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  • The Most Unlikely Stock To Build A Retirement Portfolio Upon At Any Age [View article]
    You can also stream it on Netflix, which I did in January. Well worth watching.

    BruceM
    Apr 5, 2015. 03:59 PM | 1 Like Like |Link to Comment
  • Time For A Senior REIT To Pull A KMI? [View article]
    Dana
    I may be missing an important bit of logic, but how does an expanding demand negatively impact a HC REIT's ability to sustain their dividend? If managed correctly, as HCN, HCP and VTR seem to have done over the past 25 years or so (note: VTR and NHP combined several years ago), why would an increasing demand for the facilities they own somehow reduce their REIT Taxable Income, hence, their dividend? If their future customer's have sufficient assets to pay as they go, wouldn't this increase these REITs future cash flows over the much lower reimbursement rates of Medicaid (note: Medicare does not pay assisted living costs and only limited skilled nursing)?

    Rising interest rates will have an erroding effect on equity REIT cash flows. As the amount of interest paid increases, the amount of cash remaining to distribute as a dividend will decrease...this is reasonable logic. But how much? For example, VTR current spends (in $MM) $99 on interest payments for 4Q14. This represents about 22.8% of Net OpCF. An across the board increase of 10% to their interest expense would increase this interest expense to 24.5% of Net OpCF. My sense is the good officers of VTR would figure out how to manage this as they figure out how to manage the other myriad of challenges they regularly face....that's what they are paid to do.

    BruceM
    Apr 3, 2015. 04:57 PM | Likes Like |Link to Comment
  • Altria - A Perfect Addition To Retirement Portfolios [View article]
    Not to pile on here, but then there's UN, the owner of Ben & Jerry's Ice Cream. Now, this seems like a socially responsible investment for its long and reliable dividend. But then, what is all of the saturated fat of their ice cream products doing to the linings of my arteries? And how much are these calories adding to the obesity epidemic? How is this different than the long term negative effect of nicotine? Or caffeine for that matter?

    Its tough to find any Fortune 500 company who does not have some kind of dirt on its hands...its the consequence of becoming such a large company in such a competitive landscape....providing those products and services that we either want, need or are addicted to.

    Another misconcept is that buying the likes of PM or MO somehow contributes to their business operations. It doesn't. That I own shares of MO does not improve their bottom line by a penny....buying their products does this. So if one has a problem with a company and the damaging effect of what they make, then the concerned person should simply not buy the product...and to convince as many others to also not buy the product. If enough quit buying the product, the company will eventually go out of business.

    BruceM
    Apr 2, 2015. 02:40 PM | 5 Likes Like |Link to Comment
  • My Income Portfolio Quarterly Update (Q1 2015) [View article]
    Nice looking list of dividend paying stocks. Looking down the list is like looking down my list....kind of eerie.

    Good to see this approach being used by someone who is still accumulating. Its easy for those of us in retirement who invest this way to think the pure income approach is our domain and not for youngn's, like you. Your article demonstrates this is indeed not the case....accumulators can do this too.

    Being one who has used the income approach exclusively for long term reliable retirement income, I haven't spent much time thinking as an accumulator, and I'm not sure if any studies have been done on this. But I think it would be interesting to back test using only dividend paying stocks, in each of the 30 year periods beginning as far back as dividend and price data is available. Using VIVAX (Vanguard's large cap value index fund) as an income portfolio proxy, it can be seen on its NAV chart that there were long periods of no or little growth, such as June 1999 to January of 2004. So for an accumulator, how would this kind of dividend paying portfolio hold up in valuation with a portfolio of a multiple stock classes and bond mix that is periodically rebalanced?

    Thanks for sharing

    BruceM
    Apr 2, 2015. 02:09 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    I think PendragonY is correct. This is the essence of the paradox: a broad decline in stock prices generally regarded in the marketplace as a "loss" but to a pure income investor, there has been no loss as their income stream has continued and for most, there will be organic income growth....and as an added bonus, there will almost certainly be gains in portfolio income for those like Buyandhold with the cash to invest in now much higher yielding income stocks.

    In my own experience, I've found that the transition to this way of thinking is vitally important for those wishing to invest their retirement savings for long reliable income....and its not as easy as it sounds :-)

    BruceM
    Apr 2, 2015. 12:55 PM | 8 Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    You are most welcome!

    BruceM
    Mar 30, 2015. 03:56 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Hi barrashee

    "Why do you eschew the eMREITs? Too new? Lack of hard assets?"

    For purposes of long reliable income, I generally keep clear of anything that is at too great an income risk to meet this. mREITs are really unregulated lenders who use either real estate...or more likely RE derivatives...as collateral for usually short term leverage. They have no statutory limit on how much equity they must have for the amounts they borrow. Due to the multitude of financial instruments they can use and their sensitivity to loan default, loan prepay and short term interest rates, makes them an opaque investment for all but the most studied on their internal operations and structure.

