John Bogle on Dividends

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: John Bogle on Dividends

Post by burritoLover »

Does Bogle describe anywhere what his recommended dividend tilt is in retirement? Is he talking a dividend-only fund for the entire equity allocation in retirement?
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

dbr wrote: Fri Oct 15, 2021 10:16 am
HanSolo wrote: Fri Oct 15, 2021 9:50 am I don't personally have any objection to his statements as I consider my own personal case. If others have an issue, that's up to them. If you have an issue, feel free to quote the text and state your issue.
Sure, Mr. Bogle is quoted as saying (for everyone is implied) the following:

"And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account."

I don't agree because I contend that a retirement can perfectly possibly be funded by making withdrawals from one's assets that have nothing to do with what dividends are or aren't paid out by those assets.
If you mean you disagree that you should invest that way, sounds fine to me. It's up to you.

As for my situation, I might do something like the above. I'm not far off of that now.

As for others, I don't have any issue if they do the above or not.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

HanSolo wrote: Fri Oct 15, 2021 9:33 am
Da5id wrote: Fri Oct 15, 2021 9:20 am In that hypothetical do you think the two share types have different prospects? That the total value of the class B or class D shares would diverge because one or the other is "better" in some way? If one isn't currently spending 100% of the dividend, is owning class D shares in a taxable account a rational choice if one is taxed on qualified dividends?

Based on history, people might accuse the class B share holders of buying shares that are purely speculative because they don't pay (or plan on paying) a dividend.
It's like stick shift vs. automatic transmission. As long as you know what you're buying and what works for your personal situation and preferences, then you should just buy what you want.

If you prefer an automatic and someone accuses you of "clutching to a belief"... ignore the noise.
You appear to be stating that many significant aspects of dividend investing are a chocolate vs vanilla preference type thing. There are clearly aspects of it that are like that. Things like "I like the feeling of getting a check in the mail" or "I don't like the feeling of selling shares" seem to fall in that category. Other aspects, like "Do stocks fall by the amount of dividend paid ex-dividend", "Do dividend paying stocks have better risk adjusted returns", "Are buybacks and dividends close to equivalent" don't seem to me to be related to a preference. They either have answers or at can be argued logically without regard to "preferences".
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Fri Oct 15, 2021 10:47 am You appear to be stating that many significant aspects of dividend investing are a chocolate vs vanilla preference type thing. There are clearly aspects of it that are like that. Things like "I like the feeling of getting a check in the mail" or "I don't like the feeling of selling shares" seem to fall in that category. Other aspects, like "Do stocks fall by the amount of dividend paid ex-dividend", "Do dividend paying stocks have better risk adjusted returns", "Are buybacks and dividends close to equivalent" don't seem to me to be related to a preference. They either have answers or at can be argued logically without regard to "preferences".
Perhaps I was misunderstood. My meaning was that a company is like a machine, and dividend-payers and non-dividend-payers are two different kinds of machines. I'm not seeing a "problem" either way. If someone else sees one, that's up to them, and I hope they solve their own problem, whatever it is.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

HanSolo wrote: Fri Oct 15, 2021 11:00 am
Da5id wrote: Fri Oct 15, 2021 10:47 am You appear to be stating that many significant aspects of dividend investing are a chocolate vs vanilla preference type thing. There are clearly aspects of it that are like that. Things like "I like the feeling of getting a check in the mail" or "I don't like the feeling of selling shares" seem to fall in that category. Other aspects, like "Do stocks fall by the amount of dividend paid ex-dividend", "Do dividend paying stocks have better risk adjusted returns", "Are buybacks and dividends close to equivalent" don't seem to me to be related to a preference. They either have answers or at can be argued logically without regard to "preferences".
My meaning was that a company is like a machine, and dividend-payers and non-dividend-payers are two different kinds of machines.
Given that view, would you say that two companies with similar industries and management, one of which pays dividends, one of which does buybacks, are *fundamentally* different in a way that should determine their attractiveness as investments? Not in terms of 'preferences", but materially different in terms of total return? If you believe so, OK, but I'd disagree.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Fri Oct 15, 2021 11:08 am
HanSolo wrote: Fri Oct 15, 2021 11:00 am My meaning was that a company is like a machine, and dividend-payers and non-dividend-payers are two different kinds of machines.
Given that view, would you say that two companies with similar industries and management, one of which pays dividends, one of which does buybacks, are *fundamentally* different in a way that should determine their attractiveness as investments? Not in terms of 'preferences", but materially different in terms of total return? If you believe so, OK, but I'd disagree.
First, I'm not sure why that's an interesting question, for me anyway, given that I pick mutual funds, not stocks. So I never have to make a comparison between two companies as you described. One reason I use mutual funds is because I don't like trying to analyze companies.

Second, you'd need to define "fundamentally". I don't know what's fundamental and what's non-fundamental.

Third, your wording seems to imply that only total return is a material consideration. There may be other considerations that are material, depending on the investor's personal financial situation.

Fourth, buybacks, in some cases, or to some degree, introduce issues that I don't personally understand fully (as I shared with you in a different thread), and so I'll refrain from expressing an opinion on that until I have a more complete understanding of what's going on there.

Fifth, it sounds like you're trying to solve some problem, but I'm not sure what problem, and who has that problem. If we can identify who it is exactly that's having a problem, that would be a better starting point.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

HanSolo wrote: Fri Oct 15, 2021 11:32 am
Da5id wrote: Fri Oct 15, 2021 11:08 am
HanSolo wrote: Fri Oct 15, 2021 11:00 am My meaning was that a company is like a machine, and dividend-payers and non-dividend-payers are two different kinds of machines.
Given that view, would you say that two companies with similar industries and management, one of which pays dividends, one of which does buybacks, are *fundamentally* different in a way that should determine their attractiveness as investments? Not in terms of 'preferences", but materially different in terms of total return? If you believe so, OK, but I'd disagree.
First, I'm not sure why that's an interesting question, for me anyway, given that I pick mutual funds, not stocks. So I never have to make a comparison between two companies as you described. One reason I use mutual funds is because I don't like trying to analyze companies.

Second, you'd need to define "fundamentally". I don't know what's fundamental and what's non-fundamental.

Third, your wording seems to imply that only total return is a material consideration. There may be other considerations that are material, depending on the investor's personal financial situation.
You were discussing "a company" in the first quote above. So I gave an example of a company. It seemed responsive to what you had written, no?

As to fundamentally, materially would be a better word.

As to the third point, I do think total return combined with risk are the main material considerations. Obviously you disagree, and think "dividends" or "income" is such a material consideration in terms of achieving ones investing goals. I don't see it, but I agree there is little point in this specific back and forth.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Fri Oct 15, 2021 11:39 am You were discussing "a company" in the first quote above. So I gave an example of a company. It seemed responsive to what you had written, no?
Just because I used the word "company" doesn't mean I normally get involved in stock-picking questions.
As to fundamentally, materially would be a better word.
Regardless of wording, it's still kind of unspecific. As I said, different things might matter in different personal circumstances. If you're trying to evaluate some investment choice, maybe you should post your investment situation and objectives in the standard format.
As to the third point, I do think total return combined with risk are the main material considerations. Obviously you disagree, and think "dividends" or "income" is such a material consideration in terms of achieving ones investing goals. I don't see it, but I agree there is little point in this specific back and forth.
My meaning was that I can't speak for other people. Some people are in a high tax bracket and some aren't, so the effects on them have to be evaluated differently. Some may need to manage their AGI or MAGI to be under or over a certain amount for some reason (government programs, foreign retirement visas, alimony, etc.). Or maybe there's some old guy who needs to set everything up to make regular payouts so when he's in a coma or dead, his wife won't need to log in to Schwab and figure out how many shares to sell every month. Just because none of this is material to you doesn't mean it's not material to them.

