Author Topic: Investing in The S&P 500 Dividend Aristocrat Stocks.  (Read 10156 times)

BTDretire

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Investing in The S&P 500 Dividend Aristocrat Stocks.
« on: June 30, 2015, 09:27:40 AM »
Hi all,
  "Dividend Aristocrats are companies in the S&P 500 that have increased dividend payouts to shareholders every year for the last 25 years."

I ran across a website that lists 8 rules for Dividend investing. I like the list, although there may be more criteria to monitor.
 I'm looking for sites that have already put the data together for me, I've found most of what I need, although a  programer may be able
to manipulate all the data to spit out the top 10 or 15 Best fit stocks that meet all the criteria.
 I have listed links that provide the info needed to use the rule. If I don't have a link, I haven't found a site to get the data, your help appreciated.
 I found it a helpful list, I'm posting it hoping others may be interested and for your feedback.

                    Dividend Stock Investing Rules

       Gleaned from----    http://www.suredividend.com/8rules/

Be sure to check the date of all information in links, I'm not sure how often the pages are updated.


Financial Rule:  Invest only in stocks with 25 or more years of dividend payments without a reduction.

 
S&P 500 Aristocrat stocks all meet this criteria, see link to list at bottom.

Financial Rule:  Rank stocks by dividend yield.


http://www.buyupside.com/dividendaristocrats/dividendaristocratsyieldssorted.php

Financial Rule:  Rank stocks by their payout ratios.

http://www.buyupside.com/dividendaristocrats/aristocratsdivmapporyd.php

Financial Rule:  Rank stocks by long-term revenue growth.
 This looks good, just subtract Divi from 10y annualized return
http://www.buyupside.com/dividendaristocrats/aristocratsdivmapretyd.php

Financial Rule:  Rank stocks by their long-term volatility and beta

I need help finding this data. Are volatility and Beta the same?


Financial Rule:  Sell when the normalized P/E ratio is over 40.


http://www.topyields.nl/Top-dividend-yields-of-Dividend-Aristocrats.php

Financial Rule:  Sell when the dividend payment is reduced or eliminated.

 Use Google alerts


Financial Rule:  Build a diversified portfolio over time.  Use The 8 Rules of Dividend Investing to rank high quality dividend growth stocks.  
Buy the highest ranked stock of which you own the least each month to build your diversified portfolio over time.


As a bit of a synopsis, monitor monthly for lowered dividends, PE over 40, and invest in the highest ranked that you own the lowest dollar amount of.

Here is a  List of the 53 Aristocrat Stocks in the S&P 500.


http://www.topyields.nl/Top-dividend-yields-of-Dividend-Aristocrats.php


wtjbatman

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #1 on: June 30, 2015, 10:01:18 AM »
Dividend growth investing is not a popular form of investing here. Most people here focus on investing in index funds.

Just a heads up before this thread joins the multitude of other DG threads in the trash bin of MMM.

johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #2 on: June 30, 2015, 10:04:20 AM »
Cue onslaught from seattlecyclone, skyrefuge, and brooklynguy (hopefully I haven't missed anyone - my apologies if I have).


Long story short OP, dividends are not in any way free. When a company issues a dividend, the stock price drops by the exact amount.
Now if you go back and look at any company's stock price on the day a dividend was issued, you won't see this. Why? Because a stocks' price fluctuates every single day. The point is that on top of normal market fluctuations. the company's stock price by the dividend amount. If the dividends were issued on a weekend, you'd see this very clearly.

BTDretire

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #3 on: June 30, 2015, 11:07:47 AM »
Cue onslaught from seattlecyclone, skyrefuge, and brooklynguy (hopefully I haven't missed anyone - my apologies if I have).


Long story short OP, dividends are not in any way free. When a company issues a dividend, the stock price drops by the exact amount.

 I'm aware of that, note, that money is in your pocket.  I don't think one day fluctuation matters to most. It is growth over time. I have found several cites that show a graph of the S&P vs The Aristocrats over time, the Aristocrats do much better over time.
In a search for those graphs my first hit was this, which was coincedent, since I started to make my post on Bogleheads.
http://www.marketwatch.com/story/heres-another-reason-to-dump-your-index-fund-2015-01-09
Quote;
"The average, "great unwashed" stocks of the S&P 500 boast a five-year average total annual return of 14.36% and a 10-year total return of 7.59%. In contrast, the Aristocrats have a five-year total average annual return of 17.52% and a 10-year total return of 10.53%. That gap of roughly 3% per year is remarkable."
This page has a graph showing the large growth advantage of the Aristocrats.
http://www.eagledailyinvestor.com/17537/elite-beat-market/

 There maybe some evidence that the dividend stocks hold up better in a down market also.


forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #4 on: June 30, 2015, 11:16:18 AM »
Over a short period of time (historically speaking) The Aristocrats did better than the S&P 500. Will this trend continue? Who knows. There was a long thread in this section where we discussed this phenomenon.


