An earlier post said something about a myth that dividends are more stable than stock prices, but the data I've seen seems to back up it up (i.e., it's a myth that it's a myth).
data please...you mostly post cherry picked anecdotes below...that sound like they are quoted from a dividend promoting web site...peer reviewed academic articles don't show any dividend stock total return premium. They show otherwise, that dividend stocks tend to slant towards mature cash cow type companies. That isnt a bad thing, they look more like a bond/stock mix, and perhaps more stable , but lower, returns are what you need. They will do better during a downturn, but also provide a lower total return during growth periods. Please understand that is my point.
For instance, one of the "worst case scenarios" for retirees was the stagflation problem in the 1970s. Dividends dropped from a high on 1/1/69 by 23% (bottoming out in 1975). Stock prices, OTOH, fell 57% 1. Comparing dividend gross percentage drop to price gross percentage drop during a market correctiin doesnt even make sense as a way to measure total returns
Of course, if you'd been investing in dividend growth stocks in the late '90s, the dot-com bust wouldn't have hurt nearly so much. except that the largest price growth companies were tech, and you needed to have Apple, NVDA and Google type stocks in your portfolio to see much of the big gains this decade
In addition, there are a couple of articles on seekingalpha that look at Dividend Champion performance during the Great Recession, pointing out the drop was much less than the overall market (%age wise). more data mining cherry picking of time frames
Companies can't sustain dividends growth forever. Robert Schwartz has collected longevity statistics here: http://www.tessellation.com/dividends/streaks.html. It's ample warning that there's no "buy and forget" stocks.this data suggests one hold the whole market, not tilt towards current large dividend companies
1 Look at the real prices (adjusted for inflation) on multpl.com
A) You make claims but don't back them up. Do so because:
- Just repeating stuff doesn't make it true.
- You can't possibly hope to persuade me if all you got is "because I say so". I'm open to change, but not just on your word.
B) I'm guessing you're not thinking about this like someone living off their portfolio, during decumulation. It makes a difference.
An underlying theme seems to be that I believe that catastrophic downturns are the largest threat to portfolio longevity during decumulation, while you consider small loss of total return as the largest threat.
In all the backtesting I've seen and done, starting with Bengen's original paper and continuing on to running different scenarios in cfiresim, catastrophic downturns have been the largest threat to portfolio longevity.
I guess you can provide peer reviewed academic articles that refute this? Please do, because it's important. My standards aren't as high as yours--if you can find something that shows small changes in total returns of a portfolio are more important than catastrophes that's both clear and provides supporting data, send it on.
The downturns that had a significant impact on portfolio longevity seem to be:
- Great Depression
- "Little Dipper" stagflation of the '70s
- 2001 recession (.com bust, 9/11)
- Great Recession
The other bear markets and recessions don't seem to have a noticeable affect on longevity. I cherry picked 3 of the 4 because I figured that was enough. I suspect the results will be similar (dividends less down than stock price), and would like to see data otherwise. If you have data otherwise, contribute.
Earlyretirementnow's calculator (which shows different results expected from different CAPE eras) shows projecting lower future returns don't seem near as impactful on the required portfolio to survive (vs catastrophes). We just have to have a safer withdrawal rate (like the one you'd get if you decided to live off dividend income from diversified portfolio heavy on dividend growth stocks).
Further, total return is not an appropriate alternative during decumulation as, one way or the other, I'll be living off the dividends. Either I'll cash them out, or I'll DRIP them and cash them out. In neither case will they stay in my portfolio long enough to provide Einstein's 8th wonder (compounding). Reinvesting dividends provides a significant amount of the "return" in "total return". Without it, the results are very different.
Instead, it's only dividends and real prices that matter during decumulation, without the compounding. Those of us planning to live off dividends view real price gains as lagniappe.
For real prices, look at http://www.multpl.com/inflation-adjusted-s-p-500
, not http://www.multpl.com/s-p-500-historical-prices
Real prices can stay down for decades, not years.
The same will happen to dividends, but based on the evidence (see previous post) it's much less dire and "much less dire" is something I'm willing to pay for (although I'm not sure I will: https://seekingalpha.com/article/3982351-graph-dividend-investors-see
If you disagree, provide peer reviewed academic articles to support that living off dividend yield during retirement is less safe than living off dividend+stock sales. But avoid https://papers.ssrn.com/sol3/papers.cfm?abstract_id=946448
because they might shiver your world view.
In addition, during retirement, the total return of the S&P is not an appropriate benchmark to compare to as I have no other sources of emergency funds other than the cash I have in my portfolio, and that cash portion will (in the happiest case) reduce the total return of the portfolio.
You mentioned that you have peer reviewed academic articles that show there is no dividend stock total return premium. What are they, and what portfolio are they comparing to? Just the S&P? That's pretty laughable without a HELOC or other source of emergency money (which is how many?). It's also mostly irrelevant to someone living off their portfolio (so no dividend reinvesting). Share them anyway.
Like I said, if I were years away from decumulation, I'd be 100% VOO. The OP is talking about living off his portfolio, so we don't have to worry about that here.
The other comments seemed too unusual to reply to (e.g., "somehow pick a few of the many absurdly overpriced tech stocks in the late '90s and retire on their total return without depleting them too greatly during the two recessions that followed").