. Others do both.

I prefer a combination - I know that a certain amount will be generated by the dividend stocks, and I know that I can sell a certain amount of funds if needed. It's also nice to know that if there is a bear market, you're still getting a certain level of dividends on the shares you own and you're not necessarily forced to sell as much when the markets are down. Now, obviously companies can cut or do away with their dividends, especially in a bear market, but some of the that is also up to each person to keep an eye on their individual dividend paying stocks to determine if that is likely to happen.

I agree with the last part that dividend paying stocks should likely not be viewed as a bond replacement for a retiree; however, I don't think it presents a full picture to state that dividends are unnecessary tax to be paid without acknowledging that capital gains have to factor into the equation if you're suggesting just selling shares when you need cash. And another note is that if the money is coming from a tax deferred account, the tax implications are still going to be the same whether you're talking dividends or cap gains.
Here's the difference:

When you receive dividends, you have no control over how much they are and when they arrive.

When you sell stocks, you control both of those things. Thus, you might choose to sell stocks to harvest gains when you are at a particularly low income. You could pay zero tax. The timing matters.

I was not speaking of tax advantaged accounts, that's a separate issue because the taxation is different.

The OP appears to think that dividends are a replacement for bond coupons. They aren't. They are not free money. The simply reduce the value of your shares.
hi_there
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Re: Buying dividend stocks

Post by hi_there »

Additionally, buying stocks with high dividend rates is going to skew your allocation towards specific sectors - energy, consumer staples, and so on. This is not optimal from a risk diversification perspective.
alfaspider
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Re: Buying dividend stocks

Post by alfaspider »

I feel like people often prefer dividends for irrational reasons. It's a cognitive bias towards the fact that someone is sending you cash, as opposed to having to affirmatively decide to sell shares. But all things being equal, it's generally better to receive an amount from capital appreciation over the same amount as a dividend. With the capital appreciation, you get to choose when you are taxed.

Only real argument to specifically tilt towards dividend stocks is that dividend stocks tend to be large more stable companies (although sometimes extremely high yield can be a temporary condition, like some oil stocks late last year). A high dividend fund is likely to be slightly lower volatility than a total market fund.
NativeTxn
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Re: Buying dividend stocks

Post by NativeTxn »

Admiral wrote: Mon Mar 29, 2021 3:31 pm
NativeTxn wrote: Mon Mar 29, 2021 3:23 pm
Admiral wrote: Mon Mar 29, 2021 2:29 pm Dividends = unnecessary tax to be paid.

Buy index funds that don't distribute capital gains. If you need money, sell shares.

Dividend-paying stocks are not the same as bonds, and dividends are not interest.
$10,000 of qualified dividends is no different than selling index funds and having $10,000 of LTCG from a tax perspective (at least at this time, as tax law are always subject to change).

Some people prefer all dividends so that they have a sense of how much they will receive annually (knowing that some companies may lower dividends while others will increase it). Others prefer all index or other funds and selling when they need cash. Others do both.

I prefer a combination - I know that a certain amount will be generated by the dividend stocks, and I know that I can sell a certain amount of funds if needed. It's also nice to know that if there is a bear market, you're still getting a certain level of dividends on the shares you own and you're not necessarily forced to sell as much when the markets are down. Now, obviously companies can cut or do away with their dividends, especially in a bear market, but some of the that is also up to each person to keep an eye on their individual dividend paying stocks to determine if that is likely to happen.

I agree with the last part that dividend paying stocks should likely not be viewed as a bond replacement for a retiree; however, I don't think it presents a full picture to state that dividends are unnecessary tax to be paid without acknowledging that capital gains have to factor into the equation if you're suggesting just selling shares when you need cash. And another note is that if the money is coming from a tax deferred account, the tax implications are still going to be the same whether you're talking dividends or cap gains.
Here's the difference:

When you receive dividends, you have no control over how much they are and when they arrive.

When you sell stocks, you control both of those things. Thus, you might choose to sell stocks to harvest gains when you are at a particularly low income. You could pay zero tax. The timing matters.

I was not speaking of tax advantaged accounts, that's a separate issue because the taxation is different.

The OP appears to think that dividends are a replacement for bond coupons. They aren't. They are not free money. The simply reduce the value of your shares.
To a certain extent. You know that they're going to be (usually) quarterly or monthly and if you're receiving more than you'd like, you can always sell a few shares to reduce the amount of dividends you'll receive moving forward.