Eric

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #6 on: June 30, 2015, 11:22:45 AM »
I'd probably read a few other threads around here before deciding that focusing on 10-15 stocks simply because they pay dividends is a good approach.  Maybe these for starters:

http://forum.mrmoneymustache.com/investor-alley/dividend-portfolio-vs-index-fund/
http://forum.mrmoneymustache.com/investor-alley/anyone-else-only-buying-dividend-stocks/
http://forum.mrmoneymustache.com/investor-alley/dividend-stocks-versus-index-investing/

johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #7 on: June 30, 2015, 11:45:06 AM »
There maybe some evidence that the dividend stocks hold up better in a down market also.

There have been numerous posts on this matter showing this to be precisely NOT the case. You'll probably find it in one of the threads mentioned above.

691175002

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #8 on: June 30, 2015, 02:51:10 PM »
I have found several cites that show a graph of the S&P vs The Aristocrats over time, the Aristocrats do much better over time.
I'm sorry, but you have been lied to.  This frequently posted chart is deceptive to the point of being malicious.



This chart does not represent the return of the dividend aristocrats index (Which did not exist and was not investible in 1990).  The chart represents the hypothetical return a time traveler could have achieved by knowing the construction of a popular stock market index 25 years in advance. 

Comparisons of dividend aristocrats ETFs against the overall market reveals lackluster performance since inception.

The unambiguous truth is that dividend paying stocks do not outperform.  There is more than three decades of academic research on market anomalies.  At best you are getting indirect exposure to non-negative earnings and low vol.

Feel free to browse SSRN for a more thorough overview of the evidence.  Historical prices and yields are publicly availaible, so you can even do the backtesting yourself.

BTDretire

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #9 on: June 30, 2015, 04:56:40 PM »
I have found several cites that show a graph of the S&P vs The Aristocrats over time, the Aristocrats do much better over time.
I'm sorry, but you have been lied to.  This frequently posted chart is deceptive to the point of being malicious.



This chart does not represent the return of the dividend aristocrats index (Which did not exist and was not investible in 1990).  The chart represents the hypothetical return a time traveler could have achieved by knowing the construction of a popular stock market index 25 years in advance. 

 Not sure I see your point, if the S&P 500 index had not excisted we could still go back and calculate it's return. The question is, did they go back to 1990 and use stocks that had a 25 year dividend increase history, or use todays aristocrats.
Quote
Comparisons of dividend aristocrats ETFs against the overall market reveals lackluster performance since inception.

I'm not seeing that, sometimes it's better sometimes not.
Here's a page with a bar graph chart, showing a comparison of a 60/40 Aristocrat/bond, S&P500/bond and equity income/bond portfolios.
You can click on the year the hover over the bars to see dollar values.
http://www.bankrate.com/finance/retirement/best-retirement-funds-for-the-duration-1.aspx

I'm a long term, Vanguard total stock market / some Vanguard international index investor, so I'm not unsympathetic to your idea of index's,
I'm just exploring ideas for retirement income, I'm 60 and getting ready to retire. My wife wants to continue working and we can live on what she makes,
but I'm looking for options.

johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #10 on: June 30, 2015, 05:05:21 PM »
I have found several cites that show a graph of the S&P vs The Aristocrats over time, the Aristocrats do much better over time.
I'm sorry, but you have been lied to.  This frequently posted chart is deceptive to the point of being malicious.



This chart does not represent the return of the dividend aristocrats index (Which did not exist and was not investible in 1990).  The chart represents the hypothetical return a time traveler could have achieved by knowing the construction of a popular stock market index 25 years in advance. 

 Not sure I see your point, if the S&P 500 index had not excisted we could still go back and calculate it's return. The question is, did they go back to 1990 and use stocks that had a 25 year dividend increase history, or use todays aristocrats.
Look at how the dividend aristocrats list is constructed: 25 years of increasing dividends. What 691175002 is saying is that the chart shows the performance of today's dividend aristocrats if you had invested in them back in 1990.

