Author Topic: Do You Own Nothing But Dividend Stocks?  (Read 12160 times)

GTheFinder

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Do You Own Nothing But Dividend Stocks?
« on: May 13, 2013, 09:07:51 PM »
I just read this article online about a guy that owns nothing but dividend paying stocks:

http://seekingalpha.com/article/1429391-the-case-for-a-100-dividend-stock-portfolio?source=google_news

It's called "The Case for A 100% Dividend Portfolio."

Is that...wise?

Is it Mustachian to put all your eggs in the basket of dividend paying stocks, or should there be some bond allocation?

One one hand, it seems awesome to own companies with "badassity" that keep giving more and more dividends. But isn't it crazy to only own that???

I would like to hear the general thought process of fellow Mustachians on portfolio construction with dividend stocks. Do you only own dividend companies? Any counsel would be appreciated.

Reepekg

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #1 on: May 13, 2013, 09:29:14 PM »
This guy starts off making very little sense... If you are not bothered at all by volatility you should put all your money in: blue chip dividend stocks? Yes, very risk-tolerant investors love those boring, mature, stable, slow growing businesses.

The short answer is no, the idea isn't wise. Different investments play different roles. DRIPs provide low-cost, automated, and slow stable growth/income. A broad index captures wider exposure to the market. I haven't found any use for bonds at the moment, but I'm sure there is a good reason to have them in other situations. Some REITs give you real estate exposure and higher dividend income. A few crazy non-dividend stocks (like tech) here and there gives some capital appreciation. Mix it up. Know what different groups of your 'little employees' are out to accomplish, deploy them with purpose, and be well-rounded.
« Last Edit: May 13, 2013, 11:51:52 PM by Reepekg »

mpbaker22

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #2 on: May 13, 2013, 09:39:16 PM »
I agree with the first response that someone who is not bothered by volatility would not be exclusively in dividend stocks.  I suppose REITs could fall under a high volatility portfolio though?

That being said, I would be fine with 100% dividend stocks as long as there is some sort of diversification.  I don't invest that way, but I'm not inherently opposed to it.   Only about 25% of my portfolio is actually in high dividend yielding stocks right now.  Another 50% in stocks somewhere between appreciation and dividend labels.  Another 20% in appreciation.  The last 5% in cash and lending club.  Though I didn't really set those numbers hard, they're just rough estimates of where I am right now.

GreenGuava

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #3 on: May 13, 2013, 09:43:27 PM »
IMO, "dividend paying stocks" is Just Another Stock Picking Theory (tm).   In a tax-advantaged account (such as an IRA), there's absolutely no reason to look for anything other than total return.  In a taxable account, a dividend ends up meaning that the company, not you, gets to choose when you cash out some of your value in the company.  Meanwhile, plenty of people continue to believe that dividends somehow constitute a "free lunch" in investing - money from nowhere.  It does come from the value of the company.

There are plenty of good stocks that pay reliable dividends;  there are also plenty of examples of companies doing all sorts of questionable financial things - many of which hurt the company, both long-term and short-term - in order to pay a dividend.

There are also plenty of companies, good and bad, that don't pay high dividends.

Do I think it's wise?  No, but then again, I don't think it's wise for amateurs (no offense intended) to try to pick stocks for any purpose other than fun.  You've got the time, energy, risk tolerance, and insight to try to do a better job than professionals?  Good luck;  and, while we're at it, be especially wary of a deterministic strategy you see on websites everywhere (even if those websites aren't selling anything).

arebelspy

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #4 on: May 14, 2013, 12:19:09 AM »
IMO, "dividend paying stocks" is Just Another Stock Picking Theory (tm).   In a tax-advantaged account (such as an IRA), there's absolutely no reason to look for anything other than total return.  In a taxable account, a dividend ends up meaning that the company, not you, gets to choose when you cash out some of your value in the company.  Meanwhile, plenty of people continue to believe that dividends somehow constitute a "free lunch" in investing - money from nowhere.  It does come from the value of the company.

There are plenty of good stocks that pay reliable dividends;  there are also plenty of examples of companies doing all sorts of questionable financial things - many of which hurt the company, both long-term and short-term - in order to pay a dividend.

There are also plenty of companies, good and bad, that don't pay high dividends.

Do I think it's wise?  No, but then again, I don't think it's wise for amateurs (no offense intended) to try to pick stocks for any purpose other than fun.  You've got the time, energy, risk tolerance, and insight to try to do a better job than professionals?  Good luck;  and, while we're at it, be especially wary of a deterministic strategy you see on websites everywhere (even if those websites aren't selling anything).

Stellar post.
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strider3700

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #5 on: May 15, 2013, 05:46:26 PM »
what about just going with a dividend paying ETF that is well diversified?  TSE:CBD is an etf with 15 other etf's in it which works out to 895 holdings.  It pays  dividend monthly.

