Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The term total return means your complete roi regardless of how the roi is achieved .
I am retired . I reinvest all dividends right now . I own dividend paying funds , bond funds and non dividend paying funds .
I have a withdrawal rate of 3.50% . I take that from cash instruments right now while letting all investments still grow . My total portfolio yield income wise is about 3% with total return about 5% right now ytd on the portfolio.
Except for the fact that i draw my money for living from a cash buffer my outcome in down markets is identical to if i spent the dividends directly and held less cash .
There is no diifference in down markets as to how my income is constructed ,whether apreciation or dividends or both .
The outcome in down markets is the same whether you use cash buckets , stocks and bonds or whether you spend dividends and don't reinvest them or even spend equally from all parts of the portfolio in a systematic withdrawal that preserves your allocation as you spend .
To think you are any different spending down dividends that come off the share price vs a whole portfolio in a down market or up market is nonsense.
Just ask yourself if you reinvested the dividend and took the same money out of the overall portfolio or out of a non dividend payer with the same return would a down market effect you any less . Of course not is the answer .you are just fooling yourself if you think there is any difference except for some small tax differences. Funds have no fee to sell
Last edited by mathjak107; 09-15-2016 at 05:36 AM..
Value of my portfolio has taken a big hit over last 7 days or so. But value is not my "tracking number". Income is. I invest for income. I used to call myself a Dividend Growth Investor, but these days about 25% of my portfolio is in investments that are not expected to increase their dividends much at all.
These are usually in CEF's that pay a higher yield or fixed income that pay a decent amount and are more stable. (for example I dipped my toes into Baby Bonds a little).
At this stage of life I am not tapping into the income. It essentially all gets reinvested (either automatically or manually), which of course produces more income. When I start to tap it, I will simply use the income. Not tap into principle. I won't even use all of it. I'll still reinvest at least 25% so that the income keeps increasing even in "distribution phase".
Nobody LIKES to see their value go down. But since September 1, my income has increased by $58. You may say big deal, but a $58 increase every month amounts to $696 income increase over the course of the year. And of course Thursday is the 15th which is dividend day!
My increases are usually about $130 or so a month which means about $1,500 in income increase over the course of the year. So if you have $10,000 in come now, in 3 years you have almost $15,000 in income.
My goal is $1,000 a year (which I've been exceeding). If every year I have $1,000 more income then when I started I'll be a happy camper.
To close the loop, I ended up with $102 in income increase for the month. That is a pace that would be $1,224 for the year, above my desired $1,000 pace. I had no dividend increases from any of my stocks this month. All the income increase was due to reinvestment. Luckily where we are financially and age wise we reinvest almost everything.
Once my wife retires, we'll tap it a bit (just the dividends, not selling anything), until I turn 70 and collect SS. Even when we tap it, we'll still be reinvesting a pretty fair amount (50%?) so income keeps increasing.
total return wise we were up 12k this month . most of it being appreciation . not sure of your point . it is all about total return .
if you are reinvesting the dividends you have the same dollars compounding as you did if no dividend was paid . money is not materializing out of the air because you get a dividend . you may not be selling a thing but the company has liquidated a piece of your investment money and handed it back to you reducing your investment .if you reinvested it all you did is put back what they handed you .
Last edited by mathjak107; 10-01-2016 at 03:55 AM..
... the company has liquidated a piece of your investment money and handed it back to you reducing your investment .if you reinvested it all you did is put back what they handed you .
Just to be clear, the company is paying the investor some of the profits that were earned in the period. It's not a return of capital unless the company is paying out more than it earned ( that DOES happen at times ).
When you said that "we were up 12k this month . most of it being appreciation " I assume that you got $X-dividends and $Y-appreciation where X + Y = 12,000.
Sometimes, you make it sound like there is just a pile of money there and the company is putting some of that in a bag and sending it back thus hurting the future of the company.
For a functioning company that is growing, increasing the dividends is a reflection of that. If I got $100 in dividends from XYZ company in 2015 and I got $110 in 2016, then, for most companies, that extra $10 was from the increase in profits for the year.
It may be boring to have investments in companies that only grow 5-10% in a year compared with something like googlebook that is leaping up at 40-50% per year, but much of the tech world is full of other companies like dogvomit.com that was all smoke and mirrors.
For most people, investing in the market is like investing in shares of your friend's donut shop. You don't want to have to keep selling a piece of your investment to pay for living expenses. You expect your friend to cut regular checks to you as your share of the profits. That's what dividends are.
Back in the 1990s, Bill Gates and Gordon Moore used to have to sell shares of MSFT and INTC to pay for the upkeep on their mansions. Now, they just have healthful, regular dividends go into their checking accounts.
Many people ONLY buy stock in dividend payers. They can't stomach the volatility of the fast growers. A "decent" dividend indicates that the company is an adult run by adults.
And yes, every time your friend cuts you a check, the size of the donut shop shrinks, financially. That's not bad or good, it just is.