I suggest looking again at my 5th point. If you can't say what the problem is, or who has it, then it seems that what you're presenting isn't a real issue.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: John Bogle on Dividends

Post by dbr »

For me this discussion goes back to what the advice actually is in Mr. Bogle's quote. Are we to take that to mean that for an investor today who has some SS and maybe pension income and wants to spend more than that we should invest all our assets in the total stock market and then add the 2% in dividends to our income stream, and that is the plan. Or is the advice that we should invest our assets in the high dividend yield index fund which then allows a withdrawal of about 2.8%. Or are we to go pick individual stocks that pay a 6% dividend, which is what we really wanted. Or does it make sense to invest our assets in a 60/40 stock bond allocation and trust that a 4% withdrawal without regard to dividends is likely safe (or less if one wants). The problem is how are we informed by Mr. Bogle's vision of what is going on as expressed in that quote?

Anyway if all the money is in a 401k or an IRA there is no such thing as a dividend check. If the investments are investment trust funds as in many 401k and there are not even any dividends, then how do we apply the advice? Should we look at the dividend yield of TSM and withdraw at that rate from the 401k? When we have to take an RMD, do we spend 2% out if it and reinvest the rest in our taxable account? How does any of that relate to the solid principle that we walk out to the mailbox once a month and get a SS check, a pension check, and a dividend check.

But Mr. Bogle is an astute and informed man, so what does he intend for us to understand from that quote. It certainly escapes me.
User avatar
Schlabba
Posts: 831
Joined: Sat May 11, 2019 9:14 am

Re: John Bogle on Dividends

Post by Schlabba »

Da5id wrote: Fri Oct 15, 2021 11:08 am
HanSolo wrote: Fri Oct 15, 2021 11:00 am
Da5id wrote: Fri Oct 15, 2021 10:47 am You appear to be stating that many significant aspects of dividend investing are a chocolate vs vanilla preference type thing. There are clearly aspects of it that are like that. Things like "I like the feeling of getting a check in the mail" or "I don't like the feeling of selling shares" seem to fall in that category. Other aspects, like "Do stocks fall by the amount of dividend paid ex-dividend", "Do dividend paying stocks have better risk adjusted returns", "Are buybacks and dividends close to equivalent" don't seem to me to be related to a preference. They either have answers or at can be argued logically without regard to "preferences".
My meaning was that a company is like a machine, and dividend-payers and non-dividend-payers are two different kinds of machines.
Given that view, would you say that two companies with similar industries and management, one of which pays dividends, one of which does buybacks, are *fundamentally* different in a way that should determine their attractiveness as investments? Not in terms of 'preferences", but materially different in terms of total return? If you believe so, OK, but I'd disagree.

With regards to selling shares vs receiving dividends:
1. If a company's market cap is X, and it pays dividends Y, you end with: X - Y invested and Y in hand. Whether that dividend payment happened at a low share price or high share price, that doesn't matter. The payment is a banktransfer and always costs exactly Y.
2. If you choose to sell shares of a company, you depend on today's share price.

So in the example of a downswing in share price: Lets pretend we have a company valued 100, of which 10 is cash reserve. The share price goes from 100%, to 50%, back to 100%.
If you sell shares when they are at a discount, you have less invested for the recovery. You would end up with 80$ invested.
If you receive 10$ dividends while the share prices are at a discount, and the share price recovers, you would end up with 90$ invested. For dividends there is no difference to whether they are received during a low share price or a high share price.


So I do agree there is a difference between dividends and selling shares, even though a dividend payment comes out of the share price.
Another functional difference is that the strategy of generating income by selling shares of non-dividend-paying stock may have the consequence of forcing someone to sell shares at temporarily depressed prices. Accepting a dividend payment doesn't do that.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

Schlabba wrote: Fri Oct 15, 2021 6:31 pm With regards to selling shares vs receiving dividends:
1. If a company's market cap is X, and it pays dividends Y, you end with: X - Y invested and Y in hand. Whether that dividend payment happened at a low share price or high share price, that doesn't matter. The payment is a banktransfer and always costs exactly Y.
If a companies market cap is X, and you sell shares to raise Y, you end up with X-Y invested and Y in hand. EXACTLY the same as the above scenario as far as I can see.
Schlabba wrote: Fri Oct 15, 2021 6:31 pm
2. If you choose to sell shares of a company, you depend on today's share price.

So in the example of a downswing in share price: Lets pretend we have a company valued 100, of which 10 is cash reserve. The share price goes from 100%, to 50%, back to 100%.
If you sell shares when they are at a discount, you have less invested for the recovery. You would end up with 80$ invested.
If you receive 10$ dividends while the share prices are at a discount, and the share price recovers, you would end up with 90$ invested. For dividends there is no difference to whether they are received during a low share price or a high share price.

So I do agree there is a difference between dividends and selling shares, even though a dividend payment comes out of the share price.
I by the way disagree with your take. I think selling shares is "creating a dividend". If you sold 1% of your shares 4 times a year on pre-arranged dates, that is basically the same thing as a stock with a 4% dividend. Yeah, you don't know the price of the stock on the day the dividend/sale will happen. Nor (IMO) should you care.

I'm dubious about your hypothetical, because I think it works both ways. If the company goes to 50% then issues the dividend, you have 40% of your original holding. If that doubles you then have $80 (not $90).
Northern Flicker
Posts: 15288
Joined: Fri Apr 10, 2015 12:29 am

Re: John Bogle on Dividends

Post by Northern Flicker »

HanSolo wrote: Fri Oct 15, 2021 3:00 am
Northern Flicker wrote: Fri Oct 15, 2021 2:49 am
HanSolo wrote: I'm not seeing evidence of either over-interpretation or under-interpretation. If you see where that happened, you might want to point it out.
I was replying to the initial posting in the thread, not your last posting, and didn't realize the quote was missing when I posted. See edit above.
Yes, but I'm also not seeing anything in the initial post that was either an over-interpretation or under-interpretation. If you disagree with something, it might be helpful if you quoted the specific assertion and shared what you disagreed with in it.
Bogle was cited as saying he believed dividends were important. It is a jump from there to suggest that he believed one should construct a portfolio with stocks chosen for their robust dividend.
User avatar
Schlabba
Posts: 831
Joined: Sat May 11, 2019 9:14 am

Re: John Bogle on Dividends

Post by Schlabba »

Da5id wrote: Fri Oct 15, 2021 6:53 pm I'm dubious about your hypothetical, because I think it works both ways. If the company goes to 50% then issues the dividend, you have 40% of your original holding. If that doubles you then have $80 (not $90).
I understand what you mean. If you look at it from a portfolio perspective it does seem like so. The portfolio, whether it pays dividends or whether you sell that many shares, loses that Y%.

However, if you look at it from the perspective of a company: This would mean that paying a dividend when your share price is low is more expensive than paying a dividend when the share price is high. Because if the dividend would have been paid on day 1 at 100$ you loose less market-cap than when it is paid on day 2 at 50$.