Joet

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #6 on: May 15, 2013, 06:05:44 PM »
Why not just the Vanguard Wellesley fund if income is important? It's about as proven as proven gets

Here's a timely on 'safety assets' [such as high-dividend blue-chip stocks] being a current bubble:

http://finance.yahoo.com/blogs/daily-ticker/bubble-safety-assets-forming-seth-masters-131144444.html?vp=1

arebelspy

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #7 on: May 15, 2013, 07:07:39 PM »
Why not just the Vanguard Wellesley fund if income is important? It's about as proven as proven gets

Pssst....

That's a pretty good fund.

Wellington also.
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Nords

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #8 on: May 15, 2013, 09:09:31 PM »
Is it Mustachian to put all your eggs in the basket of dividend paying stocks, or should there be some bond allocation?
The older I get, the more I believe in diversification-- of asset classes as well as the shares in those classes.

There are a number of good dividend investors out there, Dividend Growth Investor being my favorite.  However doing it right is a lot of work to research, identify, track, invest, and monitor.  If you can achieve 80% of the same results with 10% of the effort then you're only going to be a good dividend investor if you're hardwired to enjoy the effort.

AlexK

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #9 on: May 15, 2013, 09:31:19 PM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends. Think about it, what else is a shareholder entitled to besides a dividend? Sure you can sell the stock, but the only reason someone would want it is for the dividends.

That said, I don't think it matters if a company pays dividends right now or not in terms of total return.

Nords

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #10 on: May 15, 2013, 11:24:11 PM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends.
Berkshire Hathaway hasn't paid a dividend since 1967.  What value would be appropriate for its shares, either going back to 1967 or in the future?

AlexK

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #11 on: May 16, 2013, 12:42:50 AM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends.
Berkshire Hathaway hasn't paid a dividend since 1967.  What value would be appropriate for its shares, either going back to 1967 or in the future?

OK so answer my question.
What else is a shareholder entitled to besides a dividend? A discount on Geico insurance?

idjces

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #12 on: May 16, 2013, 01:39:28 AM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends.
Berkshire Hathaway hasn't paid a dividend since 1967.  What value would be appropriate for its shares, either going back to 1967 or in the future?

Isn't the idea that Berkshire can get a better return on capital than most people?, hence the reinvesting rather than distributing their capital

From what I've read, the impression is they will start distributing their income at some point



"discounted present value of all future dividends"

arebelspy

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #13 on: May 16, 2013, 07:19:24 AM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends.
Berkshire Hathaway hasn't paid a dividend since 1967.  What value would be appropriate for its shares, either going back to 1967 or in the future?

$0.

Disclosure: I am long BRKB and this post is reverse psychology.  Kinda ruins it when you have to put it in the disclosure though.
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mpbaker22

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #14 on: May 16, 2013, 08:07:57 AM »
Here's a timely on 'safety assets' [such as high-dividend blue-chip stocks] being a current bubble:
http://finance.yahoo.com/blogs/daily-ticker/bubble-safety-assets-forming-seth-masters-131144444.html?vp=1

Seems everyone's always trying to predict the next bubble.  True, you could make a lot of money by predicting it right, but given the number of potential bubbles and people predicting them, it seems probably worse than market timing.

Joet

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #15 on: May 16, 2013, 08:40:00 AM »
I think yield chasing is just as bad as market timing, ESP when valuations have skewed rather bubble-y. The alternative to dividend stocks are broad indexes and that clearly does not require market timing. It's not like an investor should slice to a significant portion of blue chip dividend only stocks... Ever.

mpbaker22

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #16 on: May 16, 2013, 09:12:39 AM »
I think yield chasing is just as bad as market timing, ESP when valuations have skewed rather bubble-y. The alternative to dividend stocks are broad indexes and that clearly does not require market timing. It's not like an investor should slice to a significant portion of blue chip dividend only stocks... Ever.

Yea, I think it just leads the conclusion of diversification.  Which answers the original question, that owning all dividend stocks is likely not good.  But I also think it's less about the dividends and more about the underlying company.  As long as you have several dividend paying REIT, and several dividend paying Blue Chip, and several dividend paying small value, etc. you shouldn't get burned too bad. 

I think I stated earlier than only about 25% of my portfolio is dividend paying.  That may go up as one of my larger holdings is considering a dividend soon.

Freeyourchains

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #17 on: May 16, 2013, 11:54:49 AM »
Sometimes the public doesn't have access to the 'true' company's value, especially of blue-chip companies, like classified Research and Development at Lockheed Martin, Rolls-Royce, Google, Microsoft, etc or the secret recipe to Coca-cola and the loyalty of it's consumers/customers, as the company has been growing their dividends through 2 World Wars, A Great Depressions, and many depressions.

Like trying to determine a value for the Net Worth of the Vatican (Above $100 Trillion? and growing occasionally??) or a Country; but on a World-wide scale, sense companies are only limited by the number of clients (people/consumers + businesses) who are willing to buy services/products/or invest in them. Even Countries can't get access the net worth of the Vatican or off-shore accounts, unless they try and force a move of their Power.

I could have $25 Trillion dollars in stock shares right now paying out a growing annual dividend to my cash accounts as more investors give the companies capital to grow, and you would never know it; but you could also never care to know/find out, as long as you are happy in your life, as i would be happy in my life.

