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Dividend Dynasty

 
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  • Dividends Matter If They Matter To You [View article]
    Pen, as a former insider at two dividend aristocrats, I can assure you there is intense pressure to keep increasing the dividend. As the lead financial analyst at one company, I was responsible for developing the company's 10 year financial plan. My first input into the plan was the dividend and dividend increase. Not once did I run a scenario without the increasing dividend, and I ran thousands of scenarios over the years at the request of CEO and CFO.
    Aug 15 09:29 AM | 5 Likes Like |Link to Comment
  • Dividends Matter If They Matter To You [View article]
    Thanks DVK for a great article and using one of my comments in the conclusion. I am honored that you felt my comment was worth repeating.

    In this article, you state "Some dividend investors see income optimization as their only goal. Others see it as a goal that stands ahead of total return, but they also follow total return. Still others use dividend investing techniques to achieve "growth and income." I agree that we each invest differently.

    I am more of a trader than most DGIs. My goal is to increase my net dividend income on each trade I make. I like to buy a DG stock when its yield is above its 5 year average. But unlike most traders, I stay 100% invested at all times. Therefore, I cannot make a trade unless there is a both a buying and selling opportunity. Sometimes the buying opportunity initiates the trade when I see something I want to own and then I look over my portfolio to see if there is something relatively less attractive to sell. If the buying opportunity is not better than my weakest holding, I do nothing. Sometimes the selling opportunity initiates the trade when a position has run up so much that the yield is no longer attractive. In the selling opportunity, I usually sell and put the proceeds into one or more of my existing positions. My focus is on the income, not the capital gain, but this process has resulted in an above S&P 500 total return over the past three years.

    Sometimes I get flamed by DGIs because I trade too much. Sometimes I get flamed by non-DGIs because my focus is on my income and not total return. I enjoy the activity of my technique but could stop trading at any point and become a buy-and-hold investor that lives off the portfolio's income.

    We are all different and we each have our own techniques. I'd like to hear more constructive comments from SA members about how they invest rather than trying to others in one box and attacking that box. I learn more when we share our successes than when we attack others that don't invest just like us.
    Aug 15 08:19 AM | 4 Likes Like |Link to Comment
  • Dividends In Investing: How To Sleep Well At Night [View article]
    Cross, Thank you for sharing some of your portfolio and strategies. I understand how hard it is to share your portfolio if you are using options.

    I too trade more frequently than the average DGI. I like to trade the same 50 or so DGI stocks. I buy them when their yields are attractive to their 5 year historic dividend yield and sell them when their yields are low compared to their history. I overweight high beta after market pullbacks. But my focus is on the income and not the total return. I increase my income with every trade. But this does not mean that I do not have a high total return. My three year CAGR is 21.22% with a 10.7 standard deviation. Therefore, our total returns are similar even though our methods are completely different. I will admit that the bull market probably has a lot to do with this. Maybe I'm a hybrid DGI investor. I'll just keep doing what works for me and sharing it with anyone who wants to listen. My portfolio is always 100% invested and is listed in my profile. I usually post a comment with each trade I make. There are many ways to be successful in the market. I don't think anyone trades exactly like me. The closest would probably be David Crosetti. Right Dave?
    Aug 14 04:27 PM | Likes Like |Link to Comment
  • Dividends In Investing: How To Sleep Well At Night [View article]
    Eric, a rising dividend income is the most important measure for me too. Sorry I let Cross knock me out of my Single Best Investment zone. I think I'll have to go re-read the book for the 100th time to get my head back on straight. I actually do re-read that book at least once per month!

    Now, back to Warrior mode!
    Aug 13 04:47 PM | 3 Likes Like |Link to Comment
  • Dividends In Investing: How To Sleep Well At Night [View article]
    So here's the risk adjusted return information for the S&P 500 . I'll use the Sharpe Ratio to determine risk adjusted performance. The Sharpe Ratio formula is ((portfolio return - risk free rate of return) / standard deviation). Let's use the 10-year treasury as the risk free return at 2.5%.

    For the S&P 500, the 36 month return as of 7/31/2014 was 19.52%, its standard deviation was 12.2%. Here is where I got these numbers: http://bit.ly/1vJ9rGz . So the S&P 500's Sharpe Ratio is (19.52 - 2.5) / 12.2 which totals 1.40.