Because dividends are a bank transfer independent of share price, I see it more as a constant; if you pay out 10$, you loose 10$ value. So day 3 would be X - Y, whether that Y was subtracted on day 1 or day 2.

I don't have any mathematical way to either prove or disprove what I am saying. I'm happy to leave it here and go back to lurking :happy
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Northern Flicker wrote: Fri Oct 15, 2021 7:10 pm Bogle was cited as saying he believed dividends were important. It is a jump from there to suggest that he believed one should construct a portfolio with stocks chosen for their robust dividend.
Yes, that would be a jump, if it were to happen... but I didn't notice anyone making claims about what Bogle believed on that particular question.

There was a previous post showing "one of the model portfolios" Bogle presented, including an equity income fund. I personally don't know if his meaning was that this is what an investor "should" do, as I didn't read the book... but it seems to be at least something an investor "can" do. I'm pretty sure that's not over-interpreting. For more information, better refer to the book, and/or this other thread.

I'm not seeing why there's such a huge debate around "shoulds". One thing I'm pretty sure Bogle never said is that "an investor should spend enormous amounts of time and effort trying to ascertain and assert what some other investor 'should' do."

Lastly, I think we've gotten pretty far afield of the question the OP actually asked.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: John Bogle on Dividends

Post by JoMoney »

HanSolo wrote: Sat Oct 16, 2021 1:34 am
Northern Flicker wrote: Fri Oct 15, 2021 7:10 pm Bogle was cited as saying he believed dividends were important. It is a jump from there to suggest that he believed one should construct a portfolio with stocks chosen for their robust dividend.
Yes, that would be a jump, if it were to happen... but I didn't notice anyone making claims about what Bogle believed on that particular question.
...
I did post an excerpt and chart from "Bogle On Mutual Funds", where Mr. Bogle gave examples using high-dividend "Equity Income" as a large piece of a portfolio for someone in a distribution phase.
FWIW, that particular book was one of Mr. Bogle's first books and was largely focused on how he believed investors should choose mutual funds from those predominately available at the time, where broad-market index funds were not as ubiquitous as today.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

JoMoney wrote: Sat Oct 16, 2021 8:17 am FWIW, that particular book was one of Mr. Bogle's first books and was largely focused on how he believed investors should choose mutual funds from those predominately available at the time, where broad-market index funds were not as ubiquitous as today.
Someone cautioned us not to over-interpret Bogle's message, so I won't speculate on the motivations behind the model portfolios. I'll just add that Vanguard 500 had been around for over 15 years at that point, and Vanguard was a well-known and well-established company by then.

I, too, advocate such caution, e.g., to those who might interpret that he meant "this is what everyone should do" (unless he actually said that). Obviously, there's a big difference between that and just presenting options. I think some people in these discussions are looking for "one right answer", and I'm not a fan of that.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: John Bogle on Dividends

Post by JoMoney »

HanSolo wrote: Sat Oct 16, 2021 8:46 am
JoMoney wrote: Sat Oct 16, 2021 8:17 am FWIW, that particular book was one of Mr. Bogle's first books and was largely focused on how he believed investors should choose mutual funds from those predominately available at the time, where broad-market index funds were not as ubiquitous as today.
Someone cautioned us not to over-interpret Bogle's message, so I won't speculate on the motivations behind the model portfolios. I'll just add that Vanguard 500 had been around for over 15 years at that point, and Vanguard was a well-known and well-established company by then.

I, too, advocate such caution, e.g., to those who might interpret that he meant "this is what everyone should do" (unless he actually said that). Obviously, there's a big difference between that and just presenting options. I think some people in these discussions are looking for "one right answer", and I'm not a fan of that.
I agree, probably should be careful to attribute too much to into it, especially if one doesn't take the entire book in context as a whole and for the time period it was written. In the book before presenting the model portfolios he also suggested:
... The stock fund position of every investment program I describe could just as easily be supported solely by holding one or more stock market index funds ...
but I'll also add that in the introduction he wrote in the 2015 version of the book he wrote,
John Bogle in the introduction to 2015 reprint of Bogle On Mutual Funds wrote:... I also presented model portfolios for investors at various phases of their life cycle: the accumulation investor; the transition investor moving from the accumulation phase (putting money in) to the distribution phase (taking money out); the lump-sum investor; the pension fund investor; and endowment fund investor. Two decades later, I stand pat on the composition of these model portfolios—more (I hope!) because they still make sense than because of my stubbornness.
If I were to change any aspect of the model portfolios that I presented in 1993, it would be a greater use of stock and bond index funds in each portfolio. I mentioned this idea tangentially in my book: ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
r.walker
Posts: 80
Joined: Sun Jul 05, 2020 5:33 pm
Location: Pelotillehue

Re: John Bogle on Dividends

Post by r.walker »

Almost 67, and still working, plan is to retire somewhere between 68-70. In addition to Roth and Trad IRA, I have several million in taxable, almost 100% in VTSAX, with dividends auto re-invested. I keep most of my VFWAX in my tax-advantaged accounts. Never owned bonds. Overall AA is 80% VTSAX, 20% VFWAX. SS at 70 and dividends from VTSAX should more than cover my retirement income needs, so, in my case, the 'trip to the mailbox' described by Jack should fit my situation perfectly.

Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. If you sell 30K worth of shares, it is only taxable to the extent of the (presumably long term) gain. If your cost basis were somehow 0, the LTCG would be taxed the same as the qualified dividends. Mind you, if your income is low enough the tax rate on capital gains can be 0, but you indicate you are being taxed. At least that is how I understand tax law at the federal level, do you have some state or local taxes that make this not true for you?
bondsr4me
Posts: 2427
Joined: Fri Oct 18, 2013 7:08 am

Re: John Bogle on Dividends

Post by bondsr4me »

Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

bondsr4me wrote: Sat Oct 16, 2021 5:53 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
But qualified dividends and LTCG are taxed at the same rate?!?
bondsr4me
Posts: 2427
Joined: Fri Oct 18, 2013 7:08 am

Re: John Bogle on Dividends

Post by bondsr4me »

Da5id wrote: Sat Oct 16, 2021 6:18 pm
bondsr4me wrote: Sat Oct 16, 2021 5:53 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
But qualified dividends and LTCG are taxed at the same rate?!?
You’re saying qualified dividends are fully taxable…..depending on income, qualified dividends may end up not being taxed….
I’m only questioning your statement.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

bondsr4me wrote: Sat Oct 16, 2021 6:22 pm
Da5id wrote: Sat Oct 16, 2021 6:18 pm
bondsr4me wrote: Sat Oct 16, 2021 5:53 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
But qualified dividends and LTCG are taxed at the same rate?!?
You’re saying qualified dividends are fully taxable…..depending on income, qualified dividends may end up not being taxed….
I’m only questioning your statement.
Yeah I know that. I interpreted part of his post as saying he was being taxed. But note that if you are not being taxed you can do capital gains harvesting by selling up to the tax free limit if that is useful for your circumstances.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this.
What's the confusion? The person is comparing taking the dividends (i.e., not reinvesting) during retirement, rather than continuing to reinvest and then selling shares when money is needed. "Already subject to taxation" meant that both scenarios involve taxable VTSAX dividends, and the person doesn't want to create more potential tax liability on top of that.

