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Bruce Miller

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  • You're Retiring: Where Is Your Income Going to Come From? [View article]
    Sorry, but I haven't read all the responses to your original article, so I aplogize if I'm repeating what someone else may have already said.

    I've been a pure income (or RIP as you say) retiree for 12 years. I have found that there is little or NOTHING out in the investment community to support this kind of approach, I've had to self learn about everything I now know, which I'll distill down as follows:

    1. The investment advisory community does not support this approach, as there is no way for them to make money at it. This isn't a fault, just a consequence of human nature. For example, a portfolio of, say, 40 income stocks will pay NOTHING in fees or expenses, directly or indirectly during a given year. That's zilch...nada....$0. What middleman would recommend that?

    2. Income diversification is vital or this approach won't work. This means holding multiple classes of dividend (or, more accurately, distribution) paying industries, to include:
    - REITS
    - Drugs
    - Tobacco
    - Utilities
    - Energy
    - manufacturing
    - other Consumer non-cyclicals

    It also includes preferred stocks of the above, even though preferreds have no dividend growth, most are not tax favored 'qualifying dividends' and redemptions come at exactly the wrong time of very low interest rates.

    3. Hold no more than 4% of investments in any one security and no more than 20% in any income class.

    4. NEVER chase yield. High current yields are that way for a reason, and if you, the investor, don't know why the yield is so high, you'll most likely eventually learn why..that hard way.

    5. Income ETFs may do some of the security selection for you, but usually with trade-offs and their own added expenses (usually running 8 to 16% of income)

    6. Open End Mutual funds don't work as income securities. The incentives to the fund manager are opposed to an income investor's.

    7. Closed End Mutual funds are a great way to lose money

    8. Brokerages, wire houses, insurers and professional portfolio managers will vomit all over this investing approach to retirement income. They hate it. They despise it. They consider it tantamount to idiocy, lunacy and crackpotism. But I'm not investing to satisfy their expectations....I'm investing for reliable income. And so far, this approach for me has done just that.

    Mar 8, 2011. 05:32 PM | 19 Likes Like |Link to Comment
  • Why Most Dividend Investors Never Succeed [View article]
    This is the classic mistake of income investing. Happens all the time.

    The core reason for this is we cannot let go of the capital appreciation part of total return.....its been inculcated within our investment neurons too deeply for too long.

    But also think of the illogic. If my dividend paying stock has appreciated 400% in price and I sell it to 'harvest the gain', in doing so I've given up the dividend it was paying me. now I go back out into the marketplace and find a stock that will replace my now lost income. But wait....all those equivalent stocks have also gone up in price. In fact, the only way I can improve my former income stream is to buy a stock whose income is at greater risk of being cut or a stock whose dividend is greater but does not grow as fast as the one I sold. Add some capital gains taxes and transaction costs into the mix and what I was sure was the right thing to do (harvesting gains) wound up reducing my household income.....or.....kept it much the same but at a higher income risk.

    True income investing requires thinking this stuff all the way through and being prepared to let go of some long held beliefs and investment practices.

    Dec 26, 2013. 03:26 PM | 14 Likes Like |Link to Comment
  • High Dividend Stocks Generally Facing Massive Liquidation and Collapse [View article]
    You really need to take the time to try to understand the investment objective of pure income investing. Here, retirees invest for the reliable distributions, quarter after quarter, year after year, over their full retirement. Price movements, price valuations, variance and standard deviation, market Beta, P/E growth rates...all of these metrics are simply back-ground noise and although interesting, are irrelevant. Its the distribution made from the free operational cash flow (not earnings) the company generates...and the market forces that will affect this....that matter.

    What makes income investing such a difficult concept is its utter simplicity.

    Aug 22, 2011. 11:54 AM | 14 Likes Like |Link to Comment
  • Dividend Growth Portfolio Fall Checkup And Semi-Annual Review [View article]
    Hey David
    Well, I'm happy (as Orygunduck) to add my voice to this...and it is thoughtful of you to ask....

    First, let me say that your approach is exactly right. You have outlined your income investing goals and show exactly how you intend to reach them with results to show. You are one of the few I've seen who do this correctly.

    Now, let me talk a bit about "Pure Income" vs. "Dividend Growth", at least as I understand the latter. DGI provides a steady stream of dividends that can be used for reliable long term income...and/or....the excess of these dividends above what is required for household income is reinvested back into the stocks that paid them? (I hope I'm not too far off on that....)

