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I have been a Seeking Alpha contributor since September 2011. I enjoy writing articles about dividend theory, taxes and off-the-run macro policy issues.
  • More Balance Needed For Dividend Growth Investing Advocacy 22 comments
    Jul 24, 2012 12:46 PM

    I think the conversation between the "board of directors" of dividend growth investing (David Van Knapp, David Fish, Chuck Carnevale among a couple others) and David Jackson in David Merkel's article seekingalpha.com/article/716441-new-high... was a great "reality check" on the overall positioning of the articles in the Dividends & Income section. I have also commented on the unbalanced nature of the commentary on dividend growth investing which, if you only read SA, has seemingly become the only game in town for the "Income Investing Strategy" subsection of Dividends & Income. I did not formally count the number of articles that are focused on dividends in this subsection, but I am guessing it is 90%+. Perhaps this is because there is not a specific "Dividend Growth Strategies" subsection, but still it is a telling sign.

    I think it is great that David Jackson would try to bring some balance to the conversation even though dividend growth investing is the source of a significant percentage of the "hits" that SA receives. It gives me great confidence in his vision for the future of SA. David Van Knapp, David Fish, Chuck Carnevale and a couple of the other frequent dividend growth contributors are very talented and astute investors. They have spent years honing their craft and learning from their mistakes...but a couple caveats. First, they are at a particular point in their lives and financial capacity where the dividend growth strategy makes sense. I would like to see more discussion and, frankly, warnings from these gentlemen as to how this strategy may not be the best for those with different investment capabilities or of different means. Second, perhaps more controversially, these three gentleman (and others) benefit monetarily from the growth in interest in this type of investing. I am not talking about hits on SA articles, but cross promotion to their books and publications. I do not at all fault these gentlemen for this…it is as American as apple pie and SA provides a great platform for this. I just think that their advocacy for dividend growth investing needs to be considered to some extent with this in mind just as comments and articles from RIA's, CFA's, CFP's, etc. are often "discounted" for being self-promotional.

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  • curreyr
    , contributor
    Comments (727) | Send Message
     
    Counterpoint,

     

    "First ...", I think that the approach of DGI for non-retirees has been discussed as relevant in a number of articles. One primary reason being that the re-investment of the income (versus a retiree cashing it in for bill paying) presents an additional resource for investment via DRIP or new positions. For example: $1500 per quarter to a portfolio becomes $1500+dividends per quarter.

     

    "Second ...", I don't see too much self promotion of books or services. In all honesty, their contributions for *free* here at SA may have a detrimental impact on the "pay for" product (why buy the cow when the milk is free).
    24 Jul 2012, 01:34 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » curreyr, thanks for reading this...never used Instablog so wasn't sure anyone would read it. I just needed to get some thoughts "off my chest" and wanted to do so in as fair a way as possible as I realize I am "op-eding".

     

    Re "First...". see my forthcoming response to you and Chowder below.

     

    Re "Second..", as I said, I have no problem with anyone cross-promoting. I agree that I have not seen these done overtly to a large extent in articles or comments but I don't see the RIA's do this overtly either. Nonetheless, I have seen RIA opinions frequently discounted as simply promotional tactics. Do take a look at the profiles for the three gentlemen. There is no doubt there is cross-promoting going on there...that's OK. Whether or not their SA articles and comments help or hurt their gains on these endeavors, I have no idea and, unlike a few other posters who really get there back up about complete disclosure, I think it's really none of my business how much money they are making from them. I was mostly pointing out the double standard that seems to be applied.
    24 Jul 2012, 02:23 PM Reply Like
  • Chowder
    , contributor
    Comments (9426) | Send Message
     
    CP,

     

    I don't understand what you mean about warnings as to how this strategy may not be the best for those with different means. What kind of means are you talking about?
    24 Jul 2012, 01:47 PM Reply Like
  • curreyr
    , contributor
    Comments (727) | Send Message
     
    chowder,

     

    I think the point of "means" is the difference between someone that may be collecting $10k/Q in dividends versus one collecting $100/Q in dividends.

     

    That $100/Q appears as "small nuts". The aspect of those "nuts" compounding (along with regular contributions) is what isn't represented by some who "live on the dividends".
    24 Jul 2012, 01:59 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » Chowder, first of all I include you among the talented and astute investors. You appear to have that rare, unemotional discipline that is needed to execute any stock picking investment strategy successfully...but I believe you are an exceptional exception to the rule.