Selling shares provides more flexibility in terms of when to raise the cash and in what amounts, but but it's not like dividend payments are a total surprise that you have zero control over.
Ranunculus
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Re: Buying dividend stocks

Post by Ranunculus »

The spring issue of Schwab’s Onward magazine has a nice article on dividend stock picking.
https://www.schwab.com/resource-center/ ... ing-stocks
delamer
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Re: Buying dividend stocks

Post by delamer »

During the Great Recession, the dividends paid out by the S&P 500 fell and didn’t recover (even nominally) for 4 years: https://www.multpl.com/s-p-500-dividend/table/by-year

Not all of those stocks are high dividend, but I wouldn’t bet my retirement on continuing dividends from a small number of companies.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Buying dividend stocks

Post by Vanguard Fan 1367 »

I have had a nice return with Vanguard's High Dividend Yield ETF, VYM. I used to have a nice dividend yield with Johnson and Johnson. I feel better with the John Bogle idea of having a well diversified basket of dividend paying stocks.

My VYM is in an IRA so it avoids the tax problem of dividend taxes. It also hasn't done as well as Vanguard's Total Stock Market fund or Vanguard's 500
Fund. But it has done well for me.
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dbr
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Re: Buying dividend stocks

Post by dbr »

Vanguard Fan 1367 wrote: Mon Mar 29, 2021 7:33 pm I have had a nice return with Vanguard's High Dividend Yield ETF, VYM. I used to have a nice dividend yield with Johnson and Johnson. I feel better with the John Bogle idea of having a well diversified basket of dividend paying stocks.

My VYM is in an IRA so it avoids the tax problem of dividend taxes. It also hasn't done as well as Vanguard's Total Stock Market fund or Vanguard's 500
Fund. But it has done well for me.
As a matter of history it is a fair statement that since 2007 VYM had a CAGR of 7.7%, which is nice. But then TSM had a CAGR in the same period of 9.8%, so it isn't as if one got ahead in any special way. Wellesley income got 6.9% but did it with half the risk and only 1/3 the worst year and worst drawdown. In some other periods of time dividends stocks would not be so much outrun by TSM. On average one probably expects about the same return and about the same risk, either way.
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CyclingDuo
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Re: Buying dividend stocks

Post by CyclingDuo »

delamer wrote: Mon Mar 29, 2021 6:09 pm During the Great Recession, the dividends paid out by the S&P 500 fell and didn’t recover (even nominally) for 4 years: https://www.multpl.com/s-p-500-dividend/table/by-year

Not all of those stocks are high dividend, but I wouldn’t bet my retirement on continuing dividends from a small number of companies.
And if one was having to sell shares of the S&P 500 index fund for income, did you consider that it took 6 years for the share price to recover? In other words, regarding sequence of returns risk - dividends bounced back before the share prices did. :beer

No doubt about it, dividends did take a hit in the Financial Crisis as the financials cut dividends left and right...

Image

CyclingDuo
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delamer
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Re: Buying dividend stocks

Post by delamer »

CyclingDuo wrote: Mon Mar 29, 2021 8:25 pm
delamer wrote: Mon Mar 29, 2021 6:09 pm During the Great Recession, the dividends paid out by the S&P 500 fell and didn’t recover (even nominally) for 4 years: https://www.multpl.com/s-p-500-dividend/table/by-year

Not all of those stocks are high dividend, but I wouldn’t bet my retirement on continuing dividends from a small number of companies.
And if one was having to sell shares of the S&P 500 index fund for income, did you consider that it took 6 years for the share price to recover? In other words, regarding sequence of returns risk - dividends bounced back before the share prices did. :beer

No doubt about it, dividends did take a hit in the Financial Crisis as the financials cut dividends left and right...

Image

CyclingDuo
Not a comfortable time to be withdrawing from your portfolio, that’s for sure.

We were still accumulating then and that was painful enough.
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CyclingDuo
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Re: Buying dividend stocks

Post by CyclingDuo »

delamer wrote: Tue Mar 30, 2021 9:51 am
CyclingDuo wrote: Mon Mar 29, 2021 8:25 pm
delamer wrote: Mon Mar 29, 2021 6:09 pm During the Great Recession, the dividends paid out by the S&P 500 fell and didn’t recover (even nominally) for 4 years: https://www.multpl.com/s-p-500-dividend/table/by-year

Not all of those stocks are high dividend, but I wouldn’t bet my retirement on continuing dividends from a small number of companies.
And if one was having to sell shares of the S&P 500 index fund for income, did you consider that it took 6 years for the share price to recover? In other words, regarding sequence of returns risk - dividends bounced back before the share prices did. :beer

No doubt about it, dividends did take a hit in the Financial Crisis as the financials cut dividends left and right...

