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David Crosetti
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I was born and raised in California. I worked in the family business for a number of years and then decided to spread my wings and try working for someone else. My first significant job was with Frito Lay. After a stint in the salty snack business, I transitioned to the beverage industry,... More
  • Some Thoughts On Relevancy 57 comments
    Feb 28, 2014 2:49 PM

    Recently, there have been a few articles discussing the "relevancy" of dividends. It would seem that there are a lot of people who love dividends and a lot of people who don't like dividends. Regardless of which side you line up on, or if you perhaps take a middle road, concerning dividends, the simple fact of the matter is that there are companies committed to paying dividends as part of their business model.

    Most of the companies that I've been investing in over the last 30 years are dividend paying companies. Not only do these companies in my portfolio pay dividends, but they actually increase their dividends annually.

    What I like to do is reinvest the dividends back into additional shares of the underlying company and allow my share balance to increase over time with those reinvested dividends. I even make it a practice to purchase additional shares, with new money, when those stocks in my portfolio present a value, relative to what I consider the intrinsic worth of the company to be.

    I've posted my retirement portfolio in articles on Seeking Alpha. As an active investor, I make it a practice to always be looking for "bargain" priced companies and sometimes (Heaven forbid), I will purchase stocks that do not pay dividends. I have even been known to purchase stock in companies that have a yield below 3% (of some other arbitrary yield point that others might have.)

    What I like about dividends, from the DGI perspective, is that the dividends will allow me to have a very comfortable retirement. On top of my dividend income, I will have Social Security. My Social Security income will supplement my dividend income and act as a "bonus" as opposed to being the "meat" of my retirement income. Social Security is "lagniappe" (which is something my Cajun friends refer to when you get "something extra" in your purchase.

    Now, I have to admit that a lot of the academic discussion regarding dividends is very interesting and thought provoking. I actually enjoy those articles telling me that my DGI strategy doesn't work. I enjoy being called a "zealot." I actually get a big kick out of the argument that some non-DGI folks make when they tell me that "trying to convince a DGI that he is wrong in his investment approach is an impossible task."

    In much the same way, I have to acknowledge that telling a non-DGI investor that "DGI works and here's a look at my portfolio to prove it" is also "an impossible task."

    Regardless of how you feel about it, perhaps the lack of intellectual curiosity is something that has always concerned me, to an extent. But, now, I've come to realize that what someone else thinks is just fine with me.

    At work, we have a lot of people who love to complain about things. They don't like this and they don't like that. They have a real talent for finding out "what's wrong with something," but the people that keep getting promoted are the ones who seem to come up with solutions as to how to fix those things that might be wrong.

    Interesting.

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Comments (57)
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  • Travel4Yields
    , contributor
    Comments (391) | Send Message
     
    Thank you David for sharing your thoughts on the relevence of dividends/DGI. Having reinvested my dividends back into the companies has been nice. While us investors don't really think in terms of asset flexibility, that extra dividend income provides us with extra income when needed. This is my present predicament. I took on additional financial burden for my family's well being so to manage payments w/o a p/t job I turned down the reinvestment of dividends so I could use the cash payout to pay down debt. Then at a future date I can turn back on the full re-investment of the dividends. This available cash option reduces the financial burden and stress so we go on living our normal daily routine.
    28 Feb, 03:25 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Travel:

     

    Been there, done that. I can emphasize with your situation. Sometimes we have to make adjustments.

     

    Good luck.

     

    Dave
    28 Feb, 03:45 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    Nicely done Dave

     

    Like you I tire of those that are critical of DGI and never reveal the true specifics of how they invest. I'd say it is time for them show us ...their portfolios.

     

    Strange isn't it that the only folks willing to show their portfolios seem to be Dividend Growth Investors.

