Author Topic: What do you think of dividend growth income?  (Read 3299 times)

drpassiveincome

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What do you think of dividend growth income?
« on: September 01, 2017, 06:28:03 PM »
I follow a few DGI (Dividend Growth Income) blogs. I think it's cool watching your dividiend income replace your wages. Also a neat way of looking at  buying individual stocks as buying rivers of passive income. As someone seeking FI/RE it's fun following these blogs.

I'm trying to think if it would be good for myself. Right now I'm leaning towards the standard passive index portfolio. I feel that DGI doesn't offer much of an advantage at a great cost (time managing the portfolio.) What do you guys think?


VoteCthulu

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Re: What do you think of dividend growth income?
« Reply #1 on: September 02, 2017, 10:10:17 AM »
Generally, restricting yourself to one type of stock (in this case, the so-called dividend aristoctrats) is taking a significant lack of diversification risk. Also, living only off the 2-3% dividends will force you to save far more than just using the 4% rule.

Finally, it takes a lot more work to keep up with the stock news so you can get rid if the stocks that fall off the wagon (like Kinder Morgan) and buy into the new ones (will Genergy Dynamics become one, or will it slash its dividends the next time a Democrat reduces defense spending?)

Indexing is just easier, safer, and requires less capital.
« Last Edit: September 02, 2017, 10:11:58 AM by VoteCthulu »

DavidAnnArbor

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Re: What do you think of dividend growth income?
« Reply #2 on: September 02, 2017, 10:52:44 AM »
Don't allow the excitement of getting a dividend overcome your awareness that you want all kinds of stocks from all kinds of companies, i.e. total stock market passive index funds. Dividend bearing companies will exclude those companies that don't pay out dividends but instead either hold onto it as cash or choose to use Retained Earnings for investing in new products that have the potential for ever more growth/earnings.

SimpleSpartan

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Re: What do you think of dividend growth income?
« Reply #3 on: September 03, 2017, 12:19:27 AM »
When it comes to money and investing don't do whats "cool".
The actual divided  payout you will receive is significantly less and will require more time and effort managing your stocks than a time-tested and proven index fund.
Just my .02

Heckler

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Re: What do you think of dividend growth income?
« Reply #4 on: September 03, 2017, 03:39:06 AM »
When it comes to money and investing don't do whats "cool".
The actual divided  payout you will receive is significantly less and will require more time and effort managing your stocks than a time-tested and proven index fund.
Just my .02

#devilsadvocate   

Isnt indexing mg whats "cool" in these MMM circles?

SimpleSpartan

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Re: What do you think of dividend growth income?
« Reply #5 on: September 03, 2017, 03:56:57 AM »
When it comes to money and investing don't do whats "cool".
The actual divided  payout you will receive is significantly less and will require more time and effort managing your stocks than a time-tested and proven index fund.
Just my .02

#devilsadvocate   

Isnt indexing mg whats "cool" in these MMM circles?

Yes, but as far as in the mainstream media/finance world, index investing is seemingly uncool.


Financial.Velociraptor

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Re: What do you think of dividend growth income?
« Reply #6 on: September 03, 2017, 08:14:05 AM »
Vanguard has a dividend achievers index that solves most of the stated problems, Ticker: VIG

Hargrove

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Re: What do you think of dividend growth income?
« Reply #7 on: September 03, 2017, 09:46:34 AM »
I first got into investing following some of these blogs, but what I learned was that it's kind of like the debt snowball - it's a method that assumes you can't stay the course without the appearance of progress bumps that, in reality, are slowing you down vs the optimal methods.

Who doesn't love a 15% raise?

Sure so and so hiked dividends 15%, but... if their capital gains suck because they're paying out 3.5% annually and they don't know what else to do with their company, is it really a 15% raise vs the stock market generally?

Index fund investing can still give you measurable progress bumps if that helps you (it definitely helps me). I track distributions in an excel spreadsheet when they're paid out, by month/quarter and by increase from the previous month/quarter. You can still watch the (roughly 2%) dividend payouts increase on index funds, but meanwhile you'll also be enjoying better capital gains. For people who hate the idea of selling capital in retirement (instead of just collecting your dividend check), it's still better to take something like VYM or VIG than to put the amount of work it would take into maintaining your own portfolio if your target is just the big dividend check.

chasesfish

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Re: What do you think of dividend growth income?
« Reply #8 on: September 03, 2017, 04:33:58 PM »
I accumulated a DGI portfolio from 2010 to 2013, now I'm struggling with it.  Here's the downside to doing it:

I've invested mostly in a taxable account because I've maxed out my deferred options.  I have some nice holdings that were awesome companies 4-5 years ago, but are now struggling this year.  One company can come in and displace the other, and you still win by owning the index because you get the net effect of economic growth.

One of my holdings is Genuine Parts Company - It is (was) the conservatively run parent company of NAPA with all these other parts divisions.  NAPA was built on having a great logistics network and servicing the auto professional market (your corner mechanic), they got paid a premium price because of their ability to deliver on time.  I have some shares in the 40s for its cost basis and its a nice dividend aristocrat.

CEO/CFO retire and new folks are promoted.  They spent a bunch of money on acquisitions instead of internal infrastructure and are now getting taken to the woodshed by Amazon and Starboard Value has taken a big stake in their rival Advance Auto Parts.   Its performance is now dreadful relative to the market, but I'm sitting on individual shares I have to pay pretty hefty capital gains on.   Will they survive?  Probably. 

Banks were also on the aristocrat list until 2008.  It was disproportionately full of banks and banks should be a reflection of the US Economy, with them going a little more up when times are good and a little more down when times are bad during leverage.   BBT was a dividend aristocrat.  "Paid a dividend through the great depression", 30x straight years of dividend increases, mainly located in the Southeast where economic growth is great.  So in September of 2003, you pay $38/share for BB&T stock and get a $0.32/share dividend.   14 years later, FOURTEEN YEARS, it now trades around $46/share and your dividend is $0.33.  It was trading below $40 a share before the start of this year!   In the same time period, VTI went from $49/share to $127/share and paid similar dividends for the second half of the comparison period.   The regulatory environment changed, scale began to matter more, acquisitions stopped being net positive. 

There's also the investment theory that a company only generates a dividend when they can no longer meet an acceptable rate of return by expanding their own company.  This would imply you're already buying "Yesterday's news" by going after the typical dividend aristocrats.   Look at the components of the 1970's Dow Jones Industrial Average.  How many of them are still in there today?  The top 30 companies in the DJIA look a lot like the dividend aristocrat list.

https://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average

Take it from me, I've been there, I've worked my rear end off analyzing, analyzing, analyzing, and my returns are within 1% of the index.  It would have been a better use of all that time going on Rover and walking people's dogs and indexing the extra money. 

Good luck in your journey, I wish I could get the last 10-15 years of time back I spent analyzing all this crap.


« Last Edit: September 03, 2017, 04:35:57 PM by chasesfish »