Chasing dividends with your primary investment for fire is typically a losing scenario compared to the alternative of index investing.
i agree . it is all about total return at the end of the day . dividends in tough times can be reduced or suspended and if you are living off that money you can end up selling things at a loss to make up the income shortfall .
lots of that went on in 2008-2009 .
at the end of the day except for possibly trading costs and taxes there is no difference between the company handing you back 2% of your investment value as a dividend or you selling off the same dollars (not percentage ) from your total portfolio .
assuming the same total returns on both the results will be similar .
many folks do not realize that whenever a stock goes ex div the exchange computers have to reduce the price by an equal amount at the ring of the bell . this is mandatory . so if you are not reinvesting the dividends but are spending them , you will have less dollars compounding for you at the ring of the bell over the next quarter compared to what you had the night before .
it is dollars being compounded over each quarter that count .
if you reinvest the dividends then you have the exact same dollar value compounding at the ring of the bell over the next quarter as you had the night before .
the dividend is not like interest . interest has no price reduction .
there is a reason you want both interest paying investments and either dividend or growth vehicles . they serve different purposes .
i reinvest all dividends from my retirement accounts and basically pull from the portfolio over all . it helps keep the income non dependent each year on any dividend cuts or changes . i use the dividends to refill next years money for spending .
According to John Bogle in The Little Book of Common Sense Investing (Exhibit 7.1), over the past 100 years capital gains (represented in his numbers by earnings growth) have accounted for:
53% of stock market returns while
dividends have accounted for 47%.
But over the past 25 years:
65% of returns have come from capital gains
while only 35% have come from dividends.
Not only that, but the actual return from dividends has fallen, from 4.5% per year over the past 100 years to 3.4% per year over the past 25. Today, the overall US stock market has a 2% dividend yield.
ever look at how hard it would be to try to plan living off the dividends from the so called dividend aristocrat's ?
you keep seeing just invest in this group and call it a day .
however what constitutes this group changes all the time so get ready for lots of selling trying to keep up as they get bumped and replaced AFTER THE FACT THEY DID NOT LIVE UP TO EXPECTATIONS . you could be behind the curve here very easily .
these dividend aristocrats are not somehow immune to all the things that effect company's and stocks . Just like other companies, their outcomes change.
in 2009 there were 52 stocks that met the group’s strict criteria.
As of 2012, there were 51.
But of those 51, 13 were different than the original set. So over the course of just 3 years, there was a 27% change in the group’s composition.
in fact going back to 1989's list :
Of those 26, seven are still on the list today, ten were removed because they either cut or froze their dividend, four were removed for an unknown reason, and the remainder were acquired at some point and dividends were altered . So at least ten of the 26 had an outcome that is different from the assumption of dividend growth every year through thick and thin.
dividend stocks an be a fine investment vehicle, but one needs to practice reasonable diversification and not chase yield or get to fixated on that dividend .
today the fact i can't control the dividends and distributions from my funds hurts me a bit . my yearly distributions can run from 29k to 69k a year depending on markets . that means i may or may not get an aca subsidy on my medical insurance costs . had i had a more efficient portfolio of non div payers it would be easier to control since i would not have money forced upon me at those times i did not want it.
but at this point it is what it is , but if it was decades ago i would have structured things differently .