     

    As to means, it is estimated that the average Baby Boomer will have saved less than $200,000 for retirement. Assuming that, other than Social Security, one must live off of income only from $200,000, a moderate risk dividend growth strategy generating a 4% return will provide $8,000 in annual income...hardly sufficient for a consumption-hungry Baby Boomer; especially in an era of skyrocketing medical costs. Some, unfortunately, will look to yield up into mREIT's and the like to make their nut...very risky and I believe the fear that David Jackson was expressing. Clearly, the average Boomer will need a plan to responsibly access principal through retirement. This then undermines a dividend growth strategy as one is forced to subject themselves to the whims of Mr. Market on a regular basis.

     

    On the other side, an investor with, say, $5,000,000 who only needs $100,000 per annum from a portfolio (just a 2% return) would be better advised to diversify among different asset types than investing substantially all of their assets in just 10 to 50 stocks. I would presume people in this camp know this though so I am less worried about them.
    24 Jul 2012, 02:46 PM Reply Like
  • giorgiolb
    , contributor
    Comments (6208) | Send Message
     
    CP,

     

    Are there ANY mREITs that fall under the DGI umbrella? Most have variable, fluctuating dividend payouts which would exclude them from the various champions/contenders/etc listings espoused by the "Davids".
    24 Jul 2012, 03:41 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » g, let me answer it this way. I have seen many posters who consider themselves to be dividend growth investors who do include mREIT's as part of the genre and I don't ever recall any of these three gentlemen specifically stepping up to say this was not the case...perhaps you or they can correct me.

     

    Notwithstanding, setting aside mREIT's specifically, I think you understand the point is that some investors in this situation may not have the experience, discipline or means to manage risk and may be too tempted to reach for excessive yield. I would like to see "the board" more vocal about this making it clear that this is not a wise strategy.
    24 Jul 2012, 03:51 PM Reply Like
  • giorgiolb
    , contributor
    Comments (6208) | Send Message
     
    CP,

     

    It's all a matter of perspective, but I personally find the DGI strategy to be one of the more conservative ways of creating an income stream.

     

    I don't limit myself to the dividends and income topics (I read stuff in many investment areas), but I see warnings against the dangers of reaching for yield all the time.

     

    Any investment is fraught with risk, from loss of capital (and beyond) to loss of opportunity, which can be every bit as damaging to a successful retirement plan.
    24 Jul 2012, 04:17 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » g, I'm not worried about you. You know your $h!t. I said in my comment response to Chowder, it's the drift for those with less money and less investment savvy that go from "I need more income" to "look at all these wildly successful conservative dividend growth investors" to "I can stretch for yield but I am still a conservative dividend growth investor" because "income risk" is always safer than "price risk" at any level. In spite of the great tutelage "the board" and others provide on stock valuation and monitoring i.e. the "what to do" side, my view is that there is not enough about the "what not to do side" ...perhaps because it might be perceived as undermining the strategy? I don't know...
    24 Jul 2012, 05:11 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3795) | Send Message
     
    Counterpoint,
    Thank you for contribution. I'd agree that many SA articles over-emphasize DGI in "significantly beat the market" terms although I do not recall such claims from "the "board of directors" of dividend growth investing". I believe that total returns of DGI cannot be significantly higher than other strategies on short term - just because DGI is known for at least decade. Unfortunately we don't have enough information on DGI without survival bias on long term (I'm trying to collect it in the Dividend Heritage Project - see my SA blog) for such claim.
    Although I started DGI in my late forties I think this strategy is applicable to wide spectrum of ages but "this strategy may not be the best" for investors with short time horizon (less than 10 years); folks who cannot sustain -50% drop in stock prices even know that this is quite irrelevant for DGi; people who cannot diversify at low fees (I advocate for 100+ stocks, other DGi use 20-50 stocks but IMO investor expenses for portfolio set-up should be below 1-2%); and folks who need cash right away (DGi should not chase very high yield).
    I'd not agree with "cross promotion to their books and publications" because David Fish is doing great work on dividend companies CCC list for free, DVK is sharing almost all significant ideas what he includes in his "40" book in SA articles, CC is using his graphs mostly to illustrate companies evaluation in again free SA posts [Disclamer: I use CCC list and sometimes suggest candidates for it; I bought couple editions of DVK "40" book; I do not use fastgraphs yet].
    I agree with "articles from RIA's, CFA's, CFP's, etc. are often "discounted" for being self-promotional", moreover I surprise how shallow are most of them. I don't know why these proffi make their articles so naive - to rich as wide audience as possible or just because lack of critical thinking. When I see SA author who generates few articles per week I usually quite sceptical about probability to find anything new in the post and author's real goal. It is too much noise in SA and it is often waste of time to read many articles and comments. Unfortunately my proposal to write a review of significant comments didn't pass through. I think we need a good mechanism to separate real content from noise /BTW, am I making noise now 8-) /.
    SDS
    24 Jul 2012, 02:51 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » SDS, thanks for weighing in. In full disclosure, I subscribed to David Fish's "The Moneypaper" in the 1980's...long before SA (or even the internet I guess) was thought of as a conduit for promotion.

