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DGP And DG50: Repurposed As An Income Portfolio

Mar. 01, 2020 10:37 PM ETCSCO, LNT, SO, VDIGX, VOO17 Comments
FinancialDave profile picture


  • Investigating several sources of retirement income.
  • Comparing the DG50, DGP, and my income portfolios.
  • How they stand-up against the S&P 500 index.
  • Just how important is TotalReturn.

This article is a continuation of one I wrote last year comparing just the DG50 by Mike Nadel to the professionally managed funds VIG, VDIGX, & SCHD. This article was called The DG50: Repurposed as an Income Portfolio in Retirement and can be found here.

Here I will add in a portfolio by David Van Knapp, which he calls the DGP, to see how it would have fared over the last four years as an income portfolio. Then I will add in my own two income portfolios, which I call the DGI10 and TR7. My latest report on the DGI10 & the TR7 is here. Finally, in this part two, I will put up against these four real-life portfolios the winning professionally managed fund from the three studied in part one of this series, which turns out to be the Vanguard Dividend Growth Fund (VDIGX) and add in an S&P 500 index fund (VOO) just for good measure.

You can find Mike's own latest income review of the DG50 in this article. His data, of course, will be different than mine as he is not spending the income at this time. David's DGP data is much harder to come by, so I will explain that starting point in more detail below and any minor changes to it. David’s DGP portfolio also has no income being spent at this time, but the dividends are not automatically reinvested like Mike’s. David Van Knapp reinvests the dividends based on his criteria when the cash builds up to around $1000 in his account.

The purpose of the article is to satisfy the questions of some readers who want to know how much income these portfolios would generate if the income were spent. Satisfaction will not come from backtesting some theoretical portfolio, but by comparing in a

This article was written by

FinancialDave profile picture
I am a retired Electrical Engineer since 2012 and a Retired Financial Consultant (RFC) since 2022. I have been investing in equities, in the form of stocks & options, since the early 80’s and more recently in mutual funds, and ETF’s. My current investments consist of a DGI, 10 stock portfolio +7 ETF portfolio for my supplemental retirement income and a second portfolio of mutual funds, ETF’s, & stocks primarily focused on growth. This is how I keep my income strategy separate from my growth strategy.X-ray of stock positions from largest (7.5%) to smallest (.5%) across all portfolios (as of 8/31/23)BA,TSLA,BRK.B,NFLX,GOOGL,META,AMZN,CRM,CMG,PYPL,ILMN,NVDA,O,MSFT, MAC,LLY,MO,NXPI,CL; Bonds 10%, Cash 5%.

Analyst’s Disclosure: I am/we are long VOO VDIGX D MO NRZ O OHI PM SO WFC WPC WY. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

@ FinancialDave - Excellent article. I would love to see and update.
FinancialDave profile picture
@Delivery boy

Thanks for the kind comments. I was just thinking today that I should do an update after 2020 has run its course. Times like these can add some valuable insights into how certain strategies hold up.

Surinder profile picture
I been doing individual stocks and generally did well. I started later part of 2012 with small size portfolio and build up decent size portfolio. This is the first bear market I have experienced. We got nervous and chopped part of the portfolio on the worst time. Now slowly we will be getting in.. I been comparing different ETFs. So far VIg and vht look the best. After I cut down our portfolio I see the market timing is almost impossible. I do own some very good stocks Pg pm mo pep Jnj Amgn abt mrk cost Nke v ma so Wec t Vz Kmb Hd Nee ppl Unp.Made a balance between income and growth.
If I invest in ETFs is it wise to use variety of ETFs or just one VGi is good enough. It seems to do better on the long term compare to spy. I know you have done lot of research on mutual funds and ETFs. Would like to know your wisdom. We are retired in our mid sixties. This is mostly taxable portfolio. IRA and ROTH are very small part of the portfolio. Love to see dividend rolling in but have enough income to live on without dividends. Thanks for all the help.
FinancialDave profile picture

Thanks for stopping by.

It's unfortunate that your taxable account is your largest account as that is the least favorable place to be putting dividend-paying stocks. If you are keeping your tax bracket in the 12% area it is not too bad as most qualified dividends and LTCG would not be taxed. If that is the case then you could probably think about it as a less efficient Roth account, but you do want to try and make it more tax efficient and avoid a lot of decisions with individual stocks.

If your tax bracket is above 12% then that dividend income could actually be costing you more than it looks on the surface and especially when you get to SS age.

Someone who has studied ETFs and mutual funds even more than I that I like is Paul Merriman. He has a lot of good advice and some free e-books.

Here is an interesting starting point on distribution strategies:


There is a wealth of information on his website, but you do have to do a bit of digging. I suggest signing up for his newsletter.

FinancialDave profile picture
One final though on this comment:

"Love to see dividend rolling in but have enough income to live on without dividends."