But if you want to use this dividend aristocrats strategy, then to do a proper backtest you need to take the companies that were on the dividend aristocrats list back in 1990 and look at their performance from then until now.

To make this crystal clear:
The 2014 dividend aristocrats list consists of companies that have paid increasing dividends from 1989 to 2014.
The 1990 dividend aristocrats list consists of companies that have paid increasing dividends from 1965 to 1990.

The chart depicted shows the performance of the companies on the 2014 dividend aristocrats list from 1990 to 2014. But you can't know the 2014 list in 1990! This is what 691175002 means by you needing to be a time traveler.

What you actually need to do is look at the performance of the 1990 dividend aristocrats list from 1990 to 2014 (or more accurate to your situation, start with the 1990 list, and then make changes to the list according to the prescribed rules described in the original post).

forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #11 on: June 30, 2015, 05:33:07 PM »
The point is that it's easy to go back in time and find something that worked in the past. For example, I just created the Netflix index. It started in 2000 and invested only in Netflix. Boy is that a great index or what!

The trick is identifying some market anomaly, having that information be known, and then having the anomaly continue after the information is known.

I predict that the Aristocrats will do about as well as the rest of VTSAX going forward, but with more volatility.

johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #12 on: June 30, 2015, 05:50:55 PM »
The point is that it's easy to go back in time and find something that worked in the past. For example, I just created the Netflix index. It started in 2000 and invested only in Netflix. Boy is that a great index or what!

The trick is identifying some market anomaly, having that information be known, and then having the anomaly continue after the information is known.

I predict that the Aristocrats will do about as well as the rest of VTSAX going forward, but with more volatility.
forummm that is certainly a problem. But there is another problem with respect to the dividend aristocrats as I described above.

forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #13 on: June 30, 2015, 06:08:23 PM »
The point is that it's easy to go back in time and find something that worked in the past. For example, I just created the Netflix index. It started in 2000 and invested only in Netflix. Boy is that a great index or what!

The trick is identifying some market anomaly, having that information be known, and then having the anomaly continue after the information is known.

I predict that the Aristocrats will do about as well as the rest of VTSAX going forward, but with more volatility.
forummm that is certainly a problem. But there is another problem with respect to the dividend aristocrats as I described above.

Yes, your point is a very good one.

arebelspy

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #14 on: June 30, 2015, 06:16:48 PM »

But if you want to use this dividend aristocrats strategy, then to do a proper backtest you need to take the companies that were on the dividend aristocrats list back in 1990 and look at their performance from then until now.

Excellent point.  Unless you know the future and which companies will raise their dividends for the next 25 years, looking at those who have the last 25 years probably doesn't help you much.

Is the data on what the Aristocrats would have been in 1990 available?
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johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #15 on: June 30, 2015, 06:21:25 PM »

But if you want to use this dividend aristocrats strategy, then to do a proper backtest you need to take the companies that were on the dividend aristocrats list back in 1990 and look at their performance from then until now.

Excellent point.  Unless you know the future and which companies will raise their dividends for the next 25 years, looking at those who have the last 25 years probably doesn't help you much.

Is the data on what the Aristocrats would have been in 1990 available?
To be fair this should not be credited to me - I did not realize this myself until skyrefuge pointed it out. Or was it seattlecyclone?

I think SDY is the oldest etf or mutual fund that tracks this. Not an expert on the matter by any means though.

forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #16 on: June 30, 2015, 06:57:11 PM »
I'm too lazy to check, but I'm pretty sure this analysis was done in one of the 2 threads I posted earlier.

http://forum.mrmoneymustache.com/investor-alley/why-does-the-dividend-aristocrats-index-beat-the-sp-500/

innerscorecard

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #17 on: June 30, 2015, 08:31:10 PM »
There is no reason to limit yourself to the S&P 500, especially as the list is constructed in a rather arbitrary way that excludes many of the best dividend-paying and dividend-growing companies out there.

money_bunny

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #18 on: July 01, 2015, 04:18:50 AM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #19 on: July 01, 2015, 05:32:22 AM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

Yes, in addition to being more risky, a dividend stock investment "strategy" is also less tax efficient.

johnny847

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #20 on: July 01, 2015, 06:36:27 AM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

This is why I would like an "anti-dividend" fund, which I think actually exists in the form of Berkshire Hathaway?

innerscorecard

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #21 on: July 01, 2015, 07:11:18 AM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

Yes, in addition to being more risky, a dividend stock investment "strategy" is also less tax efficient.