This brings is back to the OP's original question, the answer to which is, just because someone says the word "dividend" doesn't mean that something is wrong.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
User avatar
sf_tech_saver
Posts: 448
Joined: Sat Sep 08, 2018 9:03 pm

Re: John Bogle on Dividends

Post by sf_tech_saver »

GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am Just to add to the dividend debate on here, I thought this article was revealing. John Bogle believed in dividend investing for retirees:

https://www.etf.com/publications/journa ... nopaging=1

Some quotes:

"Oversimplifying, what you want to do when you retire is walk out to the mailbox on Social Security day and on dividend payment day for the funds—assuming they’re the same day—and make sure you have two envelopes out there. One is your fund dividend and the other is your Social Security check."

and

"Bet on the dividends, and not on the market price. You’ve got those two envelopes and that’s your retirement. If you have a pension plan (one that is not likely to go bankrupt—and a lot of them are likely to) that is a third envelope. You want to be concerned about whether you have enough income to pay utility bills, pay for your food, pay your rent or your mortgage, whatever it might be, every month. You want income to help you pay those bills. And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account."

He does warn about straying too far from the market index, which adds risk.

With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
This is my plan. A LOT of worries go away if you can get to something like a 2-2.5% withdrawal rate and primarily use dividends as the 'draw down' plan. My ideal world is $20M portfolio that pays my family 2% forever with all other major debts at zero.

The mistake would be going too far above the market index dividend rate to achieve this-- like friends who buy AT&T for its 7% dividend.
VTI is a modern marvel
User avatar
beyou
Posts: 6865
Joined: Sat Feb 27, 2010 2:57 pm
Location: If you can make it there

Re: John Bogle on Dividends

Post by beyou »

Orangutan wrote: Wed Oct 13, 2021 10:57 am I don’t think he was arguing for dividend investing. But it does make a lot of sense to ignore the market price and focus on the underlying dividend.

I do think it’s a nice method to get part of your total return. Just click dividend reinvestment off and take your money. If that’s all you take, your shares will remain and your money will grow in perpetuity.

If you want a bit more money, sell shares. Alternatively, reinvest dividends and take whatever you’ve set your withdrawal rate at.
This started off wrong and ended correctly.
Total return and ability to fund your retirement is what matters. How you get the return, div vs growth is irrelevant. And the idea your investments can grow in perpetuity if you live off dividends is just wrong. Companies pay dividend using cash that could also be used to expand and grow further. When a dividend pays out, there is often a drop in price reflecting the dividend being removed from the value of the asset. This is more obvious when one gets a mutual fund dividend but in theory same is true of individual stocks. Just easier to see when there is one price per day (fund NAV) vs continuous pricing.

If anything large dividends can be a sign that a company has “run out of ideas” and has nowhere to invest the cash better than return it to investors. It can also be a way to prop up the stock in absence of revenue/profit growth.

Also dividend are less tax friendly. Pay tax on dividend now vs retaining earnings to generate unrealized gains that wont be taxed immediately. Tax managed funds shy away from high dividends.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

HanSolo wrote: Sat Oct 16, 2021 8:08 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this.
What's the confusion? The person is comparing taking the dividends (i.e., not reinvesting) during retirement, rather than continuing to reinvest and then selling shares when money is needed. "Already subject to taxation" meant that both scenarios involve taxable VTSAX dividends, and the person doesn't want to create more potential tax liability on top of that.

This brings is back to the OP's original question, the answer to which is, just because someone says the word "dividend" doesn't mean that something is wrong.
You thought this was a statement against dividends. It wasn't.

Just a comment on how I believe the tax code works. Which I gather is different than r. walker or perhaps you thinks it works.
TropikThunder
Posts: 3909
Joined: Sun Apr 03, 2016 5:41 pm

Re: John Bogle on Dividends

Post by TropikThunder »

bondsr4me wrote: Sat Oct 16, 2021 6:22 pm
Da5id wrote: Sat Oct 16, 2021 6:18 pm
bondsr4me wrote: Sat Oct 16, 2021 5:53 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm
r.walker wrote: Sat Oct 16, 2021 5:27 pm Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
But qualified dividends and LTCG are taxed at the same rate?!?
You’re saying qualified dividends are fully taxable…..depending on income, qualified dividends may end up not being taxed….
I’m only questioning your statement.
I believe Da5id is referring to (as I have on numerous dividend threads) that the entire dividend is taxable at whatever rate applies to that person all things considered. Whereas the proceeds from a sale of shares is only taxable to the extent of its LTCG, again at whatever rate applies. If you receive $10,000 in dividends, all $10,000 is taxable at your qualified dividends and capital gains rate. If you receive $10,000 from selling shares, only the capital gains is taxable, not the basis. Yes, the rate in each scenario can be zero depending on income level etc. But the best case scenario for the dividend is a tie, it will never be better (at least for LT gains). And dividends received during the accumulation stage might end up in a higher tax bracket if your income is high, vs LTCG that aren't received until retirement.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Da5id wrote: Sat Oct 16, 2021 10:06 pm You thought this was a statement against dividends.
Well, if that's what you think I thought, then I'd suggest that it's better to ask people what they think than to tell them.

Since you're interested to know what I thought, it was that you were engaged in a spurious exercise to solve a problem for someone who didn't actually have one.
Just a comment on how I believe the tax code works. Which I gather is different than r. walker or perhaps you thinks it works.
You can believe what you want. I don't "think" about the tax code, just experience it. Funds like VTSAX pay dividends which get taxed, regardless of reinvestment or not (unless you're subject to a 0% rate for some reason). And that's all I said about it.

Bottom line, there's nothing wrong with what r.walker is doing. No problem to be solved (unless you have a problem with it).
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
moneyflowin
Posts: 276
Joined: Sat Oct 16, 2021 6:14 am

Re: John Bogle on Dividends

Post by moneyflowin »

Dividends are a mirage. If you have $10k in a stock that pays out a $100 dividend, you will have $9900 in stock and $100 cash. That's not income -- that's a partial stock sale.

And if you still think that stocks don't fall by the dividend after the payout date, do this: place a GTC order on a dividend-paying stock. After the dividend payout, your broker will cancel your GTC order and replace it with a new order, with the lower price.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

moneyflowin wrote: Sun Oct 17, 2021 2:28 am Dividends are a mirage.
If you've found this to be a problem, I can solve it. Send them to me!
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
rossington
Posts: 1806
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: John Bogle on Dividends

Post by rossington »

moneyflowin wrote: Sun Oct 17, 2021 2:28 am Dividends are a mirage. If you have $10k in a stock that pays out a $100 dividend, you will have $9900 in stock and $100 cash. That's not income -- that's a partial stock sale.