Image

CyclingDuo
Not a comfortable time to be withdrawing from your portfolio, that’s for sure.

We were still accumulating then and that was painful enough.
Yes, it was not a good time to be withdrawing from a portfolio. We fortunately didn't have to start withdrawing college education funds until 2011-12 after at least a bit of recovery had occurred. Glad that we only withdrew a little at at a time for each semester's tuition/room/board which allowed more of the underlying investments to bounce back and work out well for those college funding years!

In terms of longevity and sticking to a long term plan, this paper is an excellent read:

https://static1.squarespace.com/static/ ... _paper.pdf


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GP813
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Re: Buying dividend stocks

Post by GP813 »

I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
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Re: Buying dividend stocks

Post by ipdiddly »

retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
That's simply not true. Bonds can be as risky, if not more risky, than stocks. When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

I would stay away from high yielding stocks. Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
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Re: Buying dividend stocks

Post by Sukhumvit »

ipdiddly wrote: Tue Mar 30, 2021 6:12 pm
retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
This is where I am. I'm going to be selling a rental property and am not excited about putting 100K+ in a bond fund with a low yield and risk to the principal. I'd rather put it in a stock fund aimed at dividend income. Thanks for the tickers on those ETF's. I'm just starting my research and read about FEQIX and VNQ. I don't have any real estate holdings so that's why VNQ.
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retired@50
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Re: Buying dividend stocks

Post by retired@50 »

ipdiddly wrote: Tue Mar 30, 2021 6:12 pm
retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
That's simply not true. Bonds can be as risky, if not more risky, than stocks. When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

I would stay away from high yielding stocks. Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
For both ipdiddly and the OP,
I think picking the steady eddies is a bit harder than you imagine.

Maybe you should read this post by nisiprius, charts and all.

Link: viewtopic.php?p=5908121#p5908121

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
tibbitts
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Re: Buying dividend stocks

Post by tibbitts »

Sukhumvit wrote: Tue Mar 30, 2021 7:34 pm
ipdiddly wrote: Tue Mar 30, 2021 6:12 pm
retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
This is where I am. I'm going to be selling a rental property and am not excited about putting 100K+ in a bond fund with a low yield and risk to the principal. I'd rather put it in a stock fund aimed at dividend income. Thanks for the tickers on those ETF's. I'm just starting my research and read about FEQIX and VNQ. I don't have any real estate holdings so that's why VNQ.
Although I have a slight tilt to dividend-paying stocks myself, I think you're greatly inflating the potential advantage and ignoring that these stocks can have the same volatility and sometimes less upside potential. I wouldn't do more than a very modest emphasis on dividend payers, if any, and don't neglect diversifying between domestic and foreign.
Silverado
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Re: Buying dividend stocks

Post by Silverado »

NativeTxn wrote: Mon Mar 29, 2021 4:39 pm
To a certain extent. You know that they're going to be (usually) quarterly or monthly and if you're receiving more than you'd like, you can always sell a few shares to reduce the amount of dividends you'll receive moving forward.

Selling shares provides more flexibility in terms of when to raise the cash and in what amounts, but but it's not like dividend payments are a total surprise that you have zero control over.
Sorry, this does not make sense in the general sense (weird phrasing there...). Sell shares to decrease dividend payments? That would be a very particular corner condition.

Dividends not being a surprise is not the same as being able to optimize your income streams and taxation.
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Re: Buying dividend stocks

Post by DurangoWino »

I think a grouping of diversified dividend paying companies is a great way to supplement your BH three fund approach. I add to my dividends by selling covered calls and if you do not need the money use them to invest in more shares which compounds your earnings each year. I sell weekly options and if the stock goes up against my strike price I roll to a higher price further out. Trading weeklies gives you a lot of options to protect your stocks. It has been a good strategy for me to earn extra income. This is an active approach where you have to keep on top of things, so most will not want to be that involved.
NativeTxn
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Re: Buying dividend stocks

Post by NativeTxn »

Silverado wrote: Tue Mar 30, 2021 9:10 pm
NativeTxn wrote: Mon Mar 29, 2021 4:39 pm
To a certain extent. You know that they're going to be (usually) quarterly or monthly and if you're receiving more than you'd like, you can always sell a few shares to reduce the amount of dividends you'll receive moving forward.

Selling shares provides more flexibility in terms of when to raise the cash and in what amounts, but but it's not like dividend payments are a total surprise that you have zero control over.
Sorry, this does not make sense in the general sense (weird phrasing there...). Sell shares to decrease dividend payments? That would be a very particular corner condition.

