couponstrip wrote:DGI,
Thanks for your reply.
You are welcome.
In theory, perhaps using historical dividend payers as a view into the future. Have the dividend payers that failed, or companies that suddenly cut their dividends been included in this figure? How has the overall "dividend" approach faired in terms of capital gain/loss plus your treasured dividends (including having to sell when the dividend is cancelled or the company goes bankrupt)?
Well as a total return perspective, the dividend aristocrats have outperformed the S&P 500 since 1990. ( sorry to post a link to my own site)
http://www.dividendgrowthinvestor.com/2 ... crats.html
Most of the stocks that leave the index do so not because they are going bankrupt but because of some merger or acquisition. I however would not suggest selling a stock because it's freezing its dividend. I would most probably sell after a cut unless I think the company will make it - ED cut its dividend in 1970's only to increase it for 3 decades after that.
As for the 1% increase of dividends over inflation I used this pdf from Value line. It actually is 2% over the past 8 decades.
http://valueline.com/pdf/valueline_2006.pdf
As for your comments about the "overall "dividend" approach" check out these charts:
http://bp3.blogger.com/_9SoEE9d_aQo/SEt ... Policy.jpg
http://www.dividend.com/img/dividend-graph.jpg
In addition to that, most charts that I find about long term returns of fixed income are not as good as long term charts of common stocks.
There are times when fixed income does outperform common stocks so that's why one should have some allocation there. But in the long run your fixed income investment will most likely exceed inflation by a very slight margin..
Further, how do you know you are picking the ones that are going to grow their dividends, continue to be successful businesses with capital gain? Is it true that looking at one parameter, yield, and then seeing if it is growing over time gives you a leg up on the market? By promoting this, ISTM that you believe that you can beat all the other smart people that buy and sell in the market. Your strategy favours large to megacaps with limited growth potential relative to their size. Does favouring this segment of the market and ignoring small cap and growth stocks help you to beat the average market return?
Well there are many uncertainties in investing. I don't just look at dividends however - i look for companies that can afford to pay dividends. I never said that I will outperform the market. I like the overall stability of dividends as part of the total return. Dividends could get cut, but if you have a diversified portfolio of dividend stocks, your dividend income will increase over time. Compare this to a portfolio of fixed income where your income won't increase at all and your will lose purchasing power over time. Your only option is re-investing part of your proceeds in order to be bale to live off your coupon payments and increase your income to keep up with inflation. The "stability" of coupon payments is illusory because it doesn't take inflation into effect.
As for dividend stocks some researchers have found that re-invested dividends have contributed about 97% of the total return in S&P 500 since 1871.
In addition to that stock dividends contributed about 40% of the average annual total returns in S&P 500 since 1926.
And yes most of them are large caps. But not all of them are. The dividend aristocrats performed pretty well relative to the S&P 500 over the 2000-03 bear market.
So you acknowledge, then, that capital upside is important to you too? Most dividend players only mention yield, yield, and more yield. If you are hoping for CG, are there other parameters you look at when buying a stock?
Of course capital gains are important. And no I don't chase yields. I look for trends in revenues, EPS, roe, stock price, dividend payout ratios, dividend payments, dividend and eps growth, buybacks etc. I also would like to purchase a stock with dividend yields that are at least equal to S&P 500's yield.
Sure, but that could be remedied with preferred shares in your non-registered accounts.
I am not in Canada so my tax situation is slightly different i imagine. To me you bear the same level of risk with preferred stocks and ordinary stocks ( I know there are slight differences). But when the going gets tough, both preferreds and ordinary will likely be wiped out in the extreme scenarios ( FNM, FRE for example). Even if they aren't preferreds don't appreciate in value in good times when ordinary shares rise. I am sure that preferreds could be a part of one portfolio. Besides there are so many types of preferreds..
Ok, so stocks are good to own to hedge against inflation. However, the stocks you favour, good dividend payers, seem to me to be the type that would not fare well in this environment either. For example, our current inflationary environment is being lead by energy. How many oil and gas companies qualify for your dividend portfolio? Yet, owning energy stocks in the past two years has provided tremendous capital gains, and would help to offset the ravages of inflation in a largely fixed income retirement portfolio.
BP, CVX and XOM are three examples of oil related plays. XOM is the least rated for me because they have slow dividend growth and lowest yields.
I never know which stock/sector will perform well in the future. That's why I am diversified across several sectors. I am also trying to diverisyf with foreign dividend payers.
Have you considered the risk of concentrating your portfolio based on one parameter? A lot of folks are talking about buying only "dividend growers" for their portfolio. For example, I attended a Wood Gundy presentation recently where the advisor promoted a wrap account where she buys all dividend growth stocks for you for her 1% fee. Even the wrap account advisors are in on this gig. Try googling your handle and see how popular this strategy is. You might be paying a premium for these stocks due to the popularity of this approach, further risking your capital in the future. For historical examples, recall the nifty fifty, dogs of the dow, the January effect etc.
Most companies that pay dividends are solid performers with pretty decent shareholder friendly management. If dividends fall out of fashion, then so be it i will keep purchasing dividend stocks. That's what happened in the late 1990's, when everyone wanted a piece of the next MSFT, YHOO etc. With dividend stocks you will at least get something when your stock is going south or flat. I would much rather have bought GM with its erratic dividends in 1990 than PLA.
Actually my strategy is not as followed as yield chasing. In today's environment where people want instant gratification high current yields attract more attention than high dividend growth.
I have a somewhat strict criteria for purchasing dividend stocks based off p/e, yield, trends in roe, dpr and dividned growth and eps growth so I am not chasing performance. I really hope however that my dividend growth approach becomes so widely followed that my portfolio achieves above average total returns. That might help me in achieving my goals sooner.
Also, you have narrowed your portfolio to a subsection of the market that will likely react to global market forces in a similar fashion. What if you are wrong, and growth stocks have a 30 year run right into your retirement? What if small caps excel and large caps lag for decades? This approach seems to be promoted as a safe bet for retirement, yet it seems far riskier to me than owning a 100% total stock market equity ETF. Hence my question (for argument's sake), if you are fortunate enough to accumulate a portfolio where steady dividends in your retirement will cover all of your expenses, why not just stick with something that is truly safe (relative to common stock) like fixed income? (ie bonds, real return bonds, TIPS, preferreds etc). That way when it comes time to tap your portfolio for an extraordinary expense in retirement (car, new roof, child getting married in Hawaii on your wallet), you know the capital will still be there.