     

    Love the phrase "lagniappe" (Cajun for when you get "something extra") I feel that what I get as a Dividend Growth Investor. I get three ways to win: dividend income greater than "the 4% Rule", income that handles inflation through dividend growth and capital gain. The beauty is I get 2 out of 3 even when the market is down and as Meatloaf said even "3 out of 3 ain't bad"

     

    Great weekend my friend

     

    Bob
    28 Feb, 03:37 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Bob:

     

    I went to a donut shop in Louisiana once. I ordered a dozen donuts. I opened the box and the guy had given me 13. I called them on the phone and he said: "In some places they call that a "baker's dozen." Here, we call it lagniappe. Something extra."

     

    Sweet.

     

    Dave
    28 Feb, 03:47 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7412) | Send Message
     
    Thanks David Crosetti for this update on Relevance. Like Travel4Yields, I have stopped reinvesting dividends from slow dividend growth stocks into the same stock--several of my phone companies are overweight. I now use them for investment in LNCO for the monthly dividend income. When transitioning to RMDs, I find it necessary to have high yield income stocks on the outside of the IRA. I shoot for 5% yield on the entire portfolio and have finally sold FTR, like you said I should. When your family needs help, you become more focused!
    28 Feb, 03:48 PM Reply Like
  • David Fish
    , contributor
    Comments (7961) | Send Message
     
    I always marvel at the myriad of folks who feel compelled to "save us" from our dividends...and wonder why they feel it is so necessary to do so. That apparent need to get everyone to invest as they do stands in stark contrast to the DGI crowd "in the big tent" who simply enjoy what they're doing and welcome others to "join the party" (but don't pressure them to do so).
    28 Feb, 03:56 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Norman:

     

    Like you, I will soon be drawing my dividends! Going to retire because I have had all the fun I can stand at work.

     

    Dave
    28 Feb, 04:06 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » David:

     

    I think those people have taken the place of the Jehovah Witnesses, who have not been by my house for quite a while now.

     

    Somebody, save me.

     

    Dave
    28 Feb, 04:05 PM Reply Like
  • curreyr
    , contributor
    Comments (708) | Send Message
     
    <story ... not relevant>

     

    A pair of Jehovah Witnesses came down my (long) driveway one day, our german shepard dog met them with barking and snarls. They froze, and the dog preceded to circle them. They asked "is it gonna bite?", answer "only if you move".

     

    I asked what their business was, did they see the 'no tresspass', etc (all the while dog was circling).

     

    Finally called dog (and held), told them to walk straight away (which they did hastily).

     

    Her release was a handshake (or hug) of the 'intruder'. Surprised some people that "I must shake your hand" before coming inside our house. Once they saw the way the dog went from guard to monitor, they were amazed.

     

    Sadly she died after 14 years. I still miss that dog.
    28 Feb, 07:23 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » C:

     

    I had German Shepherds most of my life, until recently (completely irrelevant). Anyway, I know just how protective and intelligent these dogs are. Mine was Max. He was a big, American dog, not one of those smaller German versions. He was about as impressive as a 1911 Colt .45 strapped to your leg would be, to a bad guy.

     

    Dave
    28 Feb, 08:00 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    I figure I get saved every time my 3 German Shepherds scare off a proselytizer. Those mighty big barks have them hurrying back down the sidewalk pretty darned quick!

     

    Funny thing, they never bark at the pizza guy.

     

    Miz
    28 Feb, 08:52 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Miz:

     

    That's when you turn to the dogs and say, "well played, boys, well played..........."

     

    Dave
    28 Feb, 09:13 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    Exactly so, Dave. :)

     

    Miz
    1 Mar, 04:21 PM Reply Like
  • curreyr
    , contributor
    Comments (708) | Send Message
     
    Our GSD loved every child under 12ish (they didn't need the handshake 'pass').

     

    We had a BBQ with about 40 people and a dozen or so "kids". The kids were playing in the yard and GSD was on 'duty'. No one was really watching the kids ... except for the GSD.

     

    One 5yr kid wondered down the drive (GSD following). The kid got to the street, GSD started bark/snarl. Kid comes running back screaming. GSD had happy face.