    "Pure Income" (or Income Only) is a variant of this. Here, a portfolio of income producing securities provide enough reliable income to meet calculated household income requirements. This income will grow each year based on inflation need, usually an assumed rate of 3 to 4%. Any excess of this is collected and reinvested based on income asset allocation need. But the target is 4 to 5% income growth...not necessarily dividend growth, but income growth. Generally, the lower the dividend growth rate, the less income risk. Like TR portfolio risk, income risk must be managed through income diversification and taking no more income risk than is necessary to meet income goals. (note: this is the financial planner training oozing out...)

    Income securities come from a "core" income class of C-Corps (or LLCs who file as corporations), equity REITs, Utilities, MLPs, individual bonds and Preferred Stock. What makes these 'core' holdings is the ability to analyze the company's ability to sustain and grow its dividend. This includes both dividend growth (for most holdings...but not all) rates but also includes fundamental analysis using the company's "Statement of Cash Flows". In my view, dividend growth...however it is growing or not enough. For those in need of higher yield, a tolerance for high fluctuating yield or who wish to have others manage a portfolio of income producing securities, I classify these as an "Alternative" income class, which includes Mutual funds (open end, closed end and ETF), BDCs, Royalty Trusts and SPIAs. These are harder to analyze and involve a bit of faith.

    Your posting here is timely.

    I've just published "Retirement Investing for Income ONLY: How to Invest for Reliable Income ONLY from Dividends". The e-book version is available this week (Oct 13 - 18) FOR FREE at

    I go into considerable detail in this book on this topic.

    I've also submitted the first of a 7 article series to SA that summarizes the major parts of the book.

    I've have strong feelings on the KMP reorganization, but I'll save that for another response....

    Oct 14, 2014. 04:27 PM | 13 Likes Like |Link to Comment
  • My Superyield Retirement Strategy [View article]
    Having been a pure income investor since 2000, I've learned the hard way that there is a price to be paid for 'yield reaching'. These lessons come to me in the form of names like AHR, ALD, ACAS and TMA.

    Following these bruises, I've readjusted my income portfolio into about 10 unrelated industries, with no one securites providing more than 3% of overall income, and utilizing common stock, preferred stock and a small holding of bonds within each industry. Overall portfolio yield is about 4.6%.

    Of course, being retired, I treat this income as my pension. I have absolutely zero interest in the fun-n-games of outperforming or getting the highest yield I can on each invested dollar. Reliability and sustainability is everything.

    Now, I must confess, when I first got started, I too chased very high yield...and some of them paid off handsomly, such as MO, JCP and the preferreds from REITs like LTC. to name a few, all at double-digit yields when I bought them. What I now realize looking back, is that many of these were on the verge of collapse, and had economic conditions been less favorable to them, their dividend would have been cut, likely to zero and the stock pushed to the basement. I was not smart...I was lucky.

    To each their own...but I spend my investment time these days reviewing the stocks/bonds I hold to see if there are threats to their distributions (primarily dividends) that I can detect early enough to remove the stock and replace it with another.

    Just my experience.

    Aug 7, 2011. 01:20 PM | 13 Likes Like |Link to Comment
  • When The Dividend Cut Writing Is On The Wall [View article]
    Hi Eli
    I too have a vested interest in the predictability of dividend cuts from income paying stocks. You might want to consider the following indicators:
    1. Changes in the dividend growth rate
    2. Changes in the Dividend/Net OpCF ratio
    3. Changes in the ROIC-to-Revenue and ROIC-to-Net OpCF

    I don't have the science to back this up, but in the dividend cutter's I've looked at over the past several years, to include EXC, PFE, AVN, BWP and, yes, PBI.... #3 is probably the most predictive. In plain English, any company who cannot convert their investments into Revenue or cannot convert investments into Net OpCF, is a company who cannot grow its dividend without distributing its own assets.

    Remember, dividends are not paid from earnings...'earnings' is a fictitious number....dividends are paid from cash flow is real.

    And yes, dividends cuts are fact, they're terrible!! Why? Because a dividend cut to an income investor is much worse than a price decline is to a total return investor.....because a dividend usually takes much, much, much longer to get back to its pre-cut amount than a stock's price reduction takes to get back to its pre-drop amount.

    Oct 15, 2014. 07:20 PM | 11 Likes Like |Link to Comment
  • Is VDIGX A Good Dividend Growth Investment? [View article]
    Fund's are tough to predict when it comes to annual distributions. We tend to speak of them as though their dividends each year are made of up recurring corporate dividends that collectively grow at some average annual rate, plus capital gains that can vary from year to year depending on the fund manager handles capital gains. But the other factors that can mess this up is the fund's retained earnings...which it can keep up to 10% of each year's net earnings. It pays tax on them, plus a 4% excise on earnings between 90 and 98% of the fund's Net earnings. I've not read a study on this, but I suspect most OEMFs distribute 100% of earnings and LTCG, but some may retain some of it for other reasons, including later distributions. Also, a fund may not distribute capital losses but must carry them forward to use against future LTCG, which then do not have to be distributed. And then there is the possibility of special dividends that can make a fund's annual dividend growth artificially high. None of these would be issues with individual stocks where dividend behavior is readily visible.

