Retirement Strategy: Dividend Income Investing And The Distribution Phase

by: Regarded Solutions


You have been a dividend investor for 30 years, what do you do now?

A portfolio such as the Buy The Dips Portfolio, or BTDP, has performed in line with the markets over that period of time for all intents and purposes.

Dividend growth investing for retirement is the passive income that gives us passive "raises" just about every single year.

Our BTDP (Buy The Dips Portfolio) has been hard at work for about 30 years or so and we are ready to retire. Let's review what we currently have:

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Electric (NYSE:GE), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT), and Pfizer (NYSE:PFE).

Our short term results are as follows:

Symbol Shares Orig.Yield Dividend Yrly Income Share Price Tot.Cost Tot. Value 30-Apr Div/Cash
T 300 5.60% 1.84 552 31.95 9585 10710 $35.70
XOM 100 2.80% 2.76 276 90.05 9005 10196 $101.96 69
JNJ 100 3.10% 2.8 280 86.78 8678 10129 $101.29 70
KO 200 3.00% 1.22 244 37.21 7442 8158 $40.79
PG 100 3.10% 2.41 241 75.71 7571 8255 $82.55
GE 300 3.60% 0.88 264 24.35 7305 8067 $26.89
MCD 100 3.50% 3.24 324 93.02 9302 10138 $101.38
CVX 100 3.60% 4 400 111.14 11114 12552 $125.52
AAPL 15 2.25% 13.16 197 526.45 7897 8851 $590.09 49
MO 100 5.20% 1.92 192 37.71 3771 4011 $40.11
F 400 3.20% 0.5 200 15.15 6060 6460 $16.15
MSFT 200 2.80% 1.12 224 40.16 8032 8080 $40.40 56
WMT 100 2.50% 1.92 192 76.11 7611 7971 $79.71
PFE 200 3.20% 1.04 208 32.18 6436 6256 $31.28 52
x x 3.60% x 3794 x 109809 120,130 x $296

After an extended period of time, let's say 30 years, the portfolio will probably have about $25k in dividend income just at a yearly dividend increase rate of 5% reinvested, and at the 6% historical S&P capital appreciation rate, without dividends included, could be worth about $500k (if not more, but let's be conservative).

We rarely talk about the distribution phase because we are always focusing on making more and more. Of course at some point we will all reach it and the conventional wisdom in the professional world of advisers is outdated in my opinion, and shortsighted.

Dividend growth investing will take us to the "promised land" far more easily, and consistently, than any other strategy in my opinion.

The Usual Advice Is Worn And Torn

Here is what we hear and read: Stay at 4% or less during the distribution phase or else you will run out of money.


This, as usual, is not brain surgery to reconfigure.

  1. Make more income to cover all expenses
  2. Cut expenses to stay at or below income

Those are the obvious ways to handle the situation and make your own determination, however, for those who like numbers, here is what we do:

As dividend income investors, we can withdraw our dividends, and if our yield is 4% then that's fine right? Keep in mind that during the distribution phase capital preservation and depletion of assets are what will keep you in the black. Now that does not mean that we can just go bonkers and spend it all in one hour.....sometimes we might want to though, but it does mean we can be a bit more generous to ourselves.

We can figure on a continuous increase in dividends from the majority of stocks in BTDP for example, at (let's be conservative), 5% per year. That means we can take our 4% and add another 5% of THAT let's say your cash flow from dividends is $25k. You can add another $1,250 the very next year and still not touch principal.

Then each ensuing year, you can give yourself a raise of 5% based on the prior year's income. Passive income that gives pay increases is amazingly wonderful.

You will keep up with inflation, pay your bills, hopefully, and with a combined social security benefit for a couple aged 65 or older, of about $36k per year, your income could actually be over 60k the very first year, and more each year after that. Of course, you need to budget and not go hog wild, but you still have not touched the golden goose (selling shares of dividend stocks). Now let's say you subscribe to the die broke theory of living, as I do.

Live Life, You've Won The Game, Now Spend It!

You would have already told the kids that what you have, you will spend completely and you will only have enough left to pay the funeral director, hopefully, with your final check...and that one might bounce.

You might have gifted or "given" your kids their "inheritance" before you kick the bucket, which is obviously more fun, because at least you can enjoy the giving, and also make them committed to you, as you dribble from a wheelchair (That was a joke, folks)! That being said, you can easily take another % from your assets to give yourself a "bonus" every year....let's say 20%. Now that is not 20% of your assets, that is 20% of your total income, which at 60k would be 12k the first year, and for a 500k portfolio, it is only a 2.5% withdrawal rate, which will keep your advisers happy.

Keep in mind that whenever you take assets out, you deplete them so your dividend income MIGHT dip, but at 2.5% the historical long term capital appreciation of stocks is over 6%, so you might just be taking a smidgen off the top quite frankly.

So now you have 4% from your actual dividends, a 5% raise every year on that amount, and a withdrawal rate of 2.5% from all assets and you're keeping your expenses in line.

You have also purchased long term care insurance and have the appropriate healthcare coverage that you planned long ago hopefully.

GREAT JOB. If the market continues on its historical path, or even a bit less, you will still grow your total and be able to have some splurge money along the way. Will the money last forever? You betcha', as long as you keep within your budget. Even if the assets drop because of some horrific market, your money should last for more than 35 years at the rates we have stated here.

Maybe my final check will bounce at the funeral sue me.

Disclosure: I am long AAPL, CVX, F, GE, JNJ, KO, MCD, MO, MSFT, T, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.