Dividends not being a surprise is not the same as being able to optimize your income streams and taxation.
I mean if you have 100 shares of a stock and it's paying $10/share for $1,000 of annual dividend, and you don't want $1,000 of annual dividend, you can sell 10 share or 25 or however many you want to reduce the dividend you receive from that stock. Then reallocate the funds from that sale elsewhere.

It's really pretty easy to combine dividends with selling shares of index funds to arrive at the amount of income you want while keeping tax liability in check.
Last edited by NativeTxn on Wed Mar 31, 2021 9:31 am, edited 1 time in total.
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CyclingDuo
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Re: Buying dividend stocks

Post by CyclingDuo »

DurangoWino wrote: Tue Mar 30, 2021 9:47 pmI think a grouping of diversified dividend paying companies is a great way to supplement your BH three fund approach.
Some would agree.

If I understood the OP correctly, or address what many may also be interested in, it would all seem to somehow fall under the category of creating or building your own pension plan. Dividend stocks could be one portion or part of that plan. Or as you suggest, a supplement to one's core index and bond fund lazy portfolio strategy. The financial planning industry calls such a mix (or what they think is a hot trend even though it has been around for decades), customized indexing.

I think this Kiplinger article captures the ways to create one's own pension quite well:
https://www.kiplinger.com/article/inves ... nsion.html

1. Purchase an immediate annuity
2. Build a portfolio based on dividends and interest payments
3. Get a reverse mortgage on your home
4. Build up a diversified portfolio, and set up a monthly withdrawal


In addition to that, I would add an additional number...

5. Maximize Social Security

Most Bogleheads focus on #4 and some form of asset allocation that will satisfy a withdrawal rate - be it VPW or SWR. Yet there are plenty of discussions on these forums that also dive deep into #'s 1, 3, 5 - and this thread is an example which would fit under 2. Our household certainly is not averse to at least 4 of those 5 numbers (we are not considering #3).

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Sukhumvit
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Re: Buying dividend stocks

Post by Sukhumvit »

tibbitts wrote: Tue Mar 30, 2021 8:56 pm
Sukhumvit wrote: Tue Mar 30, 2021 7:34 pm
ipdiddly wrote: Tue Mar 30, 2021 6:12 pm
retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
This is where I am. I'm going to be selling a rental property and am not excited about putting 100K+ in a bond fund with a low yield and risk to the principal. I'd rather put it in a stock fund aimed at dividend income. Thanks for the tickers on those ETF's. I'm just starting my research and read about FEQIX and VNQ. I don't have any real estate holdings so that's why VNQ.
Although I have a slight tilt to dividend-paying stocks myself, I think you're greatly inflating the potential advantage and ignoring that these stocks can have the same volatility and sometimes less upside potential. I wouldn't do more than a very modest emphasis on dividend payers, if any, and don't neglect diversifying between domestic and foreign.
Oh, I definitely understand the volatility and we have all seen some of that recently. Are you saying it's a mistake to invest in a stock fund or ETF with a 2.5-3.5 dividend that will appreciate over time vs. a bond fund with a 1.0 - 2.0 that won't appreciate (as much)?

FWIW I'm at 20% International right now.

Thank you for your input!
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Taylor Larimore
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Re: Buying dividend stocks vs a Total Stock Market Index Fund

Post by Taylor Larimore »

nbseer wrote: Mon Mar 29, 2021 10:30 am With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
nbseer:

I do not favor "dividend stocks." They often have lower returns and they are tax-inefficient. Below are the ten-year returns of two Vanguard Funds:

Vanguard High Dividend Yield Index Fund (VHYAX): 11.46%
Vanguard Total Stock Market Index Fund (VTSAX): 13.47%

There is also the problem that Hi-Dividend investors tend to concentrate in value stocks.

Low returns, tax-inefficiency and a concentrated portfolio are usually a no-win combination.

Best wishes.
Taylor
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Re: Buying dividend stocks

Post by abuss368 »

GP813 wrote: Tue Mar 30, 2021 5:34 pm I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
Jack Bogle has said that investors should not own individual stocks as the risk is too great.

Instead of searching for the needle in the haystack, buy the haystack.

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Re: Buying dividend stocks

Post by Dave55 »

abuss368 wrote: Fri Apr 02, 2021 1:55 pm
GP813 wrote: Tue Mar 30, 2021 5:34 pm I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
Jack Bogle has said that investors should not own individual stocks as the risk is too great.

Instead of searching for the needle in the haystack, buy the haystack.

