depraved -- Agreed, the likelihood of munis becoming federally taxed is low.
OTOH, if they were taxed, the implication to existing munis is such that it is almost certain those would be grandfathered (if not until maturity, for at least 8-10 years), and in that event, the grandfathered munis would likely become more valuable IMO.
I hold only dividend-paying stocks. AMGN is among my core positions because I regard it is the best of the biotechs based upon its past successes, and because it offers excellent price appreciation potential due to all the factors you outlined above.
In addition, and not mentioned--AMGN initiated a dividend at 28 cents in Sept. '11, increased it 28% to 36 cents in March '12, and increased again by 30% in March '13 to 47 cents...I expect above average dividend-growth to continue.
AMGN fills-out my healthcare allocation to pharmas; medical devices; and REITs devoted to hospitals, LT care, and medical office buildings. Demographics in the U.S. and other developed countries will drive demand for the offerings from AMGN and other healthcare-related providers for many years--a rising middle-class in the developing world provides an additional layer of demand for all things healthcare.
I look for AMGN, which remains undervalued, to provide excellent total returns for many years.
Adam -- Since you mentioned it...I too have had a lukewarm view of DRIPs (actually tepid). Thus I view favorably your pro-active and selective use of DRIPs as very likely to produce greater returns than the traditional passive/autopilot usage.
The Safety Valve Of Dividend Growth Investing [View article]
PTI -- OK, I re-read your article, and my response.
You sought to demonstrate that a PASSIVE investor (not unlike in Tim's article) would some 4 or 5 years later have recovered all his losses associated with 2008-09 dividend cuts. To do so, you used the X-dates of actual dividend cuts to 12 CCC stocks from 2008-09.
As to Tim's article, my comment reviewed my PRO-ACTIVE alternative which I believe offers a superior tactic (both financially and emotionally). Whereas you based your calculations on X-dividend dates, I believe those stocks could have been sold at significantly higher prices based on monitoring to identify likely dividend cuts, and thus would have been reinvested at far better prices to produce greater income far sooner than the 4 or 5 years in your study (or above).
As with Tim's 5 "burnout companies", we have a difference of opinion as applied to portfolio management and risk moderation...I strongly believe the 35% income decline suffered by your portfolio in 2009 could have moderated by acting BEFORE those dividends were actually cut. Having done so, the income from the new dividend stream would very likely have exceeded the 2008 stream by 2010--three years earlier than your 2013.
Your article lays out your passive rule--you will not sell a stock until it actually cuts its dividend. You can live with that. I can do likewise with my more pro-active rule.
May you live long and prosper.
Rich ______________________... My full response to your article, including its post-script was as follows:
I'm one of those who advocate selling a stock BEFORE it cuts the dividend...principally, so as to preserve maximum value for reinvestment into a comparable opportunity. For example: $25k invested in a stock with a 3% yield sold for $23k (8% loss), will produce 8% less dividend income when invested in another stock yielding 3%; whereas waiting for the investment to drop to $20k (now a 20% loss) only exacerbates the problem. My secondary reason relates to the emotional mental benefits to avoiding a falling Sword of Damocles.
Thus, I prefer to sell a problem stock, and move on...but I acknowledge we are all free to follow our own processes.
I also acknowledge a troubled stock will sometimes be deemed in danger of cutting its dividend, but may not do so. However, unfortunately, the appearance of a potential dividend cut can become almost as damaging to the stock's value as the cut itself.
PBI is not on your up-to-date list (it only announced its dividend cut on April 1st). So here are relevant results on PBI, a 30+ year d-g stock, if purchased at the start of the Great Recession, and held it to today: Your total returns would absolutely awful (-1.25% per year, including its generous and rising dividend; versus +44% had you bought the market index).
This also illustrates your process of reinvesting dividends back into the paying stock can be a detriment to your performance when those additional shares magnifies your losses (as with PBI), and again points out the need to recognize alternative investments -- opportunities foregone by staying with a troubled investment.
As for your study (and I also acknowledge it was a lot of work), it does not address selling before dividends are actually cut. It only demonstrates when looking at a large portfolio, the damage incurred by dividend cuts is ameliorated by the other holdings when those stocks are held for 4 or 5 years. (I believe this is important)
For myself, it also fails to recognize (even verbally), the likely superior performance of the investments that might have replaced the stocks in danger of cutting their dividends, and the satisfaction of avoiding a falling knife.
My points sum to this: IMO, for most investors, portfolio management consists of more than collecting generous dividends.
It is good that you are comfortable in your rules. However, it also strikes me that you may have started with a conclusion, and worked to construct supporting evidence...I can't avoid wondering what might have been the results if you had considered only those stocks cutting their dividends, and compared their prices 90 days before the effective date of the cut, and the price 6 months or 1 year after. _____________ p.s. I also acknowledge as a full-time investor, I am likely more active, and likely to view the topic differently than might a part-time investor.