     

    The parents looked at kid screaming (and GSD back to 'duty'), I said "she was just herding YOUR kid".
    1 Mar, 06:53 PM Reply Like
  • Guitar Man
    , contributor
    Comments (228) | Send Message
     
    I am a DGI. So are many others who read articles such as this one. In article after article (and, I should add, comment after comment), the writers/commenters describe how dividend growth investing has worked for them over a year, five years, a decade, and/or a lifetime.

     

    With this in mind, the naysayers' comments mean little to me. They're entertainment. It's the same thing over and over and over. Yet the proof is in the pudding: we like dividends, we like companies who grow their dividends, and we stick to our knitting. Some of us reinvest; some of us do not. Some of us focus on dividends (primarily); some of us focus on value.

     

    We come in all shapes and sizes. Some of us have different stripes. But many of us share the same basic thoughts and tenets.

     

    And the bottom line is that it works for us. And we're happy. And when something works for you, you're satisfied with it, it's been tested over time, and you understand what you're doing and why, nothing that anyone says can (or ever should) change the way you feel about what you're doing.

     

    'Nuff said.

     

    -GM
    28 Feb, 05:32 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » GM:

     

    Sometimes these discussions end up being like an AA Meeting.

     

    Hi. My name is Dave and I'm a DGI..............

     

    Everyone cheers.

     

    The best part of the strategy, in my opinion, is that it actually forces you to think about what you are buying and why you are buying it. You have to consider how a new holding changes the dynamics of your portfolio, both in income stream and income growth.

     

    I think a lot of people don't like it, because you really have to be a better investor than someone who choses a more passive style.

     

    Dave
    28 Feb, 08:03 PM Reply Like
  • ScottU
    , contributor
    Comments (743) | Send Message
     
    It's interesting that you say mention active versus passive styles. I don't call myself a DGI but its probably the best strategy to contain my investments goals. I have found it great for exactly the opposite reason, I like these companies because the ideas are so passive.

     

    Once a quarter or so I add new money to my portfolio, and I buy what I consider to be the best value that fits with my investment goal. I monitor my other holdings, but there's nothing about them that I actively worry about. Once monthly I make sure that there's not a screaming reason to buy one of the companies that I'm already invested in (KO over 3% yield being an example) or I use my dividends to fund new postions in companies I'm comfortable dollar cost averavging into.

     

    For me, the diligence is almost all done up front and the only labor intensive part at all is a new purchase and how it fits, the rest is a lot of autopilot and enjoying life.
    1 Mar, 02:08 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Scott:

     

    That comment by me was a little bit of "sarcasm" that was meant for another author. The idea of passive and active investing is one more distinction that I don't fully grasp.

     

    If you select a basket of index funds in different asset classes, then you are going to have to actively manage those investments, in the same way that someone who purchases individual stocks would.

     

    One of the nice things about DGI is that it allows you to purchase stock in companies that are blue chips and that you want to own for a long time.

     

    Sometimes things happen and you have to part with one of your blue chips. It happens. But it's not any kind of a deal breaker.

     

    I feel that my own portfolio is pretty much on auto pilot.

     

    Dave
    1 Mar, 07:20 AM Reply Like
  • ScottU
    , contributor
    Comments (743) | Send Message
     
    Dave,

     

    I missed the sarcasm, I'm going to blame the cold medicine and lack of sleep. After 9 solid hours, it reads clear as day.

     

    Scott
    1 Mar, 12:08 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Scott:

     

    It's ok. At my age, I miss almost everything.

     

    There were two articles "Are Dividends Relevant" which got big response and one that the title escapes me.

     

    Search it on the SA "find" box. My comments alone are worth the read.

     

    Dave
    1 Mar, 12:46 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    Scott ~

     

    You know why that is? It's 'cause when you have a cold, your stuffed-up nose prevents oxygen from getting to your brain and causes your thinking to get all fuzzy. :)

     

    That's my story, and I'm stickin' wid it . . .

     

    Miz
    1 Mar, 04:24 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    Dave ~

     

    Human nature being what it is, those brave TR souls are just trying to save us from ourselves. The fact that most of us don't want saving is probably "irrelevant." :)

     

    I had to chuckle when I read your last paragraph. In all my years in a leadership role, I always told my team, "Don't bring me a problem without a solution." It's amazing how creative people can get when they really want to!

