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My father does not buy or sell stocks. The last time be bought a stock, bond, ETF or mutual fund is when he turned 62 and retired 20 years ago.
He found a combination of high yield bond funds, Business Development Corporations, REITS and the 10 highest yielding stocks in the dividend achievers list and just put his 2 million dollars to work. He gets an estimated average dividend yield of 8% per year. The dividends are put into his bank account and he uses this for spending money.
The dividends have generally gone up each year on average of 4% which takes care of inflation. He does nothing but watch his money come in.
The stocks, bond funds, ETF's and REITS, etc. book value has gone up and down through the years but each year the amount he gets in dividends goes up slightly from the previous year. He is not concerned about changes in the value of his core investments as long as the dividends keep paying him at the expected amount.
It's a great plan for him and has worked for 20 years, but what about for you?
Sounds good, and similar strategies have been marketed ad nauseam, but the real question is what happens when the dividends get hit or suspended altogether? Seen it happen plenty of times before, and actually just recently in the energy MLP space. Personally know a lot of brokers who were pushing these MLPs on retirees saying the distributions would always be there, etc etc. Well, they weren't. Retirees depending on those distribution payments got routed when the energy market took a turn in the past year, and I personally know many that are now struggling as a result because they listened to these brokers peddling the same names out there (BBEP, MEMP, LINE, ARP just to name a few).
Worst thing is some are now liquidating these names to preserve whatever capital they have left, when past few weeks has been a great time to pick up a couple of these names at a huge discount. My point is that you have to be careful with the "all-in" dividend strategy. Sure there is a place in each portfolio for quality dividend plays, but don't put all your eggs in one basket generally speaking.
An 8% yield sounds unrealistically high given yields on high yield bonds are currently in the 7.5% range (up from where they were) and even most of the high yielding stock are paying 7% on the high side. I'm sure you can always find stocks that yield more, but they're often at risk of having their dividend cut.
My father does not buy or sell stocks. The last time be bought a stock, bond, ETF or mutual fund is when he turned 62 and retired 20 years ago.
He found a combination of high yield bond funds, Business Development Corporations, REITS and the 10 highest yielding stocks in the dividend achievers list and just put his 2 million dollars to work. He gets an estimated average dividend yield of 8% per year. The dividends are put into his bank account and he uses this for spending money.
The dividends have generally gone up each year on average of 4% which takes care of inflation. He does nothing but watch his money come in.
The stocks, bond funds, ETF's and REITS, etc. book value has gone up and down through the years but each year the amount he gets in dividends goes up slightly from the previous year. He is not concerned about changes in the value of his core investments as long as the dividends keep paying him at the expected amount.
It's a great plan for him and has worked for 20 years, but what about for you?
no thanks . just watch what those high yield reits end up doing now that bond rates bottomed out after 35 years .
My father does not buy or sell stocks. The last time be bought a stock, bond, ETF or mutual fund is when he turned 62 and retired 20 years ago.
He found a combination of high yield bond funds, Business Development Corporations, REITS and the 10 highest yielding stocks in the dividend achievers list and just put his 2 million dollars to work.
It's a great plan for him and has worked for 20 years, but what about for you?
No thanks. Seems like you are a sales guy. Not sure if you are telling the truth. You know sales guy will sell their mom if they have to.
If he has two million dollars. he can just take one million and put that into CD which he will get $70K per year. I am not buying your story. Sorry. Been there and done that.
An 8% dividend yield is a house of cards waiting to crash
Twenty years later and there is no crash. In fact the core stocks, bond funds, ETF's, Business Development Funds and Energy Trusts he owns core value has gone up significantly. But, as said previously, the core value (day to day changes) of these investments are not really a concern on his part. He is just interested in the dividends.
Yes, very few of his many diverse investments have cut their dividends in the last 20 years, but that was all budgeted for. He expected a few to cut their dividends. Most have brought the dividends back to a ever increasing level after a short period.
His core actual stock holdings are in companies who have a record of increasing dividends over a twenty to twenty five year record. He gets an average of 5.2% dividend yield from these stocks and they have NEVER cut their dividends, just increased them. The 8% return, I talked about earlier, is by averaging in some REITS, Energy Trusts and Business Development Corporation that pay a 10% plus dividend yield.
He told me he wants to just get the dividend income and live his life and not worry about which stocks, and other investments he owns, he should sell for and worry about a capital gains distribution. He instead lives on social security and qualified (low tax) dividends.
your father is not doing or getting anything special . he has not been getting 8% dividends from day 1 20 years go . what he has done is no different than any retiree with a 4% draw rate , a 50/50 mix and inflation adjusting upward each year .
starting at 4% just by inflation adjusting over decades your draw you can see 8-10% draw rates over the original amount drawn .
it is all going to be about total return and sequences of gains and losses .
he may just be doing it a riskier way but nothing special going on that hs not been done by any retiree increasing withdrawals by inflation no matter how the portfolio gets its gains and income.
as stated by another poster in another discussion .
"For 15 years from 1958 to 1973 the S&P500 yield hovered between 2.9 % 3.5% after having spent the previous 80 years with yields holding between 4 % and 7 1/2 percent for the most part with a few exceptions. In 1973 and again in 1981 bear markets occurred which put the dividend yield smack back in the middle of that range @ 5.73 by year ends 1974 & 1981.
In 1992 the S&P said goodbye for the most part to a 3 percent yield and from 1996 to 2007 the dividend yield stayed under 2 percent at year end, we then fell back into the range of 1981-1992 after the little market turmoil of 2008 & since the subsequent recovery the dividend yield is staying right around 2 percent."
anything higher is a riskier bet on share price supporting that payment as individual company risk takes over where market risk leaves off . but at the end of the day only total return matters .
Last edited by mathjak107; 08-30-2015 at 06:17 AM..
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