It is not more risky if one looks also for the quality of dividends (low payout ratios, dividend growth and sustainability, etc). I am personally not at all a dividend investor, but I think it does make sense in that dividend growth and sustainability is a very rough proxy for economic earnings power/owner earnings/free cash flow/etc growth and sustainability (not 1 to 1 obviously), so picking firms with growing and sustainable dividends at reasonable valuations is likely to make you do well over time.
« Last Edit: July 01, 2015, 07:15:06 AM by innerscorecard »

waltworks

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #22 on: July 01, 2015, 07:21:14 AM »
It is not more risky if one looks also for the quality of dividends (low payout ratios, dividend growth and sustainability, etc). I am personally not at all a dividend investor, but I think it does make sense in that dividend growth and sustainability is a very rough proxy for economic earnings power/owner earnings/free cash flow/etc growth and sustainability (not 1 to 1 obviously), so picking firms with growing and sustainable dividends at reasonable valuations is likely to make you do well over time.

Now that we're just openly beating dead horses, it's apparently a stock picking thread?


Scandium

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #23 on: July 01, 2015, 07:30:27 AM »
I have found several cites that show a graph of the S&P vs The Aristocrats over time, the Aristocrats do much better over time.
I'm sorry, but you have been lied to.  This frequently posted chart is deceptive to the point of being malicious.



This chart does not represent the return of the dividend aristocrats index (Which did not exist and was not investible in 1990).  The chart represents the hypothetical return a time traveler could have achieved by knowing the construction of a popular stock market index 25 years in advance. 

Not do defend dividend investing, but I don't think this is true. Yes there was no investible index (i.e. an ETF) for the aristocrats in 1990, but it's my understanding that the plot was created by looking at the return of those companies that where on the aristocrats list in 1990, and include subsequent changes to the list. Or that's certainly how it should have been done. If that was not the case I agree it's even more worthless.

It couldn't find the source. But it appears the aristocrats list at least existed in 1989, for companies that had paid dividends since 1964. So the plot could be constructed using data that far back.
http://www.dividendgrowthinvestor.com/2009/11/where-are-original-dividend-aristocrats.html
(no that is not a very reliable sources. I find his writing ignorant).
The wikipedia page for the list does not mention when it was first started.

BTDretire

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #24 on: July 01, 2015, 08:14:03 AM »

I'm sorry, but you have been lied to.  This frequently posted chart is deceptive to the point of being malicious.



This chart does not represent the return of the dividend aristocrats index (Which did not exist and was not investible in 1990).  The chart represents the hypothetical return a time traveler could have achieved by knowing the construction of a popular stock market index 25 years in advance. 

 Do you have a source that substantiates that this graph is actually today's aristocrats and not aristocrats that existed in 1990?
 Scandium has a link that says the 1964 to 1989 aristocrats did out performed the S&P.

 Also, it would be interesting to see what would happen if you apply the 8 rules in my original post to an Aristocrat portfolio, ie. sell high PE, sell on dividend reduction, only own Aristocrats with better payout ratios and better long term revenue growth.


Aphalite

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #25 on: July 01, 2015, 08:31:53 AM »
It is not more risky if one looks also for the quality of dividends (low payout ratios, dividend growth and sustainability, etc). I am personally not at all a dividend investor, but I think it does make sense in that dividend growth and sustainability is a very rough proxy for economic earnings power/owner earnings/free cash flow/etc growth and sustainability (not 1 to 1 obviously), so picking firms with growing and sustainable dividends at reasonable valuations is likely to make you do well over time.

You're fighting a losing battle here - a lot of posters don't care about the reasons why dividends *can* indicate a better investment - they point to the banks that cut (sometimes unnecessarily but forced to by regulatory agencies like in the case of WFC or USB) dividends in 08/09 as evidence that dividend investing isn't any better than indexing. Add to that the worship of stock price charts as opposed to free/owner cash flow and you get dye in the wool indexers who get defensive at any mention of the disadvantages of strictly following a float based capital allocation strategy.