Good evening Adam -- Good article. I agreed with you earlier--at $50 and above, O was far over its skis.
I find FV to be a range (not a static number) and absent unusual events, probably ranges about 8% either side of Morningstar's intrinsic-value based calculation (now $44). So I assume O, @$44.68, is well within it's FV range of about $40 to $48. FAST Graphs represents O as still overvalued when comparing historical P/FFO to present).
As a growth & income investor interested in total returns using d-g stocks, I was fortunate to trim some 'gift' profits in O while quite overvalued (the net gains exceeded several years of dividends).
Nonetheless, I see O as a great company, well-managed, and very shareholder friendly. Unless something very unforeseen happens, there will remain a place in my portfolio for O.
It should be noted that although M* is generally constructive on O, it also cautions that O's April acquisition-related 19% dividend bump probably amounts to a pull-ahead of future dividend increases. ______________________ Incidentally, with regard to that recent "flushing" of REIT share prices--IMO (and contrary to Brad's), that was not "noise"...rather it was a glimpse of what is to come when interest rates really do start up in a serious manner, whether that be later this year, or next. Income stocks (including REITs) will suffer from rising rates--just as the market predicts and demonstrated.
My point--if I'm right about that flushing, REITs may have seen their period of stellar price growth while rates were low in and following the Great Recession, and therefore as far as price growth is concerned, the cycle may have peaked for the best total returns. However, REITs as income stocks (their primary historic portfolio role) may continue to do quite well for some time.
If I Could Buy Just One Stock, It Would Be This One [View article]
Apacheman -- I clicked Like, because you make a good point--especially for the younger investor who is generally willing to take more risk than the older investor.
I very much doubt this continuing debate will be resolved by my comment to follow. Nonetheless, I agree--but only to a point.
True, yours is the 'traditional and professional advice', and over the long-term (maybe 20 years), total returns will overcome a few years of expected large losses, and your 'sell 2% method' will work quite nicely. Furthermore, it works especially well for those who have already accumulated wealth (the more wealth, the larger the cushion, and thus the better it works).
However, consider the retiree, near retiree, or other rather conservative investor--many of these investors may have just enough wealth to permit a good night's sleep so long as they believe they are unlikely to suffer very large losses...say a couple years @ 20% and 35% losses. Deep losses in the portfolio can result in depression or other psychological damage that greatly magnify the dollar impact of those losses.
Furthermore, when annual planned withdrawals (or RMD in IRAs, which are multiples of your 2% example) are added to large market losses, the total impact is even more greatly magnified. Thus it is reasonable and logical that many older persons are attracted to the dividend-income strategy.
This investor is likely to be attracted to d-g investing for it's combination of growing annual income, and relative low volatility. Hopefully, we can agree such investors may be very well situated in their 'live off the income' strategy.
Unfortunately, one size, or one solution, does not fit all.
The Role Of Slow Growing Cash Cows In Your Portfolio [View article]
Tim -- I strongly agree with having a few 5% cash cows in the portfolio.
I use their dividends to investment elsewhere, much as does WB. Not mentioned--these stocks often offer a measure of portfolio stability in bear markets. ___________________ IMO, the article could easily be extended by to Part II to include offsetting or pairing the above-average yields of the cash cows with other d-g stocks offering faster grow of total returns...these stocks have lower current yields, but much greater DGRs (their yields stay low in spite of faster DGRs because their share prices advance at even greater rates--thus YOC also grows much faster). These stocks seem to be ignored by DGIs who eliminate them from consideration on only a first-glance (granted, a few DGIs seem to live near the edge, requiring maximum income from dividends). Typically, their payout ratios, and dividends to FCF, are also much lower and reasonably safe.
Just as a few cash cows can help to stabilize a portfolio in declining markets, portfolios can be diversified by the addition of stocks offering faster-growing dividends can boost portfolio performance when the economy is expanding (which on historical average, is a much longer and stronger period than the contracting periods).
Long: dividend cash cows... RDS.B & MO, and others
The Safety Valve Of Dividend Growth Investing [View article]
Retail -- I strongly disagree with your assumption as to disregarding bad events if one owns 30 companies.
ETfs seem to be a strategy that works for yourself and you seem to have time for your life.
I had extensive experience with ETFs in the 1990 and until 2008. Stocks work better for myself, and I live a life I never dared dream would be so good.
It seems we are both comfortable in our strategies...what could be better?
Waste Management, Inc. Dividend Stock Analysis [View article]
D4L -- Thank you for writing this article. IMO, it is just as important to consider dividend-paying stocks to avoid as it is to consider those deserving of a deep-dive into d-d.