     

    Again, I'm not faulting "the board" for their outside activities. I, like others, am appreciative of the info they do share freely and, honestly, I would much rather play a round of golf with any of them than most of the others that post here. While I think there is a refreshing level of altruism to their activities, I think readers should still know it may not be 100% and they should, as they do with articles and comments from certified financial professionals, weigh this in as they process provided opinions and suggestions.

     

    Beyond this, I agree there is a lot of junk (I'm sure many put my stuff in that camp) and I know SA is struggling trying to balance article quality with the open source nature and revenue generation requirements of the business. Beyond, that your comment was not noise and I have great respect for your analytical skills!
    24 Jul 2012, 03:31 PM Reply Like
  • Dividend Dynasty
    , contributor
    Comments (1128) | Send Message
     
    "dividend growth investing . . . has seemingly become the only game in town for the "Income Investing Strategy" subsection of Dividends & Income."

     

    DGI is the only game in town when the 10 year treasury is at 1.39%, cash yields below inflation and DGI stocks yield a growing 3%. If yields on DGI stocks were at 1.39% with a 100% payout ratio and no growth prospects and TIPS were at 3% plus inflation, all the articles would be about TIPS.

     

    Investing is not an exact science. Overvaluation is only obvious after the fact. Even Alan Greenspan made his "irrational exuberance" comment four years early. I believe the concern over a DGI bubble is very early. The ads touting dividend stocks are just starting on CNBC. Have you seen the one where you screen for stocks yielding 5%? It makes me laugh every time I see it. The public is just beginning to notice dividend stocks are outperforming.
    24 Jul 2012, 05:30 PM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » D squared...thanks for stopping by. Hey, did you clear your logo with Rodger Luebke? High yield bonds are yielding over 6%. Why are there so few articles about them in Income Investing Strategies?

     

    Agree with you on "bubble" but not sure how it ties into my post.
    25 Jul 2012, 09:27 AM Reply Like
  • Dividend Dynasty
    , contributor
    Comments (1128) | Send Message
     
    I hope you notice the similarity in my comments with the shared logo. Its like we are the same person ;)

     

    Here's one on HYG http://seekingalpha.co... .
    25 Jul 2012, 09:43 AM Reply Like
  • Chowder
    , contributor
    Comments (9426) | Send Message
     
    Re: High Yield Bonds .... Maybe they fall under the bond section. I've never read the bond section, so I don't know.

     

    If there are bond articles under the Income Investing Strategy section, I'm sure I would have skipped over them as I don't read every article.

     

    I know I've seen quite a few comments from non-authors pertaining to bonds, but they don't wish to write articles on bonds. Have you written any? I'm just asking because I wouldn't have known if you did.

     

    I know as a dividend growth investor, with the objective of growing an income stream that is reliable, predictable and increasing, anything I purchase that has to do with bonds must be high quality. I don't wish to invest in junk bonds.

     

    This isn't an attack on those who do buy junk bonds. They probably know what they are doing. I don't know how to apply investing strategies pertaining to bonds. ... Ha!
    25 Jul 2012, 10:10 AM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » DD (or RL) & Chowder, just spot checked the last 50 articles posted to Income Investing Strategy. There is one on high yield, five or six on MLP's, a few on option income strategies (which I think is a subset of dividend growth) and the remainder are primarily on dividend growth...roughly 80%. Like you Chowder, I only read articles that interest me or else I'd be sitting at the computer 24/7. I spend time on M* too.

     

    Re high yield, I do have a few funds in my Rollover IRA that invest all or in part in high yield. I actually moved money from a bond index fund into high yield in March 2009 as the disparity was ridiculous. Needless to say it paid off nicely. I would only buy funds as I do not have the desire to track individual bonds of this risk level. My largest dedicated high yield investment is in Fidelity High Income (SPHIX) which is yielding just under 6% and is **** and Gold on M*. I reinvest all of my distributions. All-in-all though, high yield represents only about 2% of my total investment assets.

