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$1M portfolio - dividend producing stocks

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09-06-2020 , 01:29 PM

Chase2Outers

newbie

Join Date: Oct 2005 Posts: 15

If you were creating a $1M stock portfolio, and the main objective was to obtain a 5% or so yield from dividends, what stocks do you like here?

Timeline would be holding the portfolio for at least 10 years, and preferably get a 6%+ per year, on average, appreciation in the stock prices.

Some of the companies I would look at:

CVX
AVGO
IBM
VZ
MMM
ET (super high risk, but crazy high yield right now)

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09-06-2020 , 03:08 PM

DuckU

old hand

Join Date: Feb 2009 Posts: 1,358

I'd also consider adding T to your list. Has an 18 PE, currently paying a 7% dividend.

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09-06-2020 , 04:05 PM

chytry

Pooh-Bah

Join Date: Feb 2010 Posts: 4,333

ABBV

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09-06-2020 , 04:16 PM

Pinkmann

old hand

Join Date: Nov 2014 Posts: 1,487

T, MO, ABBV, some lower yields like JNJ, but ffs no 20% trash

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09-06-2020 , 06:05 PM

Hot*ShoT

journeyman

Join Date: Jun 2019 Posts: 336

BP, IRM, PFE to name a few... I'd rather go with ETFs mostly with that money & investment horizon though

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09-06-2020 , 07:26 PM

Chase2Outers

newbie

Join Date: Oct 2005 Posts: 15

Quote:

Originally Posted by Hot*ShoT

BP, IRM, PFE to name a few... I'd rather go with ETFs mostly with that money & investment horizon though

What do you think of SPYD?

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09-06-2020 , 07:52 PM

Hot*ShoT

journeyman

Join Date: Jun 2019 Posts: 336

Quote:

Originally Posted by Chase2Outers

What do you think of SPYD?

It's nice and a no-brainer for considerable % of the portfolio but the underlying index's risk needs to be hedged somewhere, with a high yield portfolio I guess you want to keep fluctuations caused by price action at minimum and just conserve your money while collecting dividends, you won't be able to do that with single asset allocations.
If you also want some capital growth too you can rotate in & out of dividend paying mega-caps at least that's what I'd do than but I'm just a noob with little money so don't listen to me

Last edited by Hot*ShoT; 09-06-2020 at 08:09 PM.

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09-07-2020 , 08:13 AM

ahnuld

Carpal \'Tunnel

Join Date: May 2005 Posts: 17,592

finance 101 in university teaches you dividend policy is irrelevant. Companies can retain earnings and grow producing higher share prices. you then sell some shares to "create" a dividend for yourself.

finance 101 also tells us with taxation and the fact dividends are taxed higher than capital gains you should prefer to not buy dividend paying stocks.

Also you are asking to get 11% total returns per year over a 10 year period in an ultra low interest rate environment. buying large caps, aiming for 7% total return and achieving that would be impressive.

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09-07-2020 , 09:48 AM

Hot*ShoT

journeyman

Join Date: Jun 2019 Posts: 336

Quote:

Originally Posted by ahnuld

I know nothing about finance 101 or whatever that is but good dividend paying companies are the ones that cannot really grow anymore - usually taking up a huge part of their sector or leading it.

Just take a look at the recent plunge how much the price of dividend aristocrats fluctuated compared to smaller companies (XOM, KO, etc...).

When you got $1M it can yield enough utility wise (at least for most people) that's why a minimum variance portfolio allocation is more preferred. Also I suppose not everyone want to check multiple times every day if TSLA & Co up or down 5% or spend hours every day managing limit orders.

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09-07-2020 , 09:50 AM

#10

zboiii

newbie

Join Date: Apr 2017 Posts: 44

Is there a strong argument about holding these in taxable/tax advantaged accounts?

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09-07-2020 , 01:48 PM

#11

somigosaden

adept

Join Date: Dec 2013 Posts: 1,069

Quote:

Originally Posted by ahnuld

finance 101 also tells us with taxation and the fact dividends are taxed higher than capital gains you should prefer to not buy dividend paying stocks.

If he's just buying non-REIT large caps, I'd think the dividends would be qualified, and hence taxed at the same preferential rates as capital gains.

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Originally Posted by zboiii

Is there a strong argument about holding these in taxable/tax advantaged accounts?

If it's a qualified dividend, which stocks like T, KO, MO, etc., are, I don't see a reason to use up space in a tax-advantaged account. I'm not a big expert on this though, and I think you need to hold dividend stock for 60 days for it to be qualified. But if this is some long-term strategy, I would save tax-advantaged accounts for day trading or bonds.

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09-07-2020 , 02:16 PM

#12

Didace

Carpal \'Tunnel

Join Date: Nov 2009 Posts: 19,878

Quote:

Originally Posted by Hot*ShoT

Also I suppose not everyone want to check multiple times every day if TSLA & Co up or down 5% or spend hours every day managing limit orders.

What does that have to do with anything?

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09-07-2020 , 05:55 PM

#13

Hot*ShoT

journeyman

Join Date: Jun 2019 Posts: 336

Quote:

Originally Posted by Didace

What does that have to do with anything?

