Pay off home or invest in DNP

[eddy20]

Hi All,

My wife wants to pay off the house and I think we should invest the money in DNP (stock symbol) and use the dividends to pay the mortgage. The math follows;
Mortgage 327,000 @ 2.875% 15 year fixed with 14 years remaining; P&I=$2293 Mo.
DNP @ $9.51 per share and pays .065 Div per. month, so $327,000/$9.51=33,384 Shares with a monthly dividends of $2235.
Opinions?

[bacchi]

DNP? That's an idea that can only end badly.

Personally, I'd put it in VTI/VXUS.

[eddy20]

Thanks for the input; why do you say it can only end badly? We have invested in DNP for 15 years and yes some ups and downs; but always pays the dividend and is usually between $9-$11 per. share @ 6.8% dividend.

[Scandium]

They're both bad ideas, but I'd say yours is worse.

Do you have $300k sitting in cash now?

[johnny847]

I agree, both ideas are bad. And I'm inclined to agree with Scandium's assessment that your idea is worse.

A 2.875% mortgage is amazing. Make minimum payments and invest the rest.

As for why not DNP...
1) It's concentrated in energy, communication services, and utilities. I recommend VTI/VXUS, to get the full US market with VTI and the international market with VXUS.
2) It's actively managed. Statistically speaking, only about 20% of actively managed funds in any given year beat their respective market index. It's even rarer for an actively managed fund to consistently beat their respective index.
3) The total expense ratio is 1.60%. That's nuts. With a 6.8% annual return (and it seems you're equating dividends to performance, but that's an entirely different discussion), that means over 25 years you'd only keep 59.2% of the raw returns, and pay 40.8% of the raw return in fees. If you invested that in an index fund with only a 0.1% expense ratio (such as a 50/50 combination of VTI/VXUS), and we assume the same returns, you'd pay only 2.8% of the raw return in fees and keep the other 97.2%.

[eddy20]

thanks for the replys; just what I was looking for different opinions. Yes 300K + in cash my wife freaks out with the market where it is; but also have 700K in the market currently in individual stocks.

[bacchi]

Yeah, some of the monthly distributions are from capital gains and return on capital. In other words, in a down market, they eat their own assets. You can actually see this happening in the balance sheet.

Utility stocks also don't do well in a rising rate environment.

[forummm]

Your wife is worried about investing in an overvalued market. And you want to invest in this risky little high-fee, undiversified fund? Sounds like fun times at your house.

Maybe just put it all in a Vanguard Target Retirement Fund for the year you turn 65. Very balanced and globally diversified.