But i like the fact that mustacians aren't out to be Powerful Politicians or Trillionaires, just to live peacefully and happily with the goal of financial independence in their only lifetime. Like Monks who bow down to no Kings.

grantmeaname

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #18 on: May 16, 2013, 01:22:54 PM »
I don't want to start a flame war here but the value of any stock is the discounted present value of all future dividends.
Berkshire Hathaway hasn't paid a dividend since 1967.  What value would be appropriate for its shares, either going back to 1967 or in the future?
OK so answer my question.
What else is a shareholder entitled to besides a dividend? A discount on Geico insurance?
Definitions are neither true nor false. They are either useful or uselss. Your definition does not even come close to matching reality, so I'm going to go with 'useless'. If you want to make meaningful statements about the world, revise your definition.

Nords

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #19 on: May 16, 2013, 02:55:19 PM »
OK so answer my question.
What else is a shareholder entitled to besides a dividend? A discount on Geico insurance?
I think an investor buys a share of stock to place a claim on the company's future cash flows. 

If the execs are good at allocating capital then they should reinvest the cash flow into growing the business to create even more cash flows.  Eventually the investor sells the stock for some reason, realizes a huge pile of capital gains, and some other investor takes over the claim on future cash flows.

If the execs suck at allocating capital then they say "Look, we're paying dividends!  Yay!!"

Sadly, corporate accounting has become so opaque (and even more so overseas) that dividends have become a proxy for truth.  Even then a business can figure out ways to borrow (presumably against their future cash flows) to pay dividends.

Reepekg

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #20 on: May 16, 2013, 06:37:15 PM »
OK so answer my question.
What else is a shareholder entitled to besides a dividend? A discount on Geico insurance?

So I actually DRIP Colgate-Palmolive (off miscellaneous income at <1% of 'stache), and when I bought my first shares they sent me a welcome letter and manufacturer's coupons for a free tube of toothpaste and a free toothbrush. I thought that was mighty nice of them!
« Last Edit: May 16, 2013, 06:40:16 PM by Reepekg »

Leisured

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #21 on: May 18, 2013, 08:46:48 AM »
I agree with Strider3700 that a managed fund with a large number of stocks is diversified. For further diversification try a ETF specializing in world equities, and another specializing in property funds. Do not try to time the market; even Warren Buffet does not do that. Buy and Hold. I am Australian, bu I understand that long term share investment in the US only attracts income tax on dividends of 15%. The tax office regards dividends in shares held for long term as Qualifying.

I have seen in the past a website which shows the values of Berkshire Hathaway stock from 1967 to present. $2000 invested in Berkshire Hathaway in 1967 is worth $14 million today.

If you pick your own stock, the rules are: dividend yields of about 3 or 4%, and Price to Earnings ratios of say 12 or 15, so you do not buy too high; company borrowings of say 40%, so the company is not highly geared; and Buy and Hold.

Hope this helps.


Khan

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #22 on: May 19, 2013, 08:36:08 PM »
I think any dogmatic approach to investing is bad. Name any style of investing and I'm sure I can find someone who's made money at it. Contrarianism? Dividend growth investing? Total yield? REIT's? Options? Futures? FOREX?

Dogmatic approach to dividend investing(If it doesn't have a dividend, I'm not interested, If it cuts the dividend, I leave, If the dividend stagnates, I leave, Never sell even if according to any metric it's overpriced) could potentially be just as damaging as any other method, although I personally believe that if people are investing in dividends, then they are more likely more risk averse and are probably getting a better return on less risk. There was a story, which I'm unable to find again(on SeekingAlpha I think), about how Shell(RDS.B/RDS.A) hasn't been a dividend king/champion, but if you had not sold out when they cut the dividend/stagnated the dividend, you would have been much better off.

Do I invest in dividend companies? Yes, INTC, F, WM, TGH, GE, CSCO. Do I invest in value? Oh yes: AIG, BAC. Do I invest in buyback companies(which IBM has been one of the best companies over the last several years because they are so good at actually reducing outstanding share count)? Yes: SIRI. REITS? NNN, and I had a position in OHI that I sold out of.

Have I invested in stories/speculative? Oh yes: TSLA, NOK, FSLR

I've made money using all of the above strategies. I've been underwater, either temporarily or realized losses, on all of the above strategies. That said, the majority of my money I feel most confident in placing in strong dividend paying companies, but I will analyze the underlying facts for every company. INTC, I believe will pay a much stronger capital gains return over the next couple of years then it's dividend, but the dividend sure is nice if that thesis is wrong for any length of time(and which it has been since I bought my position until recently).

http://seekingalpha.com/article/1334481-there-is-no-such-thing-as-a-dividend-strategy

Nords

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Re: Do You Own Nothing But Dividend Stocks?
« Reply #23 on: May 19, 2013, 08:51:33 PM »
I have seen in the past a website which shows the values of Berkshire Hathaway stock from 1967 to present. $2000 invested in Berkshire Hathaway in 1967 is worth $14 million today.
Yeah, but there were at least four times during that four decades when you would've sold and run away fast. 

And in 1999 you probably would've shorted the stock...