     

    Miz
    28 Feb, 05:57 PM Reply Like
  • David Fish
    , contributor
    Comments (7961) | Send Message
     
    Unfortunately, the TR people want to cram a solution down our throats, even though we don't have a problem!
    28 Feb, 07:05 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    Exactly, David!
    The only problem is that their solution never comes with a black & white example of how it works better than our "problem"!

     

    And, of course, the Solution Corollary: If it ain't broke, don't fix it.

     

    Miz
    28 Feb, 07:41 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » David:

     

    That is the philosophy of never letting a good solution to waste. Find a problem that fits the solution.

     

    That's a philosophy that our current government in Washington employs these days.

     

    Dave
    28 Feb, 08:09 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Miz:

     

    At Coke we had a bunch of those guys. Everyone kept wondering why I kept getting promoted all the time. They would say, "Crosetti is not the sharpest knife in the drawer."

     

    Solving problems. But it helps if you know that the problem is before you apply a solution.

     

    But in the words of Woody Allen: "Eighty percent of success is just showing up."
    28 Feb, 08:10 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Miz:

     

    But, you would be so much better off................

     

    Dave
    28 Feb, 08:11 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    "But, you would be so much better off................"

     

    Sure, Dave. Just come knock on my door and we'll talk about it. Bring pizza.

     

    Miz
    28 Feb, 08:54 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Miz:

     

    I have the pizza thing covered!

     

    Dave
    28 Feb, 09:14 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    David....

     

    I think that's a part of what's referred to as "The Cranky Maneuver"! Give me the "chowder rule" any time.

     

    I'll take Total Dividend Return over Total Return....

     

    Bob
    1 Mar, 06:56 AM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    Miz...

     

    And their answer is never let a Good Solution go unpunished.

     

    Bob
    1 Mar, 06:59 AM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (4521) | Send Message
     
    LOL, Bob, on both!

     

    "The Cranky Maneuver" -- priceless!

     

    Miz
    1 Mar, 04:27 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3366) | Send Message
     
    Thanks David Crosetti for this article. One of my principles is "Paper wealth is not money", so I'm 100% DG/HY investor. At the end of accumulation phase I re-invest all dividends in undervalued companies which pay dividends (mostly new for me). Again the principle is simple: “In God We Trust, All Others Pay Cash”. I think that quasi-equal capital investment (http://seekingalpha.co...) in wide range of dividend companies with non-negative DCR helps to reduce idiosyncratic risk.
    SDS
    28 Feb, 07:30 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » SDS:

     

    Sounds like a good plan to me!

     

    Dave
    28 Feb, 08:12 PM Reply Like
  • StepUp
    , contributor
    Comments (465) | Send Message
     
    David -

     

    I play on both side of the fence - DGI and TR. I have been commenting the past several months that many dividend champions are over valued and are also struggling with slow growth - a bad combination. I believe that many of the champions are overbought due to 1) DGI strategy is currently popular 2) Interest rates are low and yield is hard to find 3) investors waking up to the failures of mutual funds vs the bull run of the past few years and looking for new conservative/easy options.

     

    I think there are a few DGI authors who steer readers wrong (present company excluded) by writing that these companies are worth paying a premium for. I will never forgot reading about how Chuck Carnevale waited 14 years to buy PG at a fair valuation.

     

    I guess that what I am trying to get at is that I DO think there will be some movement away from these stocks as interest rates rise. It does not change the thesis or validity of this strategy. I just think investors starting new positions in DGI stocks right now (like me) need to very careful about valuation AND revenue growth.

     

    I would actually have a higher proportion of my portfolio in DGI but I am having a hard time finding great companies at good values right now.

     

    Step
    28 Feb, 08:55 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Step:

     

    I tend to be in the value camp and like you, believe that many of the stalwarts are overpriced here.

     

    My thought process factors revenue and earnings growth and I try to get a handle on the price, relative to that projected future growth.