This munger quote sums it up perfectly: "Fourth, and this is a superpower in error-causing psychological tendency: bias from consistency and commitment tendency, including the tendency to avoid or promptly resolve cognitive dissonance. Includes the self-confirmation tendency of all conclusions, particularly expressed conclusions, and with a special persistence for conclusions that are hard-won"

Aphalite

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #26 on: July 01, 2015, 09:02:40 AM »
Here's a quick and dirty calculation of $1000 investment per 1989 Dividend Aristocrat starting January 2, 1990 and ending December 31, 2014 - populated using:

Dividend Aristocrat list: http://www.suredividend.com/25-year-review-of-dividend-aristocrats-why-companies-fell-off-the-list/
Return calculation (dividend reinvested) - this could have errors, I haven't backtested, but seems to be pretty accurate: longrundata.com

For firms that were acquired or no longer exist, I assume total loss of principal, even though this isn't what actually happened:

Symbol   Return    Ending Value
K   8.41%    $7,543
PH   13.99%    $26,465
BAX   11.12%    $13,986
FPL/NEE   12.04%    $17,179
IFF   8.95%    $8,536
DOV   11.36%    $14,746
EMR   10.41%    $11,914
JNJ   13.58%    $24,179
KO   11.26%    $14,407
LOW   20.06%    $96,736
MMM   11.83%    $16,404
PG   12.34%    $18,376
CL   14.46%    $29,310
GPC   10.82%    $13,052
MAS   5.46%    $3,782
TMK   10.03%    $10,929
CSR   0.00%    $-   
HI   0.00%    $-   
RBD   0.00%    $-   
WLA   0.00%    $-   
AMP   0.00%    $-   
AHP   0.00%    $-   
LDG   0.00%    $-   
WIN   0.00%    $-   
TXU   0.00%    $-   
NSI   0.00%    $-   
Total    $26,000     $327,543
   11.13%   

You end up with $327.5k on a $26k investment (with Lowe's doing the heavy lifting) - I don't have the numbers for SP500/VTSAX going back to 1990, but 11.13% with assumed total principal loss on 10/26 holdings in the index would be acceptable to me

And keep in mind, total return would actually probably be much higher because you would have received cash on the companies in the list that were acquired or went private, such as CSR, HI, RBD, WLA, AMP, and TXU

Edit: My personal opinion is that buying an aristocrats fund is idiotic - if you're trusting someone else to allocate your money anyway, just go with the whole market. The funds are based on quantitative measures, with no regard for the underlying business, and if you are going to accept that risk, then at least diversify into a total market index where you get growth companies as well as dividend payers
« Last Edit: July 01, 2015, 09:39:29 AM by Aphalite »

Scandium

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #27 on: July 01, 2015, 09:58:52 AM »
Just a thought. Dividend companies are usually large cap and/or value. In the 90s large cap did very well. Growth crashed in 2000, and since then value has done well. Do we know this will continue?

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #28 on: July 01, 2015, 05:48:24 PM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

This is why I would like an "anti-dividend" fund, which I think actually exists in the form of Berkshire Hathaway?

There are actually index fund products in Canada which issue no dividend/distributions. They're called swap funds and a company called Horizon has a few.

Here is some information about them: http://canadiancouchpotato.com/2014/05/08/a-tax-friendly-bond-etf-on-the-horizon/

The basic idea is there is a counterparty that actually holds the stocks or bonds, but they provide the money that goes into the fund. So the fund should grow exactly as it should, but the dividends stay within the fund and never get distributed, which is advantageous for tax reasons.
I'm still not fully clear what is in it for the counterparty - I'm guessing it is some sort of strange tax arbitrage.

forummm

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #29 on: July 01, 2015, 06:36:26 PM »
Something I was considering with dividends last night. I get taxed on dividends now while I am working each year. The overall growth in value is postponed until I retire/FIRE and start to sell funds/stocks to retire on.

This is why I would like an "anti-dividend" fund, which I think actually exists in the form of Berkshire Hathaway?

There are actually index fund products in Canada which issue no dividend/distributions. They're called swap funds and a company called Horizon has a few.

Here is some information about them: http://canadiancouchpotato.com/2014/05/08/a-tax-friendly-bond-etf-on-the-horizon/

The basic idea is there is a counterparty that actually holds the stocks or bonds, but they provide the money that goes into the fund. So the fund should grow exactly as it should, but the dividends stay within the fund and never get distributed, which is advantageous for tax reasons.
I'm still not fully clear what is in it for the counterparty - I'm guessing it is some sort of strange tax arbitrage.


Probably you don't get 100% of the value. They collect some kind of fee.

tyir

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Re: Investing in The S&P 500 Dividend Aristocrat Stocks.
« Reply #30 on: July 01, 2015, 07:04:50 PM »
That's right, there is a swap fee of .15%. This is extra on top of  .15% MER, bringing total fee to .3% which is higher than pure index but still reasonable.

However not having any dividend taxes is a huge boon, especially if you have a high income and need to put tax inefficient funds (like bonds) in a unregistered account.