    The measures I use to determine trends in dividend coverage don't work very well with the pure financial stocks.

    But your comment of 'lack of hard assets' is actually a good summary. Numbers on paper can change quickly for reasons that are hard for most average retirees to understand...unless they have worked inside the industry. And when you get down to it, things like mREITs are really nothing more than numbers on paper. Something like 14 or 15 mREITs either cut their dividends to zero or went bankrupt in the 2007-09 recession.

    Don't know if that helps or not.

    Bruce
    Mar 30, 2015. 12:32 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Hi Rick CO (does CO mean 'company' or 'Colorado' or 'Carbon Monoxide'?) :-)

    " If I retire in 2 or 3 yrs with a nest egg of 500,000, then twenty yrs later, I should not be concerned if my portfolio is still at 500,000?"

    The answer is you may or may not be concerned that your income portfolio has not changed in value over retirement years....it really depends on your investment objectives: i.e., what are you investing to achieve?

    First example: lets say your primary objective is safety of principal, your second objective is a 4% annual income ($20,000/yr) that does not need to adjust for inflation as you have income growth from other sources. Perhaps the best option for such investment objectives is a portfolio of BBB rated bonds that mature in 20 years. Your income stream will be rock solid and assuming you buy the bonds at a portfolio average of par, you'll end up with the $500,000 you started with.

    Now, lets go back and say your primary objective is a 4% yield ($20,000/yr) and your second objective is that this income stream grow with inflation each year. Lower down on your investment objective priority is preservation of principal....you can tolerate changes in portfolio valuation, providing investment objectives 1 and 2 are met. In theory, your portfolio may only be worth $500,000 in 20 years, there is a remote chance it could be valued below this...but if so, it is highly unlikely your income stream will be maintained. What is most likely is the portfolio value will grow over time as the stock's dividends grow...but this is a risk.

    I think what most of the SA income investors are saying is portfolio valuation, for most who invest for long term income, is not a primary or even secondary objective.

    Having said that, leaving a legacy can certainly be an investment objective. If this is a priority, then you're going to have to limit income securities to those that are the most secure and show the most favorable long term fundamentals, use investment grade bonds or preferred stock and monitor closely over the years ahead.

    "Doesn't a larger portfolio mean increasing dividends also? "

    The size of the income portfolio does not determine the dividend growth rate....the kinds of stocks held does this. Strong dividend growth that exceeds an average of, say, 8%/yr, year after year, USUALLY results in larger valuation growth rates. I think most who invest for reliable income in retirement years have taught themselves to not concern themselves with what the prices of the stocks they hold are doing. They are likely confident the market will take care of that for them, certainly through up and down cycles, but over time valuations will almost certainly show an upward slope. But if 'high certainty' is your investment objective, then you'll likely have to shift to all bonds to meet such an income investment objective.

    Other investment objectives you may wish to consider are...

    Liquidity: the ability to convert investments into cash with minimal loss due to tax, transactional costs or very wide bid-ask spreads.

    Self-sustaining: The ability of the portfolio to continue producing reliable income even if you're not able to oversee it.

    BruceM
    Mar 29, 2015. 07:20 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Hi RetiredDividendCollector

    I cannot argue with you at all on your understanding of the pure income paradigm...you nailed it. What I find interesting is that you would define as one of your investment objectives to carry this forward following you (and spouse?) death for the income benefit of your children. I have not really thought about this....but now that you've raised it, I'm going to have to start thinking about it! ("Inheriting a Golden Goose" has a nice ring to it)

    But I also agree with Alan that such a portfolio as you describe must be regularly monitored to ensure those stocks you plan to hold for the rest of your life will continue with the dividends and dividend growth you expect. In 2014, I pitched 2 out and replaced them. And as my article points out...large capital gains may complicate your ability to pitch those that should be pitched.

    BruceM
    Mar 29, 2015. 06:34 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Hey PrimeClick

    What you are saying is right, but in a separate context.

    At the time of transaction (selling one income stock and replacing it with another), tax is an expense that must be accounted for in a taxable account...it is NOT an added expense in a tax deferred account, such as an IRA (Traditional, SEP, SIMPLE, SARSEP or Roth), qualified retirement plan or deferred annuity. The tax treatment of future withdrawals from tax deferred accounts of whatever color is really another topic....a good topic...but another topic.

    And I think we're all a little crazy from time to time....at least that's why my grandkids tell me every so often.

    BruceM
    Mar 29, 2015. 06:23 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Rose
    Good points, all!!

    BruceM
    Mar 29, 2015. 06:09 PM | Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    I had 288 dividend transactions in 2014.

    Of the 60 income stocks I held, 51 pay quarterly, 8 pay monthly and 1 pays semi-annually. That figures to be 302 transactions. The lower amount is because I didn't hold some of those for the full year.