He was referring to growth stocks as he can pay himself dividend later from profit but those are a lot more volatile.

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09-08-2020 , 12:38 AM

#14

PuckFokerGo

adept

Join Date: Jun 2017 Posts: 1,089

Quote:

Originally Posted by ahnuld

Great post.

Based off what OP is looking for, I'd just stick a chunk in a S&P EWI.

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09-08-2020 , 01:30 AM

#15

Hot*ShoT

journeyman

Join Date: Jun 2019 Posts: 336

Quote:

Originally Posted by PuckFokerGo

Great post.

Based off what OP is looking for, I'd just stick a chunk in a S&P EWI.

That's pretty bold just right before the US presidential election

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09-08-2020 , 11:18 AM

#16

donfairplay

grinder

Join Date: Nov 2006 Posts: 678

The Bank of Exxon is almost at 10% again, still a bit higher than the March lows though. It's not a bank obviously, but more of a bet on if you think they'll keep half (or more) of their dividend while also cutting jobs, R&D/capex.

I don't know why you'd think IBM would appreciate at 6% per year while also maintaining a 5% yield though, its not a well run company.

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09-08-2020 , 05:25 PM

#17

deltasum2

centurion

Join Date: Mar 2019 Posts: 128

Do people understand how dividends work? I think there is a big misconception that dividends=free money. When a stock pays out a $1 dividend for example the stock price falls by a $1 to reflect the dividend paid, on top of that you have to pay taxes. So its really a net negative as a share holder.

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09-08-2020 , 06:16 PM

#18

Montrealcorp

Carpal \'Tunnel

Join Date: May 2007 Posts: 13,356

But doesn’t making a company pays dividend a good way to keep some budget “integrity” for how the company is run ?

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09-08-2020 , 07:36 PM

#19

deltasum2

centurion

Join Date: Mar 2019 Posts: 128

Not sure what you mean by budget integrity. If you think a company is burning money on bad deals/investments then dump the stock.

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09-08-2020 , 08:19 PM

#20

Shoe

Carpal \'Tunnel

Join Date: Jul 2004 Posts: 11,869

Dividends are not as bad as they are being made out here. Investors are normally better at choosing where to reinvest dividends than the executives of most of these companies are, so when a company reaches a point where they no longer need the dollars for growth how do they distribute it? For example companies that do stock buy backs instead of dividends often time the market poorly, destroying shareholder wealth in the process instead of distributing it. There is not a clear answer on this, but many of the top dividend aristocrats have outperformed the market over time.

Last edited by Shoe; 09-08-2020 at 08:26 PM.

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09-08-2020 , 08:37 PM

#21

Montrealcorp

Carpal \'Tunnel

Join Date: May 2007 Posts: 13,356

Quote:

Originally Posted by deltasum2

Not sure what you mean by budget integrity. If you think a company is burning money on bad deals/investments then dump the stock.

That’s one issue yes .
Well you dump the stock ok , but if one major mistake is done and it crash the stocks , you just lost years of profits .
With dividends I feel like the investors Has more control , it force the management to be more efficient every year cause he has to pay the owners every year a portion of income.

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09-08-2020 , 09:23 PM

#22

CBorders

Carpal \'Tunnel

Join Date: Feb 2008 Posts: 16,505

Quote:

Originally Posted by deltasum2

When a stock pays out a $1 dividend for example the stock price falls by a $1 to reflect the dividend paid

Yes, but now the investor has $1 in hand and is no worse off. That's part of the idea behind the dividend irrelevance property/Miller & Modigliani proposition Ahnuld alluded to previously.

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on top of that you have to pay taxes.

Yes, but in the US qualified dividends are taxed at the same rates as long-term capital gains.

Can't disagree with your broader point that dividend stocks aren't a free lunch, though.

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09-08-2020 , 10:13 PM

#23

deltasum2

centurion

Join Date: Mar 2019 Posts: 128

Quote:

Originally Posted by Montrealcorp

Enron, Worldcom, Lehman, Kodak, GM, JCP just some companies that come up. All of them paid large dividends. All went bankrupt. If a company is a fraud, or in a bad business paying dividends isn't going to save shareholders. And if you're not smart enough or have the time to research companies (most people aren't) just buy some etfs and sleep good at night.

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09-10-2020 , 08:08 PM

#24

PuttingInTheGrind

banned

Join Date: Jan 2020 Posts: 172

Quote:

Originally Posted by ahnuld

Also you are asking to get 11% total returns per year over a 10 year period in an ultra low interest rate environment. buying large caps, aiming for 7% total return and achieving that would be impressive.

Hi ahnuld,

Is there any reason to believe this strategy would be more likely to achieve those returns compared to just maybe tracking the S&P 500, given I can track the latter for maybe 0.1% a year?

Thanks.

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09-11-2020 , 06:33 AM

#25

ahnuld

Carpal \'Tunnel

Join Date: May 2005 Posts: 17,592

Quote:

Originally Posted by PuttingInTheGrind

theoretically no, this strategy should do no better or worse than the S&P

practically, if you think value stocks are cheap and growth stocks are expensive, given dividend stocks tend to be "value" they may outperform the S&P over the next few years

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