Tony
Tony, Can you give me a good deal on the best quality haystack? :wink:

Dave
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Re: Buying dividend stocks

Post by abuss368 »

Dave55 wrote: Fri Apr 02, 2021 3:23 pm
abuss368 wrote: Fri Apr 02, 2021 1:55 pm
GP813 wrote: Tue Mar 30, 2021 5:34 pm I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
Jack Bogle has said that investors should not own individual stocks as the risk is too great.

Instead of searching for the needle in the haystack, buy the haystack.

Tony
Tony, Can you give me a good deal on the best quality haystack? :wink:

Dave
Total Stock and Total International Stock. Will be higher in the years ahead!

Tony
John C. Bogle: “Simplicity is the master key to financial success."
GP813
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Re: Buying dividend stocks

Post by GP813 »

abuss368 wrote: Fri Apr 02, 2021 1:55 pm
GP813 wrote: Tue Mar 30, 2021 5:34 pm I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
Jack Bogle has said that investors should not own individual stocks as the risk is too great.

Instead of searching for the needle in the haystack, buy the haystack.

Tony

I feel very fine about the individual stocks I own in addition to my index funds... 8-)
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Re: Buying dividend stocks

Post by Wiggums »

retired@50 wrote: Mon Mar 29, 2021 10:45 am
nbseer wrote: Mon Mar 29, 2021 10:30 am With bond fund interest rates so low, is there anything wrong in retirement with buying high dividend stocks and holding them forever? Seems a lot of people think buying stocks just for the dividends is a bad idea. I'm talking stocks that would hopefully not cut their dividends.
Stocks (dividend or otherwise) are not bonds, and they don't behave like bonds. If you substitute dividend stocks for bonds, you'll be taking on more volatility and risk in your portfolio. Many retirees don't relish the idea of seeing their retirement investment balances shrink during a market downturn.

Bonds are for protecting the wealth you already have.

Regards,
+1
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Re: Buying dividend stocks

Post by abuss368 »

GP813 wrote: Thu Apr 15, 2021 4:57 pm
abuss368 wrote: Fri Apr 02, 2021 1:55 pm
GP813 wrote: Tue Mar 30, 2021 5:34 pm I added to my position in Pepsi stock a few weeks ago. It was one of the few things I could find to buy outside of index funds that I didn't think was "overvalued".
Jack Bogle has said that investors should not own individual stocks as the risk is too great.

Instead of searching for the needle in the haystack, buy the haystack.

Tony

I feel very fine about the individual stocks I own in addition to my index funds... 8-)
If you are sleeping well at night, that is all that matters.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Buying dividend stocks

Post by tibbitts »

Sukhumvit wrote: Wed Mar 31, 2021 12:37 pm
tibbitts wrote: Tue Mar 30, 2021 8:56 pm
Sukhumvit wrote: Tue Mar 30, 2021 7:34 pm
ipdiddly wrote: Tue Mar 30, 2021 6:12 pm
retired@50 wrote: Mon Mar 29, 2021 10:45 am
Bonds are for protecting the wealth you already have.
When interest rates rise, the value of those bonds falls. It makes no sense to invest in something yielding 1.5% if your principal is at risk of falling.

Pick the steady eddies that pay 2.5-3.5% and increase their dividend every year. Two good dividend focused etf's are SCHD and DGRO.
This is where I am. I'm going to be selling a rental property and am not excited about putting 100K+ in a bond fund with a low yield and risk to the principal. I'd rather put it in a stock fund aimed at dividend income. Thanks for the tickers on those ETF's. I'm just starting my research and read about FEQIX and VNQ. I don't have any real estate holdings so that's why VNQ.
Although I have a slight tilt to dividend-paying stocks myself, I think you're greatly inflating the potential advantage and ignoring that these stocks can have the same volatility and sometimes less upside potential. I wouldn't do more than a very modest emphasis on dividend payers, if any, and don't neglect diversifying between domestic and foreign.
Oh, I definitely understand the volatility and we have all seen some of that recently. Are you saying it's a mistake to invest in a stock fund or ETF with a 2.5-3.5 dividend that will appreciate over time vs. a bond fund with a 1.0 - 2.0 that won't appreciate (as much)?

FWIW I'm at 20% International right now.

Thank you for your input!
I'm saying it's a mistake to assume that your dividend stock fund will appreciate over any particular timeframe, and it's a mistake to overestimate your willingness to hold the fund after many losing years or decades. In any case the comparison isn't with a bond fund yielding 1-2%; the comparison is with more diversified stock funds.
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