     

    At the same time, I've been buying things that perhaps I would not have considered 5 years ago. I've bought and discussed certain companies and I must admit that with the help of FAST Graphs, I've become a much better stock picker.

     

    Value. Value. Value. Can't say it enough. Let the expensive stuff alone.

     

    Dave
    28 Feb, 09:17 PM Reply Like
  • Wheel7
    , contributor
    Comments (29) | Send Message
     
    I am a value investor at heart, and I really like fast graphs. I am grateful for the wisdom that has been abundantly shared by you and several other folks here. DGI helps me focus and make better decisions (buy low, sell high).

     

    The problem with the total return crowd is that the theory is solid. Why wouldn't you want to make the most money? Bob Wells nailed it though... w/o specifics the theory is shallow.
    1 Mar, 01:07 AM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    Step:

     

    I agree with much you say about the Dividend Champions. I was already retired when I started with DGI
    and needed income for retirement from the opening bell. It would have been impossible in 2011 just as its impossible now to build a portfolio comprised of just Dividend Champions if you wish to buy only when the stock represents a good value.

     

    I guess you could say for now I've taken more of a Money Ball approach. The majority of my companies are Dividend Contenders purchased when they are a good value. I will sell off the weakest when I find a Dividend Champion available at a good value. Like Steve Still said "If you can't be with the one you love...Love the one your with"

     

    Bob
    1 Mar, 07:19 AM Reply Like
  • gfmn2000
    , contributor
    Comments (785) | Send Message
     
    I believe whether or not dividends are relevant to a particular investor is dependent upon his goals and the risks he is willing to take. I practice DGI and also have mutual funds that invest differently. Such as small value, international, and emerging markets.

     

    When I get into retirement the "dividends" in DGI will take on even more importance as they will be paying the bills. And of course growing at a pace that will allow me to maintain my standard of living without having to sell any principle assets.
    1 Mar, 10:02 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » 2000:

     

    That is precisely the point. Depending on what your goals are, dividend paying stocks may or may not be something that you want to invest in.

     

    Being critical of those who do or those who do not is just silly.

     

    As for the academic argument that dividends decrease the value of the company? I don't care about that. As long as companies pay dividends, I'm going to be purchasing them.

     

    Dave
    1 Mar, 12:49 PM Reply Like
  • mrudolph72
    , contributor
    Comments (40) | Send Message
     
    David. I'm a big fan of your work. You do a great job of bringing complicated ideas down to my level. I'm a non DGI investor. OK now you guys don't hate me yet.

     

    I've been studying DGI for maybe a year and I totally buy into the idea of it. Focusing on income and the growth of income rather than "only" equity prices. Replacing an income stream where price volatility isn't scary and in fact can even be beneficial. It all makes perfect sense to me. I own several dividend paying companies but many non payers as well. The ones I own happen to pay dividends but it's not the first thing I look at.

     

    Now that being said, taking an outside look in and please don't think I'm trolling or looking for an argument. Would it not "probably" be more lucrative for a younger investor to invest for total return and switch to a DGI strategy in or near retirement? "Probably" is the key word since there are no guarantees on how a stock price will perform over a long period of time. It's become clear to me that dividends can at least be projected with a high likelihood of being close.

     

    If in the end though, someone has a portfolio balance of $1,000,000 and it yields 4%, that's 40 grand per year no matter how you got there.

     

    I won't try to offer a guarantee that a pure growth or value strategy would outperform a DGI strategy on a total return basis over a long period of time but it seems to me like it might and "probably" would. (There's that probably word again) Then that higher amount of capital could be invested for a higher income stream.

     

    It definitely all comes down to knowing yourself and setting your own goals. I also realize that my idea doesn't fit into your plan or meet your goals. I'm just asking your thoughts on the idea. Thanks
    1 Mar, 01:56 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    mrudolph...

     

    I grant you "might outperform" however remain unconvinced of "probably would".