If you own 15k worth of stock and the company pays you a dividend of 1k than you have 14k invested for future action by the markets at the open and 1k in pocket.
So yes , the company handed you back 1k of your own invested dollars in that company.
It has nothing to do with profits or anything else. It is just simple math.
All future compounding is based on a percentage up or down of your invested dollars from whatever reference point you choose.
In this case if market action pulls the stock up 10% on the quarter it is 10% on only 14k not the 15k i had invested.
If i reinvested my dividend than i have the same 15k working for me before the
dividend. So yep the company gave me back 1k of my investment dollars.
If i pulled the same 1k out of my portfolio it is no different. I gave myself 1k of what was already my own money invested. That money represents 30 years of gains .Now i have 1k less invested of what was my money and 1k in my pocket to spend.
Last edited by mathjak107; 10-02-2016 at 02:49 PM..
It has nothing to do with profits or anything else. It is just simple math.
Right, but your simple math says that if the company gives you back $15k in dividends, then you no longer have any money invested in the company.
A company makes profits on behalf of the stockholders/owners. If it makes $1,000 ( your share ) then you earned 6.7% on your investment. If, the next year, it earns $1,100 then your return went up 10%.
You always write as if someone can't keep peeling off dividends indefinitely and consider that income. It IS income. If you have stock in T and get that 4.7% dividend ( income ) plus another 1% ( also income ) that is not paid out.
Next year, you expect the company to do it again.
Simple math would have the company stock price going to zero after about 20 years. If the company makes profits of 5.7% then the price should go up 20% in about 20 years ( theoretically ).
Profits have everything to do with total return. That's what you are doing when you buy stock. You are buying that ( expected ) future stream of earnings. If the profits are increasing then so is your return. If you are getting that return mostly as dividends, then the stock still doesn't go to zero.
The only thing I agree about is that if the market takes a tumble, then T will go down right along with FB ( which pays $-0- dividends ). The dividend doesn't save you. Just because T kept paying their dividend right through 2007-2010 doesn't mean that if you needed to sell your stock in Jan, 2009, you would have been screwed.
I never said you have no money in the company.
I said the company handed you back part of your own money and that investment is no longer compounding all the money you left with them to grow for you.
Just imagine buying 10k worth of stock right before the dividend . You get 1 k in a dividend . You have only 9k of the money you handed them only a day before still invested and COMPOUNDING. You have zero total return and part of your investment handed back.
PLAIN AND SIMPLE IT IS A DISTRIBUTION OF MONEY YOU ALREADY HAD
I have 35 years of gains . Everything i have right up to todays close is all my money. If one of my investments hands me back part of my compounding dollars that is a return of principal.
Plain and simply if they did not have the distribution i would still have the same return but i would have more dollars compounding for me.
Regardless of return anytime you get existing dollars back that is a return of principal.
It is no different than you pulling 1k out of your portfolio. You reduced the amount of money you had compounding for you before you took it out.
It is irrelevant how or when the money grew . It is all your capital at any point in time.
Last edited by mathjak107; 10-03-2016 at 02:49 PM..
If they did not have the distribution, you would have to set aside the money for your living expenses and wouldn't be invested in the company. If you didn't have it set aside, you'd have to sell a certain amount each month to meet those expenditures. If the investment is in a fund, you can stipulate the distributions be automatically reinvested.
Exactly what i said. the company is returning a piece of your already existing invested dollars and subtracting it off your investment balance via a reduced share price or you taking an equal amount of invested dollars from your own portfolio is the same effect.
In either case going forward you would have 1k less of what you had prior compounding than you had.
If i was not spending that dividend then the company giving me back the money i left with them to invest and compound now has me having to reinvest it all over again.
I either have to buy someone else's shares in the same company reinvesting it or someone elses shares in another company in order to have my full amount compounding.
In any case that dividend represents the return of part of my own dollars invested in that company reducing what i have left for future compounding.
Last edited by mathjak107; 10-03-2016 at 03:09 PM..
Compounding invested dollars is the most powerful force we have.
A penny doubled every day is many many millons of dollars in only 1 month.
So getting good compounding is imperative to investing.
As chuck akers said.,dividends have been the least efficiant way of compounding investor dollars for many years now.
Once given away that money is gone forever and other methods of producing compounding have been far more effective. Share buy backs have increased compounding on investor dollars as well as aquisitions and buying market share.
Dividend increases have been the least efficient.
With few exceptions since 2008 year the big stoggy dividend payers have been lagging behind their non dividend paying cousins by 5 to 6 % a year.
That concerns howard silverblatt at s&p as he says he is seeing far to much investor money returned even as profits have fallen. Dividends increased by 38% while profits are less over the same time.
That does not sit well for future growth in his opinion. He feels far to much is handed back to investors giving the impression profits are soaring and they do not need the money. But he feels the lack of capital expenditures will hurt them going forward.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
