Really? I thought I was clear as day.
Lets look at two example portfolio strategies.

A. you have 1M$, say 10K 100$ shares. You plan to raise the money you need by selling stock. You need 40K$ to live on, and since you believe in the 4% rule, that’s a match.

B. you have 1M$, say 10K 100$ shares. You need 40K$ to live on. Your stocks are all dividend payers, with an average yield of 4%. You collect 40K$ a year in dividends.

Lets say you retire in e.g. 2007 using strategy A. When 2009 comes around, your portfolio is cut in half.
You need to sell 800 shares as opposed to the 400 you needed to sell in 2007, in order to raise 40K$.
Clearly it does not take long, before you have sold so many shares that even a serious bull market wont help you.

Looking at strategy B. Same scenario. Your portfolio is again cut in half, but if you had the money in conservative companies, you did not experience any dividend cuts.
You still collect your 40K$ in passive income, and you retain your full portfolio, which means you get full benefit when the market recovers.

So long story short: if you retired in 2007 following strategy A, you are now looking for a job.
Were you instead following strategy B, you stay happily retired.

so you're saying that strategy B pays 4% dividends in 2007 and 8% dividends in 2009?

I did not read this link, but you may find it interesting.

http://en.wikipedia.org/wiki/The_Dogs_of_the_Dow

BTW- There are UITs that invest solely on this theory.

This is NOT investing advice.

Kinda read over this quick, but it sounds like strategy B earns 40k in dividends a yr while strategy A earns 0. Why do we own a stock that pays no dividend and doesn't grow (in strategy A)?

Because I forgot that part.
The problem is, that while the portfolio generally sees growth, there are also periodic major downturns.
My claim is, that dividend payments tend to be more recession proof than stock prices.

Lets say both portfolios are growing at an average of 10% a year.
A sees the whole growth in share price, B gets 5% in dividend raises, and 5% growth in stock prices.
Again we start by hitting 2009, cutting the portfolio in half.
Even if A sees steady growth from that point, it is still going to be a short retirement.
B will do fine, starting with 40K$ in passive income, growing at 5% a year.

I am not trying to make some theoretical argument here, I have simply noted that the big famous dividend paying companies,
were almost to a man raising the dividend through the worst of the crash.
That makes it seem to me, that relying on dividends rather than stock sale has you better protected from recessions.

Wow. You do realize the world doesn't work like this, right? Seriously, a withdrawal rate of 4% a year is a withdrawal rate of 4% a year. You're thinking of investing and portfolio management in way too narrow a way. And if I were living off of my portfolio entirely, I wouldn't have everything in stocks. I would have a balanced portfolio, probably 50/50. So I would have lost money in stock but gained huge in bonds between 2007 and 2009. Of course, I would have rebalanced several times as well.

But again, the problem here is not your portfolio ideas but your total lack of understanding.

Not really. Dividends do not incur transaction fees, are taxed at lower rate than interest income, and while they represent money that management cannot reinvest in the company they also represent money that management cannot waste.

The issue of being forced to sell equity in a significantly down market is also relevant, although, yeah, if you are living off your portfolio, you have a bunch of it in bonds.

There isn't anything magic about dividends though. If dividend granting stocks perform worse than the market as a whole you would have have been better off in a total market index.

Are you saying we don’t have to sell more stocks, to raise the same amount of money in a bad market than we would in good?
Clearly my example is "somewhat" simplified, but looking at real world data, it does seem clear that dividends are more recession proof than stock prices.
This makes the dividend strategy less timing sensitive, than the strategy based on selling stock.

why is it a given that the companies need to be blindly selected btw?

I do this, but I also do my dilligent (albeit not very complex) screening criteria for selecting a stock. I like to see several years of increasing profits or at least maintaining profits, a high profit margin, a reasonable P/E for the industry and a history of paying out these dividends well... just like with buying any other stock.

I think its possible to be dilligent about this.

The belief that stocks that pay a good and consistent dividend are less volatile than the market itself is a fairly accepted theory.

Not to nit-pick you too much, but in 2009 the S&P was up about 26.5%. You were thinking of '08 when it was down 37%.

Link to a UIT that employs a strategy similar to what you are describing. I am not recommending this investment to you, but thought you may be interested in reading up more on the strategy employed.

http://www.ftportfolios.com/Retail/d...px?fundid=8235

So...

I actually started to do this, but had to liquidate all positions abruptly. I was curious what the results would've been had I kept all positions to date so I did some digging thru my history. I had bought around 10 stocks or sth and if my math is correct I would've been better off owning SPY.

SPY went up about 73% not counting dividends (around 2%).
My picks went up about 43% and dividends were 5-8% with a couple at 1.5%.

I could be completely inaccurate with how I figured all that out, but if I'm ballpark close, SPY would've left me with a 10-15% higher ROI after 5ish years.

My picks:

BAC
BP
O
NRT
NLY
KCAP
MCGC
AI
FULL
WYNN
FL

I'd appreciate any and all comments and criticisms on the following...

I am making another attempt at this strategy and my system is as follows:

Deposit into my acct whenever possible

Reinvest all dividends

Once $1k is available, make a buy

If that position goes down when another $1k is available, buy more

If it goes up, buy something else

Buy more of the position that dropped the most in % (DCA) from the time of last buy as portfolio expands beyond 1 company

If no stock went down, pick a new company

lather, rinse, repeat. always repeat

or just buy spy?

Seems like a great way to get raped by transaction fees

I'm trying to beat SPY.

It is and this will change. I have not done any research on taxation and fees.

Obvious to me is wait to buy in larger chunks so $9.99 is a smaller % hit to each investment, but not so obvious to me is the cost of DRIPs over time, tax implications, etc.

