Questioning The Given on Dividend ETFs and Other Income-Oriented Investments
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The logic is obvious, and I can't really argue with it but I do question it whether the outcome can possibly be as expected. Specifically, I question whether money allocated to dividend payers in the manner suggested will actually lift prices in some sort of advantageous manner for the people who get in now.
So many people believe it so (it seems) that I don't think it will play out as expected. This strikes as the type of thing that will just turn out to be wrong. I am not saying these types of stocks will do poorly or even be a drag, but simply there will be no out of the ordinary, excess return.
I do believe in yield, but the way I think of it is "What is the yield of the entire portfolio in relation to the market?" You can add 100 basis points in yield quite easily when you add yield in certain sectors like utilities, telecom, energy and of course financials and then add in one or two things, modestly weighted, that yield 7-8%. One example would be a call writing fund. (For anyone new - "modestly weighted" is 2-3% of the portfolio.)
As important as I think dividends are, I think it would be a mistake to own nothing but high yielding stocks. You can't be properly diversified owning nothing but yielders.
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This article has 3 comments:
Really enjoy your articles -- they're excellent.
Nusbaum
I mostly use common stocks but use DKA for just about all clients for 1/3 of the energy exposure and DNH for a few folks as a proxy for the financial sector.
The call writing fund that I use most widely is BOE w/at most a 4% portfolio weight but most own it at a 3% weight. Circumstantially there are three clients with MCN.
Thank you
When someone buys a dividend ETF, they often don't think "I'm now loading up on REITs and utillities", but that's what they might be doing.