     

    There are now over 500 stocks that qualify as true Dividend Growth stocks ...five years or more of consistent growing dividends. That's more than enough to satisfy the younger investors desire to beat the market. Many younger DGI investors have higher beta holdings than those a year out of retirement. They will often favor the newer DG companies like Starbucks, Whole Foods and Visa.

     

    During the brief year period between 2002 and 2009, there were two major bear markets. There "probably"... there's that word again... are more on the horizon. Based on 2002 and 2008 the Dividend Growth stocks I described earlier will probably outperform during the down markets yet to come.

     

    Bob
    1 Mar, 03:00 PM Reply Like
  • Big Thunder
    , contributor
    Comments (567) | Send Message
     
    "Now that being said, taking an outside look in and please don't think I'm trolling or looking for an argument. Would it not 'probably' be more lucrative for a younger investor to invest for total return and switch to a DGI strategy in or near retirement?"

     

    Personally, I feel that this is pretty much impossible to answer! Are you talking about an index fund or selecting individual growth names or what? And even if we clarify that, we still are just guessing at what the future holds, and we have no idea what kind of investing prowess we're talking about. (Honestly, if I had a knack for picking great growth names and knowing when to get out, I'd do that exclusively.)

     

    One of the nice features of DGI is that certain companies signal clearly what they intend to do vis-a-vis the dividend, so you are allowed at least a peak into the future; and if they stop doing what they have done in the past, you bid them adieu and move on.

     

    That having been said, I don't hold DG stocks exclusively and I think it's reasonable for a younger person to set a portion of their portfolio to DG and a portion to growth. I have a core of stocks that I purchased with the full intention of holding forever, should they continue with the DG approach they have demonstrated in the past; and I have other assets that I purchased with the full intention of selling one day, which I'm hoping will deliver greater growth than I could have achieved with a stalwart DG stock. Right now the split is about 75-25 favoring DG. I have quarterly dividend goals that I monitor closely -- they are goals that, if met, will allow me to enjoy a more than adequate level of retirement income by the time I reach 65. If it should ever happen that a quarterly goal has not been met, I will let go of some of the non-DG holdings and increase the DG holdings. At present, I am a few quarters ahead of schedule.

     

    Before adopting a DG strategy, I was a fund investor and frankly found it dissatisfactory. For me, a fund is like a big box that you stick your money in, and you hope that one day you'll get something bigger out from the other end. I do have money in a couple of funds still, and not too long ago I chose to put some money in a mid-cap ETF for diversification purposes. But understanding a company and choosing to partner with it -- that is far more satisfying to me. And there's a DIY aspect to it that is just a better fit for my personality.

     

    And all that having been said... choose the strategy you're good at! The terrific DG authors and commentators here have given so much valuable instruction; they really help you get on the right track. If you want some in an index fund because that makes you SWAN, do that. Follow the lead of your talents and abilities. Pursue the strategy that fits best for you.
    1 Mar, 08:40 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » M:

     

    It is entirely possible for a growth investor to end up with a portfolio that is as large or even larger than the typical DG investor.

     

    But that is not where the argument should be. The size of the portfolio is almost irrelevant, because going forward, we cannot predict the future and we cannot do anything more than set up a mathematical model to project results. Make sense? We can keep changing the model to produce our expectation.

     

    When we look at real portfolios (mine for example), the argument is made that "you've been lucky." How could you have possibly purchased 400 shares of KO in 1984 when that would have represented x amount of money and the average guy was making y a year?" And so on ad infinitum.

     

    So, I will accept the premise that both portfolios, the growth and the DGI end up with the same value after 30 years. Each has a million dollar portfolio. The DG has an average yield of 4% and he is turning off $40k in dividends annually. THe growth investor has little or no dividend stocks. Maybe a few, but the dividend stream for our intents and purposes is negligible.

     

    Here I am, DG investor, drawing 40k from my dividends and 30k from Social Security. Nice living for a middle class guy. The growth investor decides he needs to shift his strategy to a dividend/income strategy. So, he cashes in his million dollar portfolio and now he has to reallocate that money to income producing entities.