    VDIGX IER is 13.38% (from the last 10K), which is low for a managed fund. SCHD, per their last 10K, has an IER of 2.27% which is very low, even for an ETF. Thats a difference of 13.38/2.27 = 5.9X.

    MFs don't manage for long reliable income....whatever name they wish to market the fund under. The fact has always been and always will be "Total Return". It is how fund's are rated amongst peers and how they will rank at the end of a given year with peers and all funds. You will never see a headline of a publication that tracks/reports on mutual funds that will say something like "MUTUAL FUND ABCDX HAS COMPLETED ITS Nth YEAR OF CORE DIVIDEND GROWTH OF 5%, PUTTING IT IN THE TOP QUARTILE OF FUNDS WHO MANAGE THEIR PORTFOLIOS, NET OF EXPENSES, FOR LONG TERM RELIABLE INCOME. AND WE DON'T KNOW WHAT THE TOTAL RETURN IS ON THIS FUND AND WE DON'T GIVE A CRAP, BECAUSE WE KNOW THE RETIREEs WE MARKET THIS FUND TO ARE BUYING SHARES OF THIS FUND FOR LONG TERM RELIABLE INCOME EACH MONTH AND CAPITAL APPRECIATION WILL NOT PAY THEIR BILLS!"

    Nov 24, 2014. 04:14 PM | 10 Likes Like |Link to Comment
  • Retirement Investing For Income ONLY: Doing It The Right Way [View article]
    Now, I don't make this comment with any ill will or snarky intent. But from your comment, you clearly are at the starting line for understanding the pure income method of generating life income during retirement. If you wish to learn how it works, stay tuned as there will be ample discussions of its moving parts. If you reject this method, then ignore it and go somewhere else. Not accepting the pure income paradigm is fine...there are some very smart portfolio managers I've spoken with who have taken the time to understand it but will not use it, partly because they already have a method that works for them and partly because they just can't get their MPT analytic heads around income risk...and that's ok!

    The pure income approach is its own approach. Not better, not worse, just different.

    Oct 21, 2014. 12:41 PM | 10 Likes Like |Link to Comment
  • Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
    Don't know if you recall, we've had this discussion before. But as a recap...

    As a fellow bogelhead, I hold nothing but respect for the evidence-based approach you (and others like Rick Ferri) have towards passive investing and limiting portfolio expenses. To the extent it is humanly possible, you employ the most scientific approach to long term total return. You, sir, are a hero in the eyes of most who truly understand the concept of total return in an unpredictable investment universe.

    But this has somehow blinded you to another paradigm. Investing for income (cash flows) is a paradigm that works for those requiring reliable and consistent income. Like most who criticize this approach, you tend to dismiss it as 'yield chasing', which to me is analogous to referrring to the use of growth stock ETFs as 'hot stock chasing'. It is a gross oversimplification. Now, to the extend you shout "WARNING" to yield starved retirees who wander blind-folded into the relm of high-dividend securities, knowing little of investment risk and lured only by high this I absolutely agree. But like a balanced passive portfolio, carefully allocated and deliberately rebalanced on a regular basis, a portfolio of income producing securities, carefully chosen and carefully monitored, can provide for household income just as reliably. I know....I've been doing this for the past 12 years.

    Remember, it is not the process that ultimately matters to the retired is the outcome that matters.

    Dec 25, 2012. 02:18 PM | 10 Likes Like |Link to Comment
  • Dave Van Knapp Positions For 2013: Tuning Out Market 'Noise' With Dividend Growth Investing [View article]
    Like Dave, I don't use options for income. I studied it and considered it several years ago, but concluded that the income risk isn't worth the possible supplemental income. Assuming I'm using income producing stocks to cover the calls I sell, or to sell and with added cash to pay the puts 'put' to only takes a couple of sharp stock price movements to consume much of the income generated using this strategy. Stated another way, the bet on price movement is a zero-sum game. The only money in the 'pot' is what the buyer deposits. There is no organic growth. No corporate capital reserves. So what an options trader is betting is that he will be right most of the time, and he is collectively smarter than the buyers on the other side of the option trade. Now, maybe he is, maybe he isn't. But frankly, the excitement from that kind of betting just doesn't interest me.

    Dividends paid to me from companies committed to them...that interests me.