And if you still think that stocks don't fall by the dividend after the payout date, do this: place a GTC order on a dividend-paying stock. After the dividend payout, your broker will cancel your GTC order and replace it with a new order, with the lower price.
I don't know of any stock that pays a $100 quarterly dividend per share...are you referring to an annual $100 dividend ($25 quarterly?).
Most dividends paid are less than $2.00 per quarter per share. This includes an enormous amount that pay less than $1.00 per quarter.
Yes the share price does decrease by the dividend amount on the ex-dividend date.
But with a dividend of less than $1.00 or $2.00 a stock price can and does recover well above the the ex-dividend date price within the 3 months until the next quarter. The market will determine this obviously.
Unless you sell your stock completely, yes the dividend is income. The partial stock sale from the dividend remains unrealized and will be temporary in the event of stock price appreciation within the ensuing months following ex-dividend.
The idea is to think long term.... and the markets will ultimately determine your investment's performance.The aggregate dividend payouts you have received would be added to your stock total. And if the dividend is increased annually your yield will increase as a percentage of your original investment.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

TropikThunder wrote: Sat Oct 16, 2021 11:44 pm
bondsr4me wrote: Sat Oct 16, 2021 6:22 pm
Da5id wrote: Sat Oct 16, 2021 6:18 pm
bondsr4me wrote: Sat Oct 16, 2021 5:53 pm
Da5id wrote: Sat Oct 16, 2021 5:43 pm

I don't quite get this. If you get $30K in qualified dividends, it is fully taxable. depending on income levels, qualified dividends can qualify for 0 tax rate right?
But qualified dividends and LTCG are taxed at the same rate?!?
You’re saying qualified dividends are fully taxable…..depending on income, qualified dividends may end up not being taxed….
I’m only questioning your statement.
I believe Da5id is referring to (as I have on numerous dividend threads) that the entire dividend is taxable at whatever rate applies to that person all things considered. Whereas the proceeds from a sale of shares is only taxable to the extent of its LTCG, again at whatever rate applies. If you receive $10,000 in dividends, all $10,000 is taxable at your qualified dividends and capital gains rate. If you receive $10,000 from selling shares, only the capital gains is taxable, not the basis. Yes, the rate in each scenario can be zero depending on income level etc. But the best case scenario for the dividend is a tie, it will never be better (at least for LT gains). And dividends received during the accumulation stage might end up in a higher tax bracket if your income is high, vs LTCG that aren't received until retirement.
That is indeed all I am saying, thanks.
r.walker
Posts: 80
Joined: Sun Jul 05, 2020 5:33 pm
Location: Pelotillehue

Re: John Bogle on Dividends

Post by r.walker »

r.walker wrote: Sat Oct 16, 2021 5:27 pm Almost 67, and still working, plan is to retire somewhere between 68-70. In addition to Roth and Trad IRA, I have several million in taxable, almost 100% in VTSAX, with dividends auto re-invested. I keep most of my VFWAX in my tax-advantaged accounts. Never owned bonds. Overall AA is 80% VTSAX, 20% VFWAX. SS at 70 and dividends from VTSAX should more than cover my retirement income needs, so, in my case, the 'trip to the mailbox' described by Jack should fit my situation perfectly.

Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
All, to clarify, I've never sold taxable holdings and have always re-invested dividends. I'm all-in on VTSAX, and have no intention of chasing high-dividend stocks. At this point, my VTSAX is likely large enough to be perpetual if I only harvest dividends as needed once I retire. I'm on the hook for taxes on those dividends every year whether I take them or reinvest. I would owe incremental capital gains taxes on VTSAX principal redemptions.
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: John Bogle on Dividends

Post by CyclingDuo »

beyou wrote: Sat Oct 16, 2021 8:24 pm This started off wrong and ended correctly.
Total return and ability to fund your retirement is what matters. How you get the return, div vs growth is irrelevant. And the idea your investments can grow in perpetuity if you live off dividends is just wrong. Companies pay dividend using cash that could also be used to expand and grow further. When a dividend pays out, there is often a drop in price reflecting the dividend being removed from the value of the asset. This is more obvious when one gets a mutual fund dividend but in theory same is true of individual stocks. Just easier to see when there is one price per day (fund NAV) vs continuous pricing.

If anything large dividends can be a sign that a company has “run out of ideas” and has nowhere to invest the cash better than return it to investors. It can also be a way to prop up the stock in absence of revenue/profit growth.

Also dividend are less tax friendly. Pay tax on dividend now vs retaining earnings to generate unrealized gains that wont be taxed immediately. Tax managed funds shy away from high dividends.
For those who keep household expenses in check, max out pre-tax retirement plans, utilize the standard deduction, etc... to keep taxable income contained, there are strategies and ways to land in row 1 for LTCG and Qualified Dividends with your taxable account investing. Better known as the "sweet spot"...

Image

https://www.kiplinger.com/taxes/capital ... -heres-how
https://retireby40.org/pay-no-tax-dividend-income/
https://youngandtheinvested.com/passive ... -zero-tax/
https://www.marketwatch.com/story/heres ... 2019-11-22
https://earlyretirementnow.com/2019/11/ ... ome-taxes/

This leads to the continuous merry go round of discussions in all of these dividend threads because not every household is in the same boat when it comes to their income level and taxes. Depending on what boat you are in determines how you post in these threads. A hole in your boat may not be a hole in the other person's boat and vice versa.

CyclingDuo
Last edited by CyclingDuo on Sun Oct 17, 2021 8:42 am, edited 2 times in total.
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

r.walker wrote: Sun Oct 17, 2021 8:10 am
r.walker wrote: Sat Oct 16, 2021 5:27 pm Almost 67, and still working, plan is to retire somewhere between 68-70. In addition to Roth and Trad IRA, I have several million in taxable, almost 100% in VTSAX, with dividends auto re-invested. I keep most of my VFWAX in my tax-advantaged accounts. Never owned bonds. Overall AA is 80% VTSAX, 20% VFWAX. SS at 70 and dividends from VTSAX should more than cover my retirement income needs, so, in my case, the 'trip to the mailbox' described by Jack should fit my situation perfectly.

Note also that harvesting dividends as needed will be more tax-efficient for me than periodic selling of VTSAX, since I'll only be taxed on what is already subject to taxation. While that should work in my case, one needs a sizeable chunk of VTSAX in taxable to make it happen.
All, to clarify, I've never sold taxable holdings and have always re-invested dividends. I'm all-in on VTSAX, and have no intention of chasing high-dividend stocks. At this point, my VTSAX is likely large enough to be perpetual if I only harvest dividends as needed once I retire. I'm on the hook for taxes on those dividends every year whether I take them or reinvest. I would owe incremental capital gains taxes on VTSAX principal redemptions.
Got it, that seems totally reasonable. What I wasn't understanding was the "more tax-efficient" part, given how LTCG work.

If the amount of dividends is precisely what you need to spend, seems like a good plan though as you noted most won't have the asset base needed to be able to get by on the current 1.25% yield of VTSAX + social security. The drag from 1.25% qualified dividends in taxable is quite modest. I'd be more concerned with people reaching for 3-4% yields in taxable to implement the same strategy that works for you with your high asset base (though if they are in the 0% LTCG tax bracket whatever).
User avatar
LadyGeek
Site Admin
Posts: 95466
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: John Bogle on Dividends

Post by LadyGeek »

I removed a contentious interchange. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

r.walker wrote: Sun Oct 17, 2021 8:10 am All, to clarify, I've never sold taxable holdings and have always re-invested dividends. I'm all-in on VTSAX, and have no intention of chasing high-dividend stocks. At this point, my VTSAX is likely large enough to be perpetual if I only harvest dividends as needed once I retire. I'm on the hook for taxes on those dividends every year whether I take them or reinvest. I would owe incremental capital gains taxes on VTSAX principal redemptions.
Exactly what I do with VBIAX dividends.

