StuBee wrote:I believe that many of us here are part or this dividend crowd (perhaps the majority). Could you please elaborate a bit on your statement. Up until recently, I have been planning for real growth (in excess of CPI) of 3% in my dividend stream. Now before you laugh, I would like to let you know that I am seriously questioning my current line of thinking... However, I continue to think that real growth of 1% is quite reasonable. This, of course is not constant. There will be periods of no growth interspersed with periods of growth (much in the same way that the economy in general evolves). It is hard to imagine profits (which are roughly linearly related to dividends) to not follow a growing economy. Perhaps, you are advocating a period of prolonged stagnation in world growth. If that is the case, interest rates should not provide for any more upside than dividend income. In addition, how likely is it after tax and inflation that FI can be anything more than a savings vehicle (i.e. no real growth).
There has been some people who have been pretty firm on suggesting they would rely on a dividend income stream to fund their retirement. That, to me, infers, 100% reliance (in the absence of saying anything else) and is what prompted me to even mention it here (FoF's question). There *may* be some people here who think their stock picking ability will permit them to maintain real growth in their dividend stream, and I applaud those who will be successful. But any single minded strategy works only while it works.
There were many dividend cuts in 2008 and 2009 from companies considered blue chip. Not only did dividends get cut, but stock prices collapsed as well. In many cases, new equity was issued to shore up the balance sheets, e.g. MFC, BAC and a host of others. There will many more such periods during 30 or more years of retirement.
When one is working, it is easy to say.... drop the loser and move into something else, because employment earnings will more than recover from that lesson over a short period of time. That is no longer the case once employment earnings stop. Not only does the retired person have potentially permanent loss of dividend income (or a loss that will take corporate performance well beyond GDP growth to recover), he/she also has loss of capital subject to the same vulnerabilities. Yes, I do believe the heyday of dividend paying blue chips may be over. Further, there is no guarantee dividend paying companies' performance can/will exceed CPI or GDP growth. Much of the growth will be from new companies not publicly traded and/or not yet available in the public market. The best bet for most to try and emulate your dividend growth rate plan might be to own the 'entire' market.
Fixed income is a necessary component to carry one through severe periods of economic non-performance (to avoid having to cash in equities when they are down and out). It is not overly difficult to get almost a 4% return (inflation + 1-2) on fixed income at this time. A 10 year bond ladder (including a mix of corporate bonds) will do it.
Disclosure: Most of my current income cash flow stream (beyond pensions) comes from dividend streams, some of it from selective stock picking, but most of it from broad market ETFs. So I do rely quite a bit on a dividend stream as well, but I do not have illusions of it necessarily keeping up with my cost of living. It will be interesting to look at it 10 years from now to see just how well that dividend stream has performed for me over that period.