    Dec 28, 2012. 09:17 PM | 9 Likes Like |Link to Comment
  • Are Dividends Truly Beneficial To Shareholders? [View article]
    "Are dividends truly beneficial to shareholders?"

    Well, I pay my bills with them. Without them, I wouldn't be able to pay all of my bills. I think that qualifys as 'beneficial'.

    What do you think?

    Nov 29, 2012. 02:50 PM | 9 Likes Like |Link to Comment
  • Don't Seek Dividends For Their Own Sake [View article]
    For a retiree who electively invests for income reliability from the dividends (actually 'distributions') his/her investments produce, its not all about the dividend...its ONLY about the dividend.

    You make the mistake so many who speak on this topic make. You criticise investing for income and then use the principals of Modern Portfolio Theory to support your argument. In your example, how much of the S&Ps past X year's total return has been due to dividend reinvestment is interesting, but for an income investor, is irrelevant.

    "Will my shares of XYZ company continue to pay its $a.bc/quarter dividend? Does the company show the fundamentals necessary to be able to grow this amount over the quarter's ahead? Is management committed to growing the dividend?" These are the important questions.

    If there were some rule that companies who have built to some level of fundamental strength MUST distribute cash flow in excess of this target in the form of dividends, then I'd agree with your approach. But, with the exception of REITs, there is no such rule. Companies with growing fundamentals generating excess cash flow may elect to retain those earnings for any reason they wish....which may be good for the company and may be good for long term growth prospects of the company in expanding product lines, cash buy-outs, entering new markets, etc. But none of this pays my utility bills, my health insurance premiums or put gas in my car....only dividends can do that.

    Oct 10, 2012. 12:15 PM | 9 Likes Like |Link to Comment
  • Can Dividend Growth Investing Be Reconciled With Modern Portfolio Theory? [View article]
    "I haven’t checked, but it would be interesting to see how DGI would have fared over the period 1990-2012 compared to the total return on long treasuries."

    To a retiree seeking long term reliable income from his investments, who employs a DGI strategy, total returns on Treasuries (or anything else) may be academically interesting, but is irrelevant to their investment objective. Retirees cannot pay their bills with total returns...they actually must have the income (cash) in their checking accounts.

    As to the performace of my own DG portfolio from 1990 to 2012....
    without adding to my original investment capital, here is how it performed....(note: I actually began income investing in earnest in 1998, so I've had to extrapolate backwards to 1990, but I've used actual dividend numbers)

    Income generated in 1990: $21,120
    Income generated in 2011: $65,012
    Total nominal income collected (some estimating here): $863,054

    Over the same period, a 22 year Treasury (were there such a thing) issued in January of 1990 had a coupon of about 8%.Soooo

    Income generated in 1990: $40,228
    Income generated in 2011: $40,228
    Total nominal income collected: $885,029

    Pretty close.

    Except now that the Treasuries have matured, the investor must take his original capital amount (a bit over $500K) and go out into the marketplace and attempt to reinvest to continue his income. With today's 20 year Treasury bonds at about 2.7%, this would provide an income replacement of about $13,500! At a 4% income portfolio yield his income replacement would be about $20,114.

    Of course, there are other practical factors to consider, such as life expectancy and need for capital at end of life (for whatever reason). But clearly, when comparing performance of an income portfolio of DG securities to fixed income bonds (like Treasuries), one must take into account reinvestment risk.

    Sep 20, 2012. 02:14 PM | 9 Likes Like |Link to Comment
  • My Take On Kinder Morgan [View article]
    Like REITs, MLP metrics involving net earnings, will look odd.
    The principal reason for this is the (relatively) large non-cash depreciation and ammortization expenses these business entities carry. So metrics such as P/E and Payout Ratios will look off-the-charts. A much better measure of MLP performance is free cash flow.

    Apr 14, 2012. 11:11 AM | 9 Likes Like |Link to Comment
  • Managing Your MLP Holdings [View article]
    "We can't emphasize enough the importance of adhering to our buy targets and taking some profits off the table when a big winner throws off the balance of your portfolio."

    Do you have any concept how irrelevant this statement is to an income investor...and this is an income forum.

    Income investors, primarily retirees, live off the distributions we receive from our investments. We do NOT live off capital appreciation, as one would who invests for total return. So if I follow your advice and 'take profits', after I've paid transaction costs and income & Capital Gains taxes, where will I revinvest those dollars to maintain my monthly income? If you're going to write to income investors, you need to understand this.

    Now, having said that, I do appreciate your discussion of hydraulic fracturing and its use in generating the extracts that will keep the pipelines full. Very helpful.

    Mar 1, 2012. 08:35 PM | 9 Likes Like |Link to Comment