If you are both 65+ and taking Social Security, then this income (that you don't need to spend) is really unwanted IMHO and will cause extra taxes that aren't necessary. You can keep the same total return without such a large focus on dividends and save a large portion of the tax drag in the process. A number of the stocks you mention do not have 100% qualified dividends so some of this income is going to be taxed as ordinary income. Also depending on your total income it may be causing your SS to be taxed as well bringing you quite easily into an effective tax rate of 25% or higher on some of this income even if it appears you are only in the 12% bracket.

Here are a couple of my blog posts that explain why dividends aren't really necessary - and if you aren't spending them, even more so:



Good luck.

Surinder profile picture
Thanks for the help. Most of my stocks that I own are C corporate. So far my understanding is that all C corporate do pay qualified dividends. I appreciate that you’re sharing your thoughts.
Thank you so much for this article, I greatly appreciate it. I have started to study stock investing in the past few months and your writing has helped out tremendously. I am currently 31 years old so I have a long time horizon and my plan is to create a dividend portfolio and roll those dividends over the years. I was torn between SCHD and VDIGX for dividend growth. Based off of your analysis and other research, I am gonna go with VDIGX. Do you have any other resources that I should read of yours? Thanks.
FinancialDave profile picture

1. 31 is a great time to start as you have many years of compounding ahead of you. Work that savings rate up to 15%
2. Make your core position something like VTSAX, if you have a Vanguard account, or VTI otherwise. This is something you don't have to worry about ever selling. VOO is also a good alternative, it just isn't as diversified as the Total Stock Market Index.
3. VDIGX is on par with the same long-term returns as VTSAX, but right now VTSAX is "on-sale" and thus a little better value than VDIGX.
4. Later in your 50's add a good Vanguard Balanced fund like Wellington.

It's really as simple as that depending of course on how you handle the emotional risk of seeing your portfolio up or down by 40-50%. These things will happen, but that is why you invest in index funds.

That's my short story, except for the fact you don't want to get over-allocated to a Roth account, but invest some in it, especially if your working tax rate is low. I have many articles on this subject, which you can find by going to my profile page.

Thanks for stopping by and making this comment your first!

Thanks for the information. The company that I work for does a 16% direct contribution and my retirement account is managed by Charles Schwab. I was planning on contributing as well after I pay off my student loans, while also adding to my Roth.

I just really enjoy dividend investing and VTSAX doesnt have a very high yield or any dividends. I was also reading that VDIGX is not as exposed to market trends in terms of downturns as other mutual funds or ETFs. Im very new to this so I might be missing something. In terms of a decrease in value Im not worried because I want to be a long term dividend investor.

I will avidly continue reading your articles. Thank you once again.
FinancialDave profile picture

Both VTSAX and VDIGX are good funds, but dividends have nothing to do with the reason you should buy one fund over the other especially if you aren't spending the dividends which at 31 it should be a long time before that is necessary.

What you should focus on is just making sure you get the "market return" of a Total Stock Market fund or S&P500 index fund. VDIGX is an actively managed fund and is pretty concentrated with only 42 stocks, so it is a bit of a risk if the managers get it wrong in some years. Ok as a secondary holding which I have, but not as your core position. Just let your retirement account accumulate shares of the index for the next 20 years then add maybe a balanced fund with some bonds after that.

Thanks for the questions.

Excellent article, thanks.
I'm recently retired, mostly a TR guy but I started paying more attention to dividends in the last few years. I hold some individual stocks but mostly index funds. I take your work as validation that I'm not too far off track,
FinancialDave profile picture

Thanks for stopping by.

This is year #8 of my retirement and have adjusted my thinking along the way based on my own risk tolerance and research over the last 10 years or so. My biggest change was trimming down the number of individual stocks.

dolson profile picture
Didn't read article. It's only about income generation for me. What the heck is total return? The market can take all the alpha away in a week or two. I want to know that I have income generation to live on, price isn't important.
FinancialDave profile picture

Thanks for stopping by and I appreciate your thoughts and I'm not trying to change your strategy, but give you some measure to tell how well it is working. This is why I created what I call my "quality factor" which if you think about it is not unlike some "safety scores" that some use to tell whether they own quality dividend-paying stocks. I suspect there would probably be a correlation -- good extra credit for someone who "pays" for that sort of advice:

Create a number that is the "average" safety score of the DG-50, DGP, & my DGI10 and see how it relates to what I have published above.

If you read the article you will find a couple of links to articles that show how total return IS related to your income generation long term.

Everyone in retirement needs some form of income, so I agree that's what it is all about. However, it's just not possible to separate out total return from the two components that describe it, namely price and yield.

Pinot44 profile picture
I've advocated against owning individual stocks
FinancialDave profile picture

Thanks for stopping by.

I too do not recommend owning individual stocks, but these principals apply to both stocks and funds because basically funds are just a number of stocks managed by professionals, or an index of stocks. Personally I prefer the indexes as this takes most of the human emotion out of it, but I do own some good professionally managed funds around the "edges."

As you can see in the table, 3 of the 6 portfolios are funds:

1- mutual fund VDIGX - (professionally managed)
1- ETF - VOO (index fund)
1- Portfolio of 7 ETFs - TR7

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