Glad to know we're on the same page...
HanSolo wrote: Sat Oct 16, 2021 8:08 pm The person is comparing taking the dividends (i.e., not reinvesting) during retirement, rather than continuing to reinvest and then selling shares when money is needed. "Already subject to taxation" meant that both scenarios involve taxable VTSAX dividends, and the person doesn't want to create more potential tax liability on top of that.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
User avatar
beyou
Posts: 6865
Joined: Sat Feb 27, 2010 2:57 pm
Location: If you can make it there

Re: John Bogle on Dividends

Post by beyou »

CyclingDuo wrote: Sun Oct 17, 2021 8:21 am
beyou wrote: Sat Oct 16, 2021 8:24 pm This started off wrong and ended correctly.
Total return and ability to fund your retirement is what matters. How you get the return, div vs growth is irrelevant. And the idea your investments can grow in perpetuity if you live off dividends is just wrong. Companies pay dividend using cash that could also be used to expand and grow further. When a dividend pays out, there is often a drop in price reflecting the dividend being removed from the value of the asset. This is more obvious when one gets a mutual fund dividend but in theory same is true of individual stocks. Just easier to see when there is one price per day (fund NAV) vs continuous pricing.

If anything large dividends can be a sign that a company has “run out of ideas” and has nowhere to invest the cash better than return it to investors. It can also be a way to prop up the stock in absence of revenue/profit growth.

Also dividend are less tax friendly. Pay tax on dividend now vs retaining earnings to generate unrealized gains that wont be taxed immediately. Tax managed funds shy away from high dividends.
For those who keep household expenses in check, max out pre-tax retirement plans, utilize the standard deduction, etc... to keep taxable income contained, there are strategies and ways to land in row 1 for LTCG and Qualified Dividends with your taxable account investing. Better known as the "sweet spot"...

Image

https://www.kiplinger.com/taxes/capital ... -heres-how
https://retireby40.org/pay-no-tax-dividend-income/
https://youngandtheinvested.com/passive ... -zero-tax/
https://www.marketwatch.com/story/heres ... 2019-11-22
https://earlyretirementnow.com/2019/11/ ... ome-taxes/

This leads to the continuous merry go round of discussions in all of these dividend threads because not every household is in the same boat when it comes to their income level and taxes. Depending on what boat you are in determines how you post in these threads. A hole in your boat may not be a hole in the other person's boat and vice versa.

CyclingDuo
Agreed but reasons I stand by my statement as applicable for many/most persons :

Dividends absolutely count towards AGI/MAGI, unrealized gains do not.

If you are low income, dividends could reduce ACA premium tax credits.

if your income is over 80 (which is not so uncommon for married couples), then you will pay income tax. Yes maybe married retirees can manage their income lower but a 20-50 something old couple making 40k each is not exactly upper income in most parts of the US.

If you are of a somewhat higher income, this could put you over the limit for Roth IRA contributions (and note Roth conversions have been subject of historical and future debate). And of course you WILL pay the above tax rates on dividends.

Seems logical that many that have very low income during their working years, if income is well below 80k married, might not even be investing, but rather paying bills. So who is this advice for ? Those who have cash to invest, or retirees. So for those on Medicare with low income dividends can be just fine. I do hope someday to take advantage of long term cap gains rates for cap gains/dividends, but as spouse and I work, that seems an unlikely event. When we stop working, going to have to decide if I can get ACA PTC, which is unlikely since my taxable div already get me a good % of the way to the cliff. And swapping Total Stock for a growth fund wont help since I’ll have cap gains instead of dividends. Had I bought just a growth fund years ago in taxable, I would have less AGI counting to ACA PTC now. Could have gotten my value stock exposure in 401k or IRA instead. Can’t optimize away all taxes, but can’t convince me that low div growth stocks aren’t more tax efficient for most compared to higher div stocks. These comments were about tax optimization, and if my income was low enough then tax optimization is easy or non existent issue.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: John Bogle on Dividends

Post by JoMoney »

burritoLover wrote: Fri Oct 15, 2021 10:28 am Does Bogle describe anywhere what his recommended dividend tilt is in retirement? Is he talking a dividend-only fund for the entire equity allocation in retirement?
In the book "Bogle on Mutual Funds" he offered several different model portfolios for those at different stages of accumulation and withdrawal.
He also suggested that a single broad market index fund could be a good choice for the entire equity portion of the portfolios rather than splitting it up into the various fund categories that his model portfolios used.

In the model portfolios, for later distribution phases, he did suggest using a "Value" and "Equity Income" (High-Dividend fund) for the equity portion of the portfolio.
John Bogle, in Bogle On Mutual Funds wrote:Image
I don't have a link to it at the moment, but Mr. Bogle in an interview once discussed that he used VYM (Vanguard's High Dividend Index fund) in a beneficial trust endowment he made.

I might be going out on a limb here, it's not something Mr.Bogle directly said, but I could imagine if one was using a broad "Value" index or a broad cap-weighted "Dividend" fund, there's going to be quite a bit of overlap between them. Perhaps enough so that one might consider a "Value" fund a dividend fund, or a "High Dividend" fund a Value fund... but they aren't quite the same thing.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: John Bogle on Dividends

Post by Oicuryy »

GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
To answer the OP's question see The 3 Biggest Misconceptions About Dividend Stocks.
The biggest misconception of dividend stocks is that a high yield is always a good thing. Many dividend investors simply choose a collection of the highest dividend-paying stock and hope for the best. For a number of reasons, this is not always a good idea.

For example, take a look at SureDividend's weekly list of monthly dividend-paying stocks. When you screen this list by companies with the highest dividend yield, the top names are not always the top performers on a total return basis. On March 17, 2018, Corpus Entertainment is the top dividend-yielding company, with a dividend yield of 26.9%. However, it has a ten-year annualized total return of -1.81% and a three-year annualized total return of -18.54%. So, while it had the "best" dividend yield, its total return was not that impressive.
IMO, this forum is not opposed to dividends. It is opposed to investing based on "the biggest misconception of dividend stocks".

I think that stock was Corus (not Corpus) Entertainment, CJREF. Yahoo has some dividend history. https://finance.yahoo.com/quote/CJREF/h ... Close=true

But if you still want to be a dividend investor you can join https://www.suredividend.com/ and buy the stocks at the top of their yield list.

Ron
Money is fungible | Abbreviations and Acronyms
User avatar
HanSolo
Posts: 2283
Joined: Thu Jul 19, 2012 3:18 am

Re: John Bogle on Dividends

Post by HanSolo »

Oicuryy wrote: Sun Oct 17, 2021 11:54 am
GoneOnTilt wrote: Wed Oct 13, 2021 10:44 am With this kind of sound reasoning, I wonder why there is so much opposition to dividend investing on this forum?
To answer the OP's question see The 3 Biggest Misconceptions About Dividend Stocks.

...

IMO, this forum is not opposed to dividends. It is opposed to investing based on "the biggest misconception of dividend stocks".
The question posed by the OP is one that I had been wondering myself. As far as I can tell, all forms of investing can be undertaken with either understanding or misconception (even the decision to invest in the financial markets at all). The dividend issue stands out, in that an extra level of opposition and/or scrutiny often seems to emerge, in most cases without there being any evidence of misunderstanding on the part of the person who brought up the topic. Looking at some of the posts, it seems that the default assumption is that anyone who discusses dividends needs to get hounded about it. In short, some people who don't have a problem are being told that there's a problem. Personally, I disagree with that. In my opinion, it's an overreaction, and it's a mystery to me, what it is that causes this. Investors have many investment choices, and I don't think any of them are "invalid" (at least not in the sphere of low-cost mutual funds)... and that includes dividend investing. And while there's some amount of debate on every style or type of investing, I haven't noticed any other threads like this one, solely dedicated to considering the question of why there's so much opposition to, say, REITs, corporate bonds, growth funds, etc... apparently because the opposition/scrutiny of those investments isn't so intense as to inspire a thread like this one. Based on what I've seen, the dividend topic merits posing this kind of question.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: John Bogle on Dividends

Post by burritoLover »

JoMoney wrote: Sun Oct 17, 2021 11:01 am
burritoLover wrote: Fri Oct 15, 2021 10:28 am Does Bogle describe anywhere what his recommended dividend tilt is in retirement? Is he talking a dividend-only fund for the entire equity allocation in retirement?
In the book "Bogle on Mutual Funds" he offered several different model portfolios for those at different stages of accumulation and withdrawal.
He also suggested that a single broad market index fund could be a good choice for the entire equity portion of the portfolios rather than splitting it up into the various fund categories that his model portfolios used.