     

    Where is he going to go? Well, stocks are paying historically low dividends these days, due to price appreciation in the stocks that pay dividends. There are some 5% dividend stocks, like the tobacco and wireless communication companies, but a lot of stocks (blue chips) seem to fall in the 3.5% or less camp.

     

    Now, I am leaving MLP's and REIT's out of the equation, because many DGI don't hold them in large quantities or exposures. Let's just stick with equities.

     

    So, you are going to craft a million dollar portfolio of say, 30 stocks? You would have around a 33k investment to make in each holding. So, which ones are you going to buy? What is their current dividend? When you complete the portfolio, what is the current portfolio yield? What will be the DGR that you can expect moving forward, year over year? Unless you put the entire million dollars to work today, you will not achieve your 40k in dividends this year. You might be missing some dividend pay dates and your income for this year might be only 75% of the full year dividend stream.

     

    Let's look at the stocks that you might consider. Are they priced at a value to intrinsic worth? If not are you going to plunge right into them or wait? If you wait, how will you use the money to generate income in the meantime? Are the companies you're looking at delivering revenue and earnings growth? If not, are you going to purchase them anyway? Or are you going to wait?

     

    Would you be better off with a larger holding in T which pays a dividend over 5% or with a larger investment in another company that has a larger DGR that T? Why? WHy not?

     

    I know myself. I understand with complete belief, that I am not the smartest guy in the world. I understand that I profit from listening to other people, weighing what advice they give, and then considering the advice both pro and con, before I jump to any conclusions. I am risk adverse. I would no more sink 30k into a stock position, today, than I would look down the barrel of a gun.

     

    So, I find it hard to envision a growth person making a transition to income and doing it very well.

     

    Here's a suggestion though. I'm not being dismissive here or even snarky. I think that what people might want to do is this. Take 50% of your investments and do the growth thing. Take 50% of your investments and do the DGI thing.

     

    Learn all you can about both strategies and adhere to the conventional wisdoms of each strategy. Read the books from the different authors. Track your investment portfolios separately. Do not mix the portfolios.

     

    No reason not to try both plans, is there?

     

    Dave
    2 Mar, 12:04 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    Damn Man that last paragraph just about says it all. I would add one thing: set a business plan for each portfolio with performance goals and buy and sell guidelines.

     

    Like you I see know reason not to try both plans...

     

    Bob
    2 Mar, 12:30 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Bob:

     

    I think anyone who is really intent on learning about investing and the markets would be doing themselves a great service by managing two or more strategies--especially at an early age.

     

    If you want to become "expert" at anything, you have to have hands on experience and not just book learning.

     

    As a guy who has read about a John Deere Combine to actually drive one and see what happens. It won't be pretty.

     

    Dave
    2 Mar, 12:39 PM Reply Like
  • mrudolph72
    , contributor
    Comments (40) | Send Message
     
    I personally buy value or growth where I see it. Sometimes it's attached to a dividend and sometimes not.

     

    If a person wouldn't buy a stock right now though how could they bear to own it? The risk associated is the same whether they bought today or accumulated over a period of decades. Perhaps you miss 1 dividend. I think we can agree that's not gonna be a deal breaker in the big picture unless it's in the first year of retirement. I think anyone who would make that mistake though probably shouldn't be handling their own money in the first place.

     

    There would be many things to consider making the transition. No arguing that. I would think a year or two would be a reasonable time to do it well. What will I buy in 20-25 years? I have no idea. We'll have to wait and see.

     

    I can reasonably project earnings and dividends a year or two out. I have no way of knowing who will be a contender or champion in 2040 or who will be priced at a discount to intrinsic value so far into the future. So buy then, buy now, it's all the same. The only difference is position size but that's all relative.

     

    Like I said before, I do have several dividend stocks. We'll see what works. I expect both ways will otherwise I wouldn't bother. I do expect my deep value and GARP investments to outperform though over the long term.

     

    And that does matter to me.

     

    Appreciate the responses.
    2 Mar, 02:55 PM Reply Like
  • mrudolph72
    , contributor
    Comments (40) | Send Message
     
    I agree on your point Bob that in big market downturns, dividend strategies usually outperform growth strategies. But so do corporate bonds, treasuries, gold, etc.