    For taxable accounts like ours, thank goodness for electronic 1099s and TurboTax. Can you imagine having to list each one of those on a Schedule B?

    BruceM
    Mar 29, 2015. 06:07 PM | 3 Likes Like |Link to Comment
  • Income Investing Strategy: Are You A Closet Market Timer? [View article]
    Alan
    Is your middle name 'lightening' ? That is one of the fastest article turn-arounds I think I've ever seen!

    But to the substance of what you are saying....

    "I think some dividend investors may unwittingly be market timers, hoping for a forward scenario that they have no power to predict."

    Isn't that like saying one should not invest for total return because they cannot predict whether future prices will rise? Future prices will rise with the economy and decline with the economy, of that we are certain...we just don't know when.

    So if spouse and I inherit $100,000 that we'd like to invest for additional long term reliable income that we would plan to use for additional discretionary spending over the years ahead but for which we do not need the added income today, would I be a market timer by simply holding it in cash and awaiting a better income market? Most certainly I would. Is that a bad thing? Well, it may or may not be.

    The answer to this kind of situation has to do with investment objectives (need), reasonable assumptions and an Excel Spread Sheet. As a quick example, if I invest the $100,000 today in a 2.75% yielding income portfolio growing at an average of 5%/yr I will have have collected before tax about $22,400 in dividends over 7 years. If this same portfolio yielded 4% and grew its income at the same average rate of 5%/yr, I would accumulate the same level of income in just over 5 years. At 20 years, the first option would provide a nominal total of $90,930 while waiting two years the second possibility would provide $112,530 in 20 years.

    So for this kind of situation, would it be best to 'lock in' a lower portfolio yield today (at least by historic yields) or hold the $100,000 in some form of highly liquid investment with the plan of deploying it to higher future yields at an equivalent income risk?

    I'm not sure there is a right answer to this...only a plan that best fits the income need and income-risk tolerance of the household, where risks are well understood.

    BruceM
    Mar 29, 2015. 05:40 PM | 5 Likes Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    Hey Hawkeyec

    Realizing capital gains in a taxable account seems to be perpetually overlooked and disregarded when it comes to investment management decisions. For those in the 15% bracket or within tax deferred accounts, it can be ignored in sell decisions. But across the Columbia in Portland, some of my friends (I live on the Washington side....) with large retirement household incomes (>$250K) are really taking it in the shorts. Per $1 of LTCG, 18.8% goes to the Feds and a net 7.5% (thereabouts) to the State. This means over a quarter of the gain is lost to tax.

    "There is a large opportunity cost for this, but at some point avoiding more tax liabilities lowers the cost of the "insurance premium" I'm paying for my freedom."

    Very well said! I too keep a fairly large cash cache (now that's catchy) making our "insurance premium" (opportunity cost) a bit higher than most. But then, our household income is more than met with current income investments, so my view is why take any risk I don't have to. Yes, purchasing power is very slowly reducing real value of the cash, and I suppose this is a case for holding something other than .01% MMFs right now....but I consider laziness to occasionally be a refuge for the mind....

    Deemed sales, like in-kind transfers, are a brokerage offering sometimes used in certain kinds of trusts that cannot carry interest across tax years. There really is no reason I can think of a brokerage could not offer this to retail accounts as a service. You'd have to check with yours to see if they offer it....although they may not, as there probably isn't enough demand to offset the sell/repurchase commissions they would otherwise get.

    "Who cares about price as long as the income doesn't stop"

    Isn't it amazing how simple that concept is? Now, with Treasuries, it is super-simple with zero% default risk....but despite this, article after article will talk about 'taking gains on the 9.5% coupon bond before you lose them'. As I said earlier, pure income investing is a non-topic in the investment medium, not because it isn't a good topic, but because the middlemen have no way of making money at it.

    Hawkeyec....yours is a breath of fresh air. Thanks!

    BruceM
    Mar 29, 2015. 02:46 PM | 1 Like Like |Link to Comment
  • The 3 Paradoxes Of Income Investing [View article]
    foxgary

    "Regarding cap gains, that's an added bonus. So, you have an "unexpected" windfall and have to pay some tax. So be it. That doesn't make it "bad."

    If the household income drops due to the sale, wouldn't you call that 'bad'? I would.

    Go back up an take another look at the table.

    "If one's income-generating portfolio is in an IRA, isn't it all (dividends or cap gains) all taxed as ordinary income anyway (non-accountant here)?"

    From the above article.....

    "Of course, how much the tax on capital gains affects one's sell/replace decision will depend. If this all happens within the 15% Fed tax bracket or if in a tax deferred account (such as an IRA), tax expense would not be a factor,"

    BruceM
    Mar 29, 2015. 01:58 PM | Likes Like |Link to Comment
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