     

    Maybe I will write an article about it that no one will read... ;)
    25 Jul 2012, 10:41 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3795) | Send Message
     
    In average probability of dividend cut from CCC-like companies is close to default rate of junk-like bonds, so long-term investor probably win with stocks. On another hand bond portfolio required much broad diversification than even dividend stock portfolio, so not many small investors can hold few hundreds different bonds. Also how much anybody can write about single bond in comparison of single stock?
    25 Jul 2012, 11:00 AM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » SDS, default rate/cut rate comparison is interesting as that "equates" risk in theory. If you start, in an IRA, with a bond with a 6% yield with no income or price growth or a dividend stock with a 3% yield and 5% annual dividend and price growth, reinvest distributions annually in both, on a present value basis, how long will it take for the income generated from the dividend stock to exceed the income generated from the bond? The answer is that it takes 15 years just for the dividend to catch up to the bond payment. Then, using a 5% discount rate, it would take about 34 years for the present value of the income stream from the stock to exceed that of the bond. Now, if you include price appreciation in the analysis, the stock will easily be the winner, but on an income basis alone, the bond will be superior for a long time because it is starting off at such a significantly higher yield. Hmmm...
    25 Jul 2012, 11:26 AM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » Robert Schwartz commenting in a recent article "Protected Principal Retirement Strategy: Retiring Without A Million-Dollar Nest Egg":

     

    "Master Limited Partnerships
    Real Estate Investment Trusts
    Royalty Trusts
    Business Development Companies
    Closed-End Funds

     

    These are all high-yield.
    Higher return means higher risk.
    I caution retirees from chasing high yield. "

     

    Giving credit where credit is due.
    26 Jul 2012, 09:06 AM Reply Like
  • Chowder
    , contributor
    Comments (9426) | Send Message
     
    I do own a few MLP's. I own two of the largest, EPD and KMP, and then I own MMP. I believe these to be among some of the safer MLP's to own and from safe I mean financially sound.

     

    In the REIT sector, I have a little more risk. I own O, NNN, HCN and OHI. I believe O to be the least risky, OHI the most risky.

     

    I will not purchase a Royalty Trust or BDC regardless of yield.

     

    I do own a few CEF's. Two are Muni Bond Funds, the other deals with preferred stock which I have no desire to learn about and invest on my own.

     

    An idea I have been kicking around in my head, and it doesn't seem to want to come out and formulate a plan, is a high risk ratio.

     

    For every high risk holding, I'm thinking OHI in my case, you need to balance with something like four (take your pick) conservative holdings.

     

    Percy and I come up with these wild ideas after sharing a few cold ones. ... Ha!
    26 Jul 2012, 09:18 AM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » Chowder, we actually have two holdings in common from the ones you listed: HCN and KMP (well I actually have KMR). I quite sure when Robert listed REIT's and MLP's in his circle of caution, he was referring to the high yielding components, not the entire sector.

     

    I reluctantly bought REIT's in 2001...reluctant because my career was in commercial real estate (shopping centers) and I didn't want to overly concentrate my fortunes in the industry. I have just about tripled the money I invested in REIT's...not bad in a "lost decade". I stick to blue chip equity REIT's like AVB, BXP, PLD, VTR (VTR was the big winner) and as I mentioned HCN. Had EOP and ASN and was, retrospectively, very happy about the buyouts in early 2008. For EOP and VTR...Sam Zell...one very smart guy...and I believe one of the best all time representatives of shareholder interests.
    26 Jul 2012, 09:49 AM Reply Like
  • Counterpoint
    , contributor
    Comments (914) | Send Message
     
    Author’s reply » On your "high risk ratio concept", I made a comment in Adam Aloisi's sensible income portfolio article about diversification. It is human nature to always try to find a balance or equilibrium, but we do this in odd ways to convince ourselves that there is balance in various portions of our life, investing being no exception. I used a paint color metaphor there. Here's another one: it's like saying I'll have a salad for lunch so I can have dessert after dinner. Both are still food with calories but mentally we view the salad as balancing out the dessert. In reality, you probably still shouldn't have the dessert, or better yet, you should probably exercise to burn some calories.
    26 Jul 2012, 09:59 AM Reply Like
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