In the model portfolios, for later distribution phases, he did suggest using a "Value" and "Equity Income" (High-Dividend fund) for the equity portion of the portfolio.
John Bogle, in Bogle On Mutual Funds wrote:Image
I don't have a link to it at the moment, but Mr. Bogle in an interview once discussed that he used VYM (Vanguard's High Dividend Index fund) in a beneficial trust endowment he made.

I might be going out on a limb here, it's not something Mr.Bogle directly said, but I could imagine if one was using a broad "Value" index or a broad cap-weighted "Dividend" fund, there's going to be quite a bit of overlap between them. Perhaps enough so that one might consider a "Value" fund a dividend fund, or a "High Dividend" fund a Value fund... but they aren't quite the same thing.
Interesting - thanks for posting that. Looks like the publication date for that book was in 1993 - right after Fama and French's 3-factor paper. It is interesting that he would recommend a separate value and high dividend fund - he did pooh-pooh factor investing at some point. Not sure what "Value" mutual fund meant in marketing speak or how they were generally constructed back in 1993.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: John Bogle on Dividends

Post by JoMoney »

burritoLover wrote: Mon Oct 18, 2021 7:04 am... interesting that he would recommend a separate value and high dividend fund - he did pooh-pooh factor investing at some point. Not sure what "Value" mutual fund meant in marketing speak or how they were generally constructed back in 1993.
Yes, he did pooh-pooh factor investing and their belief that it was the ticket to higher returns. In these model portfolios he also suggested for the early accumulation phase growth and value funds with a heavy tilt towards growth.
Mr. Bogle started the first Value and Growth Index funds at Vanguard, and at the same time warned people against trying to use them to chase returns or timing their performance waxing and waning.
There may be tax benefits for an accumulating investor to avoid the tax impacts of dividends while an investor in the distribution phase may prefer them, and at least conceptually a value/dividend portfolio may be lower duration relative to a growth portfolio similar to bonds where a bond paying monthly coupons would have a lower duration than a zero coupon bond of the same maturity length but only pays its accumulated interest at maturity.

He also suggested that a broad market index fund could be a good substitute for the equity portion for the equity portion across these portfolios designed around the other types of mutual funds common at the time, the book's primary focus is about choosing among these other types of mutual funds.
Last edited by JoMoney on Mon Oct 18, 2021 7:28 am, edited 1 time in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Orangutan
Posts: 309
Joined: Mon Feb 08, 2021 3:36 pm
Location: NYC

Re: John Bogle on Dividends

Post by Orangutan »

beyou wrote: Sat Oct 16, 2021 8:24 pm
Orangutan wrote: Wed Oct 13, 2021 10:57 am I don’t think he was arguing for dividend investing. But it does make a lot of sense to ignore the market price and focus on the underlying dividend.

I do think it’s a nice method to get part of your total return. Just click dividend reinvestment off and take your money. If that’s all you take, your shares will remain and your money will grow in perpetuity.

If you want a bit more money, sell shares. Alternatively, reinvest dividends and take whatever you’ve set your withdrawal rate at.
This started off wrong and ended correctly.
Total return and ability to fund your retirement is what matters. How you get the return, div vs growth is irrelevant. And the idea your investments can grow in perpetuity if you live off dividends is just wrong. Companies pay dividend using cash that could also be used to expand and grow further. When a dividend pays out, there is often a drop in price reflecting the dividend being removed from the value of the asset. This is more obvious when one gets a mutual fund dividend but in theory same is true of individual stocks. Just easier to see when there is one price per day (fund NAV) vs continuous pricing.

If anything large dividends can be a sign that a company has “run out of ideas” and has nowhere to invest the cash better than return it to investors. It can also be a way to prop up the stock in absence of revenue/profit growth.

Also dividend are less tax friendly. Pay tax on dividend now vs retaining earnings to generate unrealized gains that wont be taxed immediately. Tax managed funds shy away from high dividends.
I was approaching it from an assumption that one invests in Total Market. If you take the 4 withdrawals, the fund will grow in perpetuity. Of course, you can withdraw a fair bit more.
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: John Bogle on Dividends

Post by CyclingDuo »

beyou wrote: Sun Oct 17, 2021 10:29 amAgreed but reasons I stand by my statement as applicable for many/most persons :

Dividends absolutely count towards AGI/MAGI, unrealized gains do not.

If you are low income, dividends could reduce ACA premium tax credits.

if your income is over 80 (which is not so uncommon for married couples), then you will pay income tax. Yes maybe married retirees can manage their income lower but a 20-50 something old couple making 40k each is not exactly upper income in most parts of the US.

If you are of a somewhat higher income, this could put you over the limit for Roth IRA contributions (and note Roth conversions have been subject of historical and future debate). And of course you WILL pay the above tax rates on dividends.

Seems logical that many that have very low income during their working years, if income is well below 80k married, might not even be investing, but rather paying bills. So who is this advice for ? Those who have cash to invest, or retirees. So for those on Medicare with low income dividends can be just fine. I do hope someday to take advantage of long term cap gains rates for cap gains/dividends, but as spouse and I work, that seems an unlikely event. When we stop working, going to have to decide if I can get ACA PTC, which is unlikely since my taxable div already get me a good % of the way to the cliff. And swapping Total Stock for a growth fund wont help since I’ll have cap gains instead of dividends. Had I bought just a growth fund years ago in taxable, I would have less AGI counting to ACA PTC now. Could have gotten my value stock exposure in 401k or IRA instead. Can’t optimize away all taxes, but can’t convince me that low div growth stocks aren’t more tax efficient for most compared to higher div stocks. These comments were about tax optimization, and if my income was low enough then tax optimization is easy or non existent issue.
We agree that not all households fit into the same mold - or boat - regarding their level of income, annual expenses/cost of living, debt servicing, strategies, and utilization of available investment vehicles to avoid taxes on taxable dividends. The links I provided in my prior post point to who and how.

Latest data on US household incomes (2019, 2020, 2021)...

Image

Image
https://dqydj.com/average-median-top-ho ... rcentiles/

There is a "sweet spot" available in those tables above to pay $0 on qualified dividends and LTCG. You mention the far right side as well as the left side of the table, but there is a "sweet spot" just before the far right side of those tables where a certain percentage of households fall into (our household being one of them). Some households have one pre-tax retirement plan available, some have two, some have three, and some have 4 or more which can increase the percentage of households that are in the "sweet spot". Dual income teacher and government worker households often have 4 or more pre-tax retirement plans available (403b/457b + pension for each worker).