Has Realty Income Really Bottomed? [View article]
Has Realty Income Really Bottomed? [View article]
IMO, a 2nd voice discussing those stocks would well-serve all investors.
Add A Faucet To Your DRIP [View article]
OTOH, if they were taxed, the implication to existing munis is such that it is almost certain those would be grandfathered (if not until maturity, for at least 8-10 years), and in that event, the grandfathered munis would likely become more valuable IMO.
The Role Of Slow Growing Cash Cows In Your Portfolio [View article]
All investments are compared by their total returns--TR
TR is the sum of distributions + price change.
The next step is to convert TR to average annual return, or to compound annual growth rate. A refinement sometimes includes adjusting return for risk.
Amgen In Focus [View article]
I hold only dividend-paying stocks. AMGN is among my core positions because I regard it is the best of the biotechs based upon its past successes, and because it offers excellent price appreciation potential due to all the factors you outlined above.
In addition, and not mentioned--AMGN initiated a dividend at 28 cents in Sept. '11, increased it 28% to 36 cents in March '12, and increased again by 30% in March '13 to 47 cents...I expect above average dividend-growth to continue.
AMGN fills-out my healthcare allocation to pharmas; medical devices; and REITs devoted to hospitals, LT care, and medical office buildings. Demographics in the U.S. and other developed countries will drive demand for the offerings from AMGN and other healthcare-related providers for many years--a rising middle-class in the developing world provides an additional layer of demand for all things healthcare.
I look for AMGN, which remains undervalued, to provide excellent total returns for many years.
Add A Faucet To Your DRIP [View article]
Dividend Income Is More Stable Than Capital Gains [View article]
Add A Faucet To Your DRIP [View article]
The Safety Valve Of Dividend Growth Investing [View article]
You sought to demonstrate that a PASSIVE investor (not unlike in Tim's article) would some 4 or 5 years later have recovered all his losses associated with 2008-09 dividend cuts. To do so, you used the X-dates of actual dividend cuts to 12 CCC stocks from 2008-09.
As to Tim's article, my comment reviewed my PRO-ACTIVE alternative which I believe offers a superior tactic (both financially and emotionally). Whereas you based your calculations on X-dividend dates, I believe those stocks could have been sold at significantly higher prices based on monitoring to identify likely dividend cuts, and thus would have been reinvested at far better prices to produce greater income far sooner than the 4 or 5 years in your study (or above).
As with Tim's 5 "burnout companies", we have a difference of opinion as applied to portfolio management and risk moderation...I strongly believe the 35% income decline suffered by your portfolio in 2009 could have moderated by acting BEFORE those dividends were actually cut. Having done so, the income from the new dividend stream would very likely have exceeded the 2008 stream by 2010--three years earlier than your 2013.
Your article lays out your passive rule--you will not sell a stock until it actually cuts its dividend. You can live with that. I can do likewise with my more pro-active rule.
May you live long and prosper.
Rich
______________________...
My full response to your article, including its post-script was as follows:
I'm one of those who advocate selling a stock BEFORE it cuts the dividend...principally, so as to preserve maximum value for reinvestment into a comparable opportunity. For example: $25k invested in a stock with a 3% yield sold for $23k (8% loss), will produce 8% less dividend income when invested in another stock yielding 3%; whereas waiting for the investment to drop to $20k (now a 20% loss) only exacerbates the problem. My secondary reason relates to the emotional mental benefits to avoiding a falling Sword of Damocles.
Thus, I prefer to sell a problem stock, and move on...but I acknowledge we are all free to follow our own processes.
I also acknowledge a troubled stock will sometimes be deemed in danger of cutting its dividend, but may not do so. However, unfortunately, the appearance of a potential dividend cut can become almost as damaging to the stock's value as the cut itself.
PBI is not on your up-to-date list (it only announced its dividend cut on April 1st). So here are relevant results on PBI, a 30+ year d-g stock, if purchased at the start of the Great Recession, and held it to today: Your total returns would absolutely awful (-1.25% per year, including its generous and rising dividend; versus +44% had you bought the market index).
This also illustrates your process of reinvesting dividends back into the paying stock can be a detriment to your performance when those additional shares magnifies your losses (as with PBI), and again points out the need to recognize alternative investments -- opportunities foregone by staying with a troubled investment.
As for your study (and I also acknowledge it was a lot of work), it does not address selling before dividends are actually cut. It only demonstrates when looking at a large portfolio, the damage incurred by dividend cuts is ameliorated by the other holdings when those stocks are held for 4 or 5 years. (I believe this is important)
For myself, it also fails to recognize (even verbally), the likely superior performance of the investments that might have replaced the stocks in danger of cutting their dividends, and the satisfaction of avoiding a falling knife.