    For SDY (The S&P Aristocrat High-yield Index) the the 36 month return as of 7/31/2014 was 16.6%, its standard deviation was 10.45%. Here is where I got these numbers: http://bit.ly/1vJ9rGz .
    So the SDY's Sharpe Ratio is (16.6 - 2.5) / 10.45 which totals 1.35.

    Therefore, the S&P 500's 19.5% return only slightly outperformed the SDY's 16.6% return on a risk adjusted basis.

    Now you can calculate your portfolio's Sharpe Ratio and compare your risk adjusted performance to the market. Since the Sharpe Ratio tells you the amount of return per unit of risk, the higher the number the better. My dividend growth portfolio's 36 month Sharpe Ratio was 1.75 which is above the S&P 500's 1.40 and therefore is outperforming on a risk adjusted basis.

    Sorry to get so technical to prove a point.
    Aug 13 04:26 PM | 3 Likes Like |Link to Comment
  • Dividends In Investing: How To Sleep Well At Night [View article]
    Cross,

    Whoppie, you beat the S&P 500 index year-to-date. But return needs to be risk adjusted. Did you take more risk than your benchmark? Are you invested in small cap stocks or foreign stocks? Share your portfolio with us and we'll tell you if you are really outperforming. Dividend stocks have lower volatility than the market so if Eric under-performed the market on a year-to-date basis, he may actually be outperforming on a risk-adjusted basis. I'm sure you know all of this, right? So then why are you grilling Eric? Come on, share your portfolio like dividend investors do and we'll get this comment section really smoking. Are you up to the challenge?
    Aug 13 02:01 PM | 6 Likes Like |Link to Comment
  • Dividends In Investing: How To Sleep Well At Night [View article]
    Great article Eric! I too suggest the book "The Single Best Investment" by Lowell Miller to everyone who will listen. I've given free copies to many friends that have asked for my investment assistance. When I ask, "did you read the book yet", I keep getting the same answer. "Haven't had time yet." Like RNSmith said, when the student is ready, the teacher will appear.

    Lowell Miller's book changed my life by changing my focus from bouncing stock prices and principle values to the steady increase in my dividend income. Your article is a good primer for the book and the SA authors you name are also my favorites. Investors who are confused by all the banter on SA about whether dividends matter or not need to read this book and decide if dividend growth investing is right for them. I have found peace and confidence in the chaotic market by using the principles taught in this book and it appears that you have too.

    Keep up the Warrior's attitude!
    Aug 13 07:55 AM | 8 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    @ Pen

    I'm not endorsing XIV. I was just pointing out that the 23% annualized return that Varan wants to sign up for may be available based on Prof. Bjorn's comments. But with the high return comes frequent 35% draw downs. I wouldn't touch this, but it sounds perfect for Varan.
    Aug 13 06:27 AM | 2 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    @Varan

    Obviously you don't read or listen very well. There is no "dividend" angle in the 80/20 SPY/XIV position. Its a very aggressive investment approach recommended by a professor of finance in this thread that sounds like a strategy that could provide 23% plus annual returns. The problem is with high return comes high risk, i.e. the 35% draw down on in a typical year like 2011.
    Aug 13 06:22 AM | 3 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    Bjorn, How would you rebalance your 80/20 SPY/XIV? Sounds like a good $2k investment for each of my grandchildren ages two and below!
    Aug 12 08:53 PM | 1 Like Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    See my last comment on this article. 80% SPY / 20% XIV based on Prof. Bjorn's recommendation would have provided 24.2% CAGR since XIV's inception.

    Go for it Varan if you can handle the 25% volatility and a 35% draw down in a "normal" year like 2011.
    Aug 12 08:39 PM | 2 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    I also checked out this short vix long S&P 500 strategy with ETFreplay dot com. I love checking out actual recommendations such as this. Thanks Prof.

    What a wild ride! I used the ETF XIV for short VIX. That ETF started November 30, 2010. The 80/20 SPY/XIV provided a total return of 122% with a 25.5% volatility, a Sharpe ratio of .95, and max draw down of 35% from peak and 13.6% from start date. That is too wild of ride for this retired investor, but it did provide an incredible 24.2% CAGR.

    For comparison, a 100% SDY (high yield dividend aristocrat index) for the same period provided a 14.9% CAGR and 18.6% max draw down from peak and 6.08% from start. I'll take SDY's 14.9% CAGR with half the draw down thank you very much.

    100% SPY for the same period provided a 16.6% CAGR and 18.61% max draw down from peak and 5.39% from start. I could also handle being 100% SPY.