We are a two income household. ACA is not applicable at the moment as we are covered under our employer's health insurance plans. Spouse will arrive at Medicare in 2 years and I will remain on employer's plan until retirement. The past 18 years of that having been in the teaching profession, so we have had two 403b plans and a 457b plan we could max out on top of the mandatory pension contribution to utilize to contain the income we were paying taxes on for our taxable investing account. 10-13 of those 18 years we qualified for the age 50 and over catch up contributions. Currently in 2021, we can shovel $26K into each plan (401k/403b/457b) for a total of $78K from the paychecks. My spouse's mandatory pension contribution is another $5300 which goes in pre-tax as well. So with those 4 plans available - that is $83,300 of pre-tax income before we get to the standard deduction of $25,100. This provides some nice wiggle room to pay $0 on qualified dividends and LTCG in our taxable account.

In terms of the Wiki and prioritizing investments as one moves down the following graphic through their working careers, the parts change based on milestones you have met and the parts you are funding in the prioritizing list. Those that are not applicable to us are listed...

Image

As you mention - it is not for every household. However, I simply initiate pointing out in these threads that the "sweet spot" households can feel free to wear these t-shirts if they so desire...

Image

Image

:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
User avatar
beyou
Posts: 6865
Joined: Sat Feb 27, 2010 2:57 pm
Location: If you can make it there

Re: John Bogle on Dividends

Post by beyou »

Do you look good in lime green cyclingduo ?

The thread was asking about general issue of merits of dividends and “why is there opposition to dividend investing”. As a sweet spot your scenario affects fewer people, hence lots of opposition to a dividend bias. Not the only reason to oppose, as I mentioned there are others. But taxes are a reason for many to be dividend averse and go for low div growth stocks. They can’t help you at all, can only harm you or be neutral at best.

That said, the world is the way it is, and there are many good companies that pay dividends so seems to me that dividend payment is not a reason to avoid investing in good companies. Taxes should not override good investment strategy, just another consideration when faced with equally good choices. Some might say the best companies are growth oriented and invest cash back in themselves, so there are many cases where what’s best for taxes is also best as a fundamental investment choice. But diversification for risk reduction alone would prevent me from going all growth stocks. I may tilt to value stocks even at peak of a bubble, but in a tax deferred acct so I avoid the tax on dividends and so i can avoid cap gains when I un-tilt.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: John Bogle on Dividends

Post by Da5id »

beyou wrote: Mon Oct 18, 2021 7:57 am As a sweet spot your scenario affects fewer people, hence lots of opposition to a dividend bias. Not the only reason to oppose, as I mentioned there are others. But taxes are a reason for many to be dividend averse and go for low div growth stocks. They can’t help you at all, can only harm you or be neutral at best.
I don't know the demographics of bogleheads income currently. But I believe that this may apply to more MFJ couples here than you expect, not sure how many your "fewer people" covers. Bogleheads strategies are not only for the wealthier end of the spectrum.

It is also worth noting that if one is in the position to have 0% LTCG tax rate, in addition to getting tax free dividends people can perhaps do some tax free capital gain harvesting (https://www.bogleheads.org/wiki/Tax_gain_harvesting) to get up to the limit. Can be a useful strategy for some, e.g. I'm advising eldest son in first partial year of work to harvest some capital gains. But of course state/local taxes may make that not "free".
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: John Bogle on Dividends

Post by CyclingDuo »

beyou wrote: Mon Oct 18, 2021 7:57 am Do you look good in lime green cyclingduo ?
My bike team's kit used to be lime green and black, so all kitted out the lime green looked good and certainly provided "presence" when interfacing with cars on the road where it is imperative to be seen. :beer
beyou wrote: Mon Oct 18, 2021 7:57 amThe thread was asking about general issue of merits of dividends and “why is there opposition to dividend investing”. As a sweet spot your scenario affects fewer people, hence lots of opposition to a dividend bias. Not the only reason to oppose, as I mentioned there are others. But taxes are a reason for many to be dividend averse and go for low div growth stocks. They can’t help you at all, can only harm you or be neutral at best.

That said, the world is the way it is, and there are many good companies that pay dividends so seems to me that dividend payment is not a reason to avoid investing in good companies. Taxes should not override good investment strategy, just another consideration when faced with equally good choices. Some might say the best companies are growth oriented and invest cash back in themselves, so there are many cases where what’s best for taxes is also best as a fundamental investment choice. But diversification for risk reduction alone would prevent me from going all growth stocks. I may tilt to value stocks even at peak of a bubble, but in a tax deferred acct so I avoid the tax on dividends and so i can avoid cap gains when I un-tilt.
The OP had quoted Bogle: "Bet on the dividends, and not on the market price. You’ve got those two envelopes and that’s your retirement. If you have a pension plan (one that is not likely to go bankrupt—and a lot of them are likely to) that is a third envelope. You want to be concerned about whether you have enough income to pay utility bills, pay for your food, pay your rent or your mortgage, whatever it might be, every month. You want income to help you pay those bills. And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account."

Being still in accumulation mode, our dividend checks get reinvested. However, the pension check will start in 2 years, and SS check in 7 for one and around 10 for the other check. I am not averse to using the dividends or selling shares for LTCG from the taxable account when the time comes as needed, as that is why we have built the taxable investing account over the decades to couple with the Roth and traditional retirement accounts. The tax strategies available during the accumulation years as well as the distribution years to keep the taxes $0 to low are available.

Our household fits into the JPMorgan graph of household spending dropping as you age. it really dropped in 2020 and 2021 due to the pandemic, and it is interesting how easily one adjusts to spending less. Regardless, however one wants to divvy up the third leg (investments/savings) of the traditional three legged stool of retirement income - we all have dividends to deal with whether they come from an index fund, ETF or individual company stock investments. I don't even track dividends in traditional retirement accounts since they will all come out as ordinary income when the time comes. I do, however, track the taxable account and the Roth IRA accounts and know the annual/monthly/daily numbers for the dividends.

Image
https://am.jpmorgan.com/content/dam/jpm ... ent-us.pdf

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: John Bogle on Dividends

Post by burritoLover »

JoMoney wrote: Mon Oct 18, 2021 7:25 am
burritoLover wrote: Mon Oct 18, 2021 7:04 am... interesting that he would recommend a separate value and high dividend fund - he did pooh-pooh factor investing at some point. Not sure what "Value" mutual fund meant in marketing speak or how they were generally constructed back in 1993.
Yes, he did pooh-pooh factor investing and their belief that it was the ticket to higher returns. In these model portfolios he also suggested for the early accumulation phase growth and value funds with a heavy tilt towards growth.
Mr. Bogle started the first Value and Growth Index funds at Vanguard, and at the same time warned people against trying to use them to chase returns or timing their performance waxing and waning.
There may be tax benefits for an accumulating investor to avoid the tax impacts of dividends while an investor in the distribution phase may prefer them, and at least conceptually a value/dividend portfolio may be lower duration relative to a growth portfolio similar to bonds where a bond paying monthly coupons would have a lower duration than a zero coupon bond of the same maturity length but only pays its accumulated interest at maturity.

He also suggested that a broad market index fund could be a good substitute for the equity portion for the equity portion across these portfolios designed around the other types of mutual funds common at the time, the book's primary focus is about choosing among these other types of mutual funds.
It's interesting the evolution that he's apparently had over the years. In interviews later in life, he seems to be more on the side of S&P 500 or total market.
Locked