Help: formula shares required based on dividend to provide income and growth

[NWOutlier]

This won’t be an exact science, just looking for some guidelines or someone that has spent the time to figure this out.. I will typically adjust the formula for a safety margin.

I have VTSAX

VTSAX has paid dividends from .11 (eleven cents) to approx .27 cents (twenty seven cents).

I am making an assumption that at some point in time VTSAX will be 75 dollars a share (maybe this is when I’m FI)

I will need to ‘sell’ approx. 50-75 shares per month for living expenses sometime in the future

My objective is to have enough shares to exceed my consumption, meaning – if I need to sell 50-75 @ 75 dollars a share per month for living – I would like the dividends to purchase 100-125 shares per month on average (understanding dividends purchase quarterly).

Anyone ever put pencil to paper (or excel) to come up with a formula?

Just looking for a guideline -

Thanks in advance,

NWOutlier (Steve)

[seattlecyclone]

A spreadsheet really isn't necessary. The dividend yield is roughly 2%. It looks like you want to spend about half the dividend, putting the other half into purchasing new shares. That would mean you're spending 1%. That's one heck of a safety margin.

[NWOutlier]

ouch!

good point - love the direct approach.  Ok, makes complete sense.  Hmm - diversify comes to mind.

[MDM]

diversify comes to mind.

Why?

[forummm]

The amount of dividends you're getting doesn't really matter. If the companies are earning money but then doing share buybacks or investing in new business areas, those profits are going back to work for you just as hard as if they paid out the dividends and you reinvested the dividends yourself. Instead, I would just follow an internationally diversified portfolio and something like a 4% WR and you'll be set. With a 1% WR, just put it all in TIPS and you'll never run out of money.

http://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

[mrpercentage]

The amount of dividends you're getting doesn't really matter.

http://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

Only if you are an equity growth investor. 2008 comes it matters a lot. 1929 comes and you are going back to work with no jobs in the market. Granted it would hit dividends too. No one would be out of that blast zone but you would be in a better position in companies that are not likely to go out of business. And since you don't live off of equity-- you wouldn't necessary be murdered in a 90% equity loss.

In 2008 4% dividend yield would have you selling no shares at all and possibly still buying shares. A 6% yield you could still reinvest a lot when the market is down and live like a hog when the market is up. You can make a killing in equity growth. But there is a reason it is in the high risk category.

[mrpercentage]

Think of it this way. Times are bad and the economy might go south. You want to:

A) Put my money somewhere that people agree other people will pay more for in the future.
B) Have a partial ownership in a bunch of retail property that will send me rent payments.
C) Take partial ownership in a company that has agreed to pay me a significant portion of their future earnings.
D) Give it to the government because the debt they can acquire has no limit. They will pay me back.

That is how I look at it. I have good amounts in A, B, and C.

Steve you are asking how to be C. Maybe B or C.
If you like your fund  you may begin to convert to higher yield closer to retirement. The down side is there is no guarantee the yield that will be available at that time will be as high in the future as it is today.

[Scandium]

The amount of dividends you're getting doesn't really matter.

http://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

 No one would be out of that blast zone but you would be in a better position in companies that are not likely to go out of business.

[citation required]
Why are dividends safer? Does research show this? How many companies cut their dividends in 2008 and 1929? I believe it was something like 40% of dividends where cut or eliminated in '08, but not totally sure on that number. If you got 4% before, how much would you have left after the crash?

"not likely to go out of business" is also a pretty useless criteria beforehand.. You only know after the fact.

[Aphalite]

Why are dividends safer? Does research show this?

http://www.suredividend.com/wp-content/uploads/2014/03/Dividends-A-Review-of-Historical-Returns.pdf

The charts don't mean that because a stock is a dividend payer it is automatically better than a non-dividend payer, just general patterns as a basket, for example, in the non-dividend payer group, you have a multitude of startups, but you also have examples like Berkshire and Google

mr.percentage's ideas are all over the place, but there's quite a bit of academic research supporting dividend paying stocks as a hedge against market volatility, since you're reinvesting when markets drop. Of course, in an extended bull run, it would result in your dividend reinvestment becoming overpayment for equity instead of buying at a discount, so this dividend reinvestment advantage is only an advantage when stocks are more often undervalued than overvalued

[mrpercentage]

Correct. Growth will  surpass dividends returns in a bull market. The tables turn quickly in a bear market. I think I have always been an advocate of having both for someone my age. I'm not sure you can index the power of focus investments in companies like Cheveron when they yield 6%.

You will get a bigger return in equity over the long run with growth.
Your money will last longer and you will be less troubled in bear markets with close to 4% yielding dividends. The 3% yield in companies like JNJ and PG are what I'm talking about. I know Vanguard has a good RIET. I bet it faired well in 2009 relative to the S&P. I'm saying it without even looking at the chart.

[johnny847]

Correct. Growth will  surpass dividends returns in a bull market. The tables turn quickly in a bear market. I think I have always been an advocate of having both for someone my age. I'm not sure you can index the power of focus investments in companies like Cheveron when they yield 6%.

You will get a bigger return in equity over the long run with growth.
Your money will last longer and you will be less troubled in bear markets with close to 4% yielding dividends. The 3% yield in companies like JNJ and PG are what I'm talking about. I know Vanguard has a good RIET. I bet it faired well in 2009 relative to the S&P. I'm saying it without even looking at the chart.

You lost your bet.
VGSLX: Vanguard REIT Index fund
VFIAX: Vanguard S&P 500 Index fund

[mrpercentage]

Fair enough. I did say I'm not sure you can index it. Hoe did O do? Check that

[johnny847]

Fair enough. I did say I'm not sure you can index it. Hoe did O do? Check that

I'm not quite sure what you mean by that. What companies are you trying to index?

[mrpercentage]

You would be looking for high yield, low volatility, large cap. Yield 3%-4% slow growing stalwart with strong earnings.

My RIET is O. You might be able to pull it off with the energy sector. Thats all high yield with the criteria but its not exactly what Im looking for.

[mrpercentage]

Also, the equity chart will not factor in that you are buying more shares with reinvested dividends therefore returning a larger dividend that you can live off of later. Its a different strategy. You are not living off of equity

OUSA has what Im looking for but its a new ETF with a high fee. That fee will take a big bite out of its self purchasing power.