Investing For Yield Is Not Investing For Income

Summary

• Dividends will NOT protect you from inflation.
• Dividends pay less than inflation.
• Total return, which includes dividends, must be discounted by the desired rate of return adjusted for (plus).
• If your total return is not growing at a faster CAGR than inflation, you are losing buying power.

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Dividends are good, but only if they are paid out from growing Retained Earnings of companies with rising revenue and cash flow. Otherwise, they are like a tax refund check, where you think it's "income," plus you really do pay taxes on it. If Retained Earnings of a dividend-paying company are not rising, the check was really return of owner's equity.

What is a yield chaser? Yield chasers are those who invest for a trailing yield number on the screen and hope that distribution with be sustained and grow.

A yield chaser might have previously recommended high dividend opportunities such as T, BCX, OXLC, GEO, WPG, CWX, CNP, D, AHT, NGL, PSEC, BPY, PEI, TNP, CPE, KMI, TNK, HCSR, HCLP, AFIN, CBL, WHLR, HCSRQ, HCLP, SOHON, AFIN, CBL and VET.A soupy contributor challenged the use of the term "chasing yield" and was, ironically, supported by the worst yield chaser in history here.

Abstrusity is critical to obscurification. A yield chaser might use misleading statements to obfuscate their lack of success. They might use the term "goals" to make it sound like the above recommendations were wins, because they received dividends, even as they lost buying power.Yield chasers hide their mistakes. They might later deny their own recommendations, then admit them but with convoluted caveats, then claim the recommendations were for trading (even though they are adamantly opposed to trading.) Some might, for unknowable reasons, delete their own investment blogs or even get links to their recommendations deleted as abuse.So... How to invest for INCOME? Despite the claims of Twitter politicians such as Bernie Sanders, wealth is not finite. Wealth is created from the conversion of resources into goods and services of value, or utility, to others. This basis for economics is universally true and should be applied to individual investments. Therefore, we should invest where economic value is being added. Then make your own dividends out of that by harvesting enough of their income to reach your income goal.

Just as only CEFs with rising NAV are invest-able, companies with rising revenue, operating cash flow, and retained earnings are the best investments. If an investor is enticed by the yield number on the screen and overlooks the economic value (or lack thereof) being added by the company's operations, then he is not an "income" investor. He is a "yield" investor.In the case of a person whose goal is $100,000 annual income from a $1,000,000 portfolio, here are some portfolios comparing retiring off twenty of this site's prior high yield recommendations, versus high income companies.Withdrawals: PortfolioVisualizer. If your investments resulted in a LOSS of buying power, then you might be a yield chaser.

In all four PV portfolios above, $100,000 was taken as out as annual income. The portfolio of high yield opportunities ended with only 16% the remaining value of the growth portfolio. The worst results were from the high-yield recommendations, and the best were high-growth & profit corporations.Using DGRO and YYY, the backtest experiment can be modified to test DGI versus HY, and the results are similar.

If I claim that dividends are good, why did I show examples where they did badly giving $100,000 of income? So that I can now show you examples of companies whose profits outpaced withdrawals: $100,000 annual withdrawals from growth companies. If the company profit outpace withdrawals, then the retiree's portfolio growth will outpace withdrawals. In all the PV examples, you withdrew $100,000 as yearly income. Some portfolios continued to grow in value during withdrawals, but the high dividend opportunity portfolios will run out of money.

EDIT: Here is a screen-shot, since they delete evidence that they make absolutely terrible recommendations...

Accumulation

Withdrawals

Aggressive withdrawals

The only thing worse than recommending terrible investments is preying on lonely old men and women. Those ̶s̶u̶c̶k̶e̶r̶s̶ correction: subscribers would have done better buying annuities from a sales dinner. I must admit, the salemen are good at what they really do, because they even get the buyers to pay for the sales dinner!

Summary:

Never trust anybody selling something.

Those who suck at investing have to make money selling subscriptions instead.

Anybody who says dividends are the best way to beat inflation is an idiot.

Salesmen don't care about you.

Any writer who says "The Power of Dividends Will Save Your Retirement" after recommending distressed dividends is a product of anal sεx.

Writers who say waiting 36 years for compounded dividends is the safest plan are idiots.

Anybody who says the economy is about to do incredibly well, but does not know what the national debt is, what a workforce participation rate is, or what the current balance is, probably should STFU about the strength of the economy.

The more articles somebody writes, the less useful they are. (The articles and the somebody)

Never trust anybody selling something. (Worth repeating.)

If a wise man says, "The more it drops, the more I buy," he might be increasing his future income stream from a growing company.

If a SALESMAN writes, "The More It Drops, the More I Buy," then it's probably going bankrupt. If a salesman writes, "My Oh My, [something something] Buy" then it's definitely going bankrupt.

PennilessY watches Fox News in dirty underwear, scratching himself while eating chips and drinking beer, blaming his diabetes on genetics and his poverty on immigrants.

Just because a girl says she's on birth control doesn't mean you shouldn't jimmy up anyway. That's a different blog, but it applies here, because you should protect yourself against diseases such as Barnum Suckered-itis.

You will be wrong. That doesn't mean somebody else is right.

Sometimes, it's best to MUTE EVERYBODY:

Your investment returns are derivative of your investments' returns. It doesn't matter much whether you get your slice of their profits from retained owner's equity in share price or dividends paid from Retained Earnings. If a salesman makes recommendations that under-perform, then he doesn't understand how wealth is created. If he did, he'd be investing for income instead of yield.