My points sum to this: IMO, for most investors, portfolio management consists of more than collecting generous dividends.
It is good that you are comfortable in your rules. However, it also strikes me that you may have started with a conclusion, and worked to construct supporting evidence...I can't avoid wondering what might have been the results if you had considered only those stocks cutting their dividends, and compared their prices 90 days before the effective date of the cut, and the price 6 months or 1 year after.
_____________
p.s. I also acknowledge as a full-time investor, I am likely more active, and likely to view the topic differently than might a part-time investor.
The Safety Valve Of Dividend Growth Investing [View article]
Has Realty Income Really Bottomed? [View article]
I find FV to be a range (not a static number) and absent unusual events, probably ranges about 8% either side of Morningstar's intrinsic-value based calculation (now $44). So I assume O, @$44.68, is well within it's FV range of about $40 to $48. FAST Graphs represents O as still overvalued when comparing historical P/FFO to present).
As a growth & income investor interested in total returns using d-g stocks, I was fortunate to trim some 'gift' profits in O while quite overvalued (the net gains exceeded several years of dividends).
Nonetheless, I see O as a great company, well-managed, and very shareholder friendly. Unless something very unforeseen happens, there will remain a place in my portfolio for O.
It should be noted that although M* is generally constructive on O, it also cautions that O's April acquisition-related 19% dividend bump probably amounts to a pull-ahead of future dividend increases.
______________________
Incidentally, with regard to that recent "flushing" of REIT share prices--IMO (and contrary to Brad's), that was not "noise"...rather it was a glimpse of what is to come when interest rates really do start up in a serious manner, whether that be later this year, or next. Income stocks (including REITs) will suffer from rising rates--just as the market predicts and demonstrated.
My point--if I'm right about that flushing, REITs may have seen their period of stellar price growth while rates were low in and following the Great Recession, and therefore as far as price growth is concerned, the cycle may have peaked for the best total returns. However, REITs as income stocks (their primary historic portfolio role) may continue to do quite well for some time.
If I Could Buy Just One Stock, It Would Be This One [View article]
I very much doubt this continuing debate will be resolved by my comment to follow. Nonetheless, I agree--but only to a point.
True, yours is the 'traditional and professional advice', and over the long-term (maybe 20 years), total returns will overcome a few years of expected large losses, and your 'sell 2% method' will work quite nicely. Furthermore, it works especially well for those who have already accumulated wealth (the more wealth, the larger the cushion, and thus the better it works).
However, consider the retiree, near retiree, or other rather conservative investor--many of these investors may have just enough wealth to permit a good night's sleep so long as they believe they are unlikely to suffer very large losses...say a couple years @ 20% and 35% losses. Deep losses in the portfolio can result in depression or other psychological damage that greatly magnify the dollar impact of those losses.
Furthermore, when annual planned withdrawals (or RMD in IRAs, which are multiples of your 2% example) are added to large market losses, the total impact is even more greatly magnified. Thus it is reasonable and logical that many older persons are attracted to the dividend-income strategy.
This investor is likely to be attracted to d-g investing for it's combination of growing annual income, and relative low volatility. Hopefully, we can agree such investors may be very well situated in their 'live off the income' strategy.
Unfortunately, one size, or one solution, does not fit all.
The Role Of Slow Growing Cash Cows In Your Portfolio [View article]
I use their dividends to investment elsewhere, much as does WB. Not mentioned--these stocks often offer a measure of portfolio stability in bear markets.
___________________
IMO, the article could easily be extended by to Part II to include offsetting or pairing the above-average yields of the cash cows with other d-g stocks offering faster grow of total returns...these stocks have lower current yields, but much greater DGRs (their yields stay low in spite of faster DGRs because their share prices advance at even greater rates--thus YOC also grows much faster). These stocks seem to be ignored by DGIs who eliminate them from consideration on only a first-glance (granted, a few DGIs seem to live near the edge, requiring maximum income from dividends). Typically, their payout ratios, and dividends to FCF, are also much lower and reasonably safe.
Just as a few cash cows can help to stabilize a portfolio in declining markets, portfolios can be diversified by the addition of stocks offering faster-growing dividends can boost portfolio performance when the economy is expanding (which on historical average, is a much longer and stronger period than the contracting periods).
Long: dividend cash cows... RDS.B & MO, and others
The Safety Valve Of Dividend Growth Investing [View article]
ETfs seem to be a strategy that works for yourself and you seem to have time for your life.
I had extensive experience with ETFs in the 1990 and until 2008. Stocks work better for myself, and I live a life I never dared dream would be so good.
It seems we are both comfortable in our strategies...what could be better?
Waste Management, Inc. Dividend Stock Analysis [View article]
IMO, it is just as important to consider dividend-paying stocks to avoid as it is to consider those deserving of a deep-dive into d-d.