When a stock price drops and I can DCA, I wonder if that yields a better result per $9.99 rather than a DRIP being forced to buy a stock that goes up in price + its perpetual commissions.

When I'm not DCA, I'm diversifying.

Man I traded some of these in yesteryear. I will tell you that some people that I consider experts were very actively trading some of these names using anything but a buy, accumulate, and hold strategy. Some of what I consider very savvy traders would sell just before they went x-dividend and buy in again after,like just about never taking a dividend. NLY is just a leveraged bond fund more or less but is probably the highest quality mortgage REIT. They hold agency MBS and use interest rate swaps to hedge downside risk. I made a lot of money trading mortgage REITs (MREITS) between 2005-2006. Then you know what happened. It became more than obvious the stuff was toxic in 2006. I was in cash pretty much until 2009.

With MREITs you need to know how their business model works, the nature of their assets, and how they are financed. Look up Thornburg Mortgage sometime and see how they crashed with seemingly excellent assets.

I notice that is at least one symbol is for a Business Development Company(BDC) which gets similar tax treatment to a REIT. Remember their dividends are non qualifying. I have posted before that investing in high quality property REITs in a Roth IRA had appeal since the REIT profits will never be taxed.

I could write a lot more about how a portfolio like this probably is not compensated enough for the risk you are taking. Buying SPY if you have a long term time horizon can never be a bad idea. Dividends increase over time with that too. Summary, I don't like your idea.

I would be looking for blue chips that get really beat up that pay a dividend and buy in. Something like PG. It happens but not often.

Finance theory indicates that your total expected return is no better with dividend paying stocks. Really I think you would be better served with bonds over high dividend paying stocks FWIW. Do your due diligence and maybe a bond fund would suit your needs.

FYI this guy has tracked the most consistent dividend payers over time - there are spreadsheets by category (with "Dividend Champions" the best - they've constantly increased dividends for 25+ years).

Dividend Stocks

I have a similar plan.

You can get dividend paying ETFs that diversify over several companies. Vanguard has one(VIG) that only holds companies that has raised their dividend at least 10+ years straight. They also have a high dividend paying ETF(VYM) that holds the higher(yet safer) paying dividends. I like their REIT(VNQ) as well. They don't pay real high yields but they are safer than the higher paying single stocks.

I put these in my and my wife's ROTH IRAs and re-invest the dividends. Dividends from a ROTH IRA are tax free when you start withdrawing them at 59.5.

I also get the total stock market ETF(VTI) in a taxable account that also pays a dividend.

We have 401ks we plan on rolling into IRAs with Vanguard that will also pay dividends.

When we retire with our federal pensions, social security and the dividends we'll be making more monthly income than we get while working, including overtime. This will be without touching any of our principal.

I'm sorry, this is inaccurate. See OP. While this is a long-term strategy, it's not exactly a retirement account. It is an account interested solely in generating income.

I'm currently investing in $1k blocks through TD Ameritrade, so $9.99 per pick. That's 1%. This number drops on average per year I hold each pick if we look at it like an expense ratio. I have just started, and I don't have much available to invest, but I'm OK with the cost for now (just want to generate an impetus). It will go down over time, and I will hopefully invest in larger chunks in the future to reduce cost further.

In 2009 when I started this thread I had 0% understanding of anything. In 2012 when I bumped it I was still clueless. I'm beginning to understand some concepts and ideas, but I'm still just a noob.

If I were building a retirement portfolio, I suppose the first thing I'd do is open a Roth IRA, max contributions, and it would consist of something like VNQ and BND only, or something. Distributions from those are taxed at a higher rate so it wouldn't make sense to take that hit in a taxable acct. Either that or I'd do the Vanguard Target Fund for whatever year I'm eligible to cash out the Roth.

Really dunno, and won't think about it b/c I just want to build an income-generating vehicle I can supplement my investments with and eventually live off of. I'd like my income to eventually only consist of capital gains, as that minimizes tax cost. So my current strategy is to go after blue chips. The 25-year dividend champions top the list, with a requirement of 3% current yield minimum. I originally started by picking companies owned by BRK, but discovered the champ list and realized my strategy works better with companies that didn't even cut their dividend during the '08 collapse.

I understand ROI is better over time if I were to, say, just pound VT for life, but like BRK, I just want to buy and hold everything. The yield will be directed by me to invest in whatever I choose, and it won't be blue chips forever.

My strategy is to only buy more of a holding if it drops below the original price I bought it at. It's not just DCA, it's adding a position at a lower cost for higher yield, that in theory will not be cut. Over time, that 3% yield grows every time I DCA, or if the company grows on its own.

Thanks for this. I learned quite a bit as a result of your post.

****ing awesome. I have a similar goal, different approach. Thanks, I am aware of the various Vanguard funds now after re-visiting this thread.

Ironically, all my picks to date are currently Dogs of the Dow. I wasn't thinking about this strategy in these terms, but there is significant overlap with what I'm doing.

SCHD is another dividend stock ETF with a very low expense ratio

dividends in theory are just giving you back your own $$$$. the stock drops by the dividend.

not sure why in this day and age you necessarily need "income". you could just sell 5% of your portfolio each year for low transaction costs.

having said that, many large cap stocks have significant dividend yields so it's not that hard to compile a highish dividend yield portfolio.

getting a high dividend yield will probably leave you with large cap, underweight biotech and hot technology stock portfolio.. you'll be heavy into sectors like financials, utilities, oil etc... so definitely a value vs. growth tilt.

semi-grunch,

i saw it mentioned. look into "dogs of the dow"... i think it's a pretty good strategy. not sure if you would have got massacred in credit crisis. probably.