     

    It's probably fair to say then that growth strategies outperform in bull markets. KO was an awesome DGI stock coming out of the last recession. If you put 10k into KO at a generational low in early 09, you'd have about 20k now. That's amazing. If you put it in the S&P 500 though, you'd have 25k, If it was in a growth fund like fidelity's FDGRX, you'd now have over 29K.

     

    That's all I'm saying. Now you come back with the same argument at the high peak and maybe you win. Who wins over 20 or 30 years though. I can't decide. That's why I'm here.

     

    02 and 08 were once in a generation like declines and we saw 2 of them in 10 years. Maybe that's going to be the normal, maybe not. Hopefully not for my sake.

     

    I get your point though.

     

    DGI makes sense in certain situations. It makes sense depending on your temperament or age for example. I'm still not convinced it makes sense for me though.

     

    Best of luck
    2 Mar, 07:05 PM Reply Like
  • mrudolph72
    , contributor
    Comments (40) | Send Message
     
    Big Thunder,

     

    Nice reply

     

    Thanks
    2 Mar, 07:10 PM Reply Like
  • Big Thunder
    , contributor
    Comments (567) | Send Message
     
    mrudolph, best of luck. We each have to do what makes sense to us, learning from the mistakes and building on the successes.
    3 Mar, 07:57 AM Reply Like
  • AaronFunding
    , contributor
    Comments (884) | Send Message
     
    Agreed, It is hard to find a great company at a good value right now (posting this on Crosetti's blog is the height of irony, but I suppose this is a comment for others, so here goes:), but when KO is yielding over 3%, is that not an almost sure sign to accumulate shares?
    1 Mar, 02:09 PM Reply Like
  • rnsmth
    , contributor
    Comments (2085) | Send Message
     
    I added to KO recently
    1 Mar, 03:18 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » Aaron:

     

    If you go to Y-Charts and run a chart on KO with "price" and the "dividend ttm" you will be surprised by what you see (do it with a 5 year period).

     

    Doesn't work for every company, but historically, KO's "reversion to mean" for their dividend yield is 3%. Above that yield the price is down and the stock is a buy. Below that yield and the stock is priced up and it is not a buy.

     

    Simple but true.

     

    Dave
    2 Mar, 12:41 PM Reply Like
  • StepUp
    , contributor
    Comments (465) | Send Message
     
    "when KO is yielding over 3%, is that not an almost sure sign to accumulate shares?"

     

    I read that many times on SA and I really do not buy into it but I guess it depends on your investing goals. At it's current price KO yields 3.2% has a P/E of 20.11 and according to FastGraphs, is overvalued.

     

    KO has been trading sideways since it reached it current premium valuation three years ago.
    1 Mar, 07:50 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10781) | Send Message
     
    Author’s reply » If you go to Y-Charts and run a chart on KO with "price" and the "dividend ttm" you will be surprised by what you see (do it with a 5 year period).

     

    Doesn't work for every company, but historically, KO's "reversion to mean" for their dividend yield is 3%. Above that yield the price is down and the stock is a buy. Below that yield and the stock is priced up and it is not a buy.

     

    Simple but true.

     

    Dave
    2 Mar, 12:42 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5645) | Send Message
     
    Step...

     

    Just checked KO on FastGraphs which showed a P/E of 18.9 and shows it in the highest range of fair value. Morningstar has it undervalued. With the dividend increase it now qualifies under the chowder rule ...TDR - Total Dividend Return.

     

    Bob
    2 Mar, 08:23 AM Reply Like
  • AaronFunding
    , contributor
    Comments (884) | Send Message
     
    I do check out the chowder number as one of many guides when doing dd on a stock, but I do not follow the chowder rule religiously.

     

    I am 20+ years from retirement, so I have no problem with lower yields and higher DGR, e.g., BDX.

     

    But as to KO at current price and yield, if it is ok with Chowder, it is better that ok with me.
    2 Mar, 01:06 PM Reply Like
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