    Most investors cannot even take the stress of 100% SDY or SPY. I don't think many retirees could handle 80/20 SPY/XIV with a 35% draw down in a typical year. I know I could not.

    But again, thanks for the portfolio idea to test out!
    Aug 12 07:59 PM | 2 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    "Dividend Dynasty.
    Did the voice of these "happiest retirees" influence the company decision to keep dividends in difficult for the company times?
    SDS"

    YES! Both companies that I worked at lost their Dividend Aristocrat designation. One froze the dividend after I left the company, and its still frozen. The other cut the dividend in half while I was responsible for Investor Relations calls and has since resumed increases. Defending the dividend cut was the toughest point of my career. I had to explain to all the retirees, who depended on the dividend, why the cut was necessary. The dividend and dividend increases continued until all other options were used up, the credit rating was lowered several notches and all debt options were used.

    This experience tells me that dividend cuts can be anticipated. When you see the credit rating agencies lowering the company's rating and debt getting out of control, it is a sign of negative dividend action to come. These companies were AAA or AA rated at one time. Now the dividend freezer is A- rated and the dividend cutter is BBB+ rated. This is why I watch the credit rating on my investments closely.

    I prefer AA and above rated companies, but there aren't enough of them to have a well diversified portfolio. By adding A rated companies, you can design a well diversified portfolio. I have some BBB rated companies to pick up the packaged goods industry. These companies use leverage to increase ROE. I do own CAG at BBB- and anticipate bad dividend actions in the future. Its just that CAG's assets are worth more than its market value. I believe CAG could sell assets if it gets into trouble. I'm hopeful that the new CEO search will turn the company around. But investing in CAG is not for the feint of heart based on my analysis.
    Aug 12 04:40 PM | 3 Likes Like |Link to Comment
  • Retirement Strategy: The Absurdity Of Believing That Dividends Don't Matter In Retirement [View article]
    Thank you RS for cutting to the chase. I tire of all the bickering of whether dividends matter. Here's my story:

    I worked most of my career in investor relations for two S&P Dividend Aristocrat companies. I met and spoke with thousands of individual investors. Let me tell you, the happiest retirees all told me they had built their own little fund of dividend paying companies and were living large in retirement. I took their advice and built my own little fund of dividend paying companies (many dividend aristocrats) and am also living large in retirement. I built my parent's little fund of dividend paying companies and they too are living large in retirement at 80 years old in an expensive independent living facility with no pension and minimal social security. I showed them they can afford to live there as long as they want and don't have to worry about running out of money. The only way I know how tell everyone that dividend investing works is to share these examples.

    Does total return investing work with spending 4% and increasing for inflation? Probably, but I know if you start with a portfolio of dividend paying companies paying 3% or more with increasing annual dividends, the 4% rule has a much better chance of working and therefore the dividends do matter.

    Does EMH investing work? It probably did before QE infinity and the Zero Interest Rate Policy. But from the current starting yields of 0% cash, 2.5% bonds, 1.9% S&P 500 and 0% commodities, I just don't see where you can pull an inflation adjusted 4% from that portfolio and not decimate it over 30 years. What if you live for 35 years in retirement?

    I used to really enjoy SA when a group of the successful investors shared their experiences without the naysayers taking shots at us. I don't know if the old polite SA will ever reappear. What I am doing is ignoring the naysayers and sharing my experience. Then younger investors can read our comments and decide which method will work best for them.

    My bottom line is that dividend investing works for me, for my aged parents, and for thousands of investors I spoke to throughout my career.

    The choice is yours, choose carefully!
    Aug 11 10:06 PM | 69 Likes Like |Link to Comment
  • My 2014 Investment Plan And Screening Method [View instapost]
    GFMN, thanks for your comment.

    Although I like a bargain as much as the next investor, for this purchase I looked at the overall portfolio average and was not as price sensitive on the individual components. Some companies I sold were overpriced just as some were that I bought. On average at purchase, the portfolio had a P/E of 15.07, a dividend yield of 3.09 and a 5-year dividend growth rate of 8.97%. I add the 3.09% yield plus the 8.97% dividend growth rate to estimate the total full cycle return at 12%. Many of these stocks were sold off quite hard on this correction which allowed me to grab this high-quality portfolio with a good average P/E and yield. I also had many of these stocks in my portfolio in the past and sold them at high prices when their yields got too low. This pullback gave me the opportunity to buy them back.
    Aug 9 05:57 PM | Likes Like |Link to Comment
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