Dividend Growth Investing

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tarentola
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Re: Dividend Growth Investing

Post by tarentola » Wed Feb 21, 2018 7:12 am

Jeffreyalan wrote:What would be everyone’s opinion here on dividend growth investing? For example, buying 20-25 stocks like MMM and Johnson & Johnson and just holding them forever. Live off of the rising dividend stream and leave the shares for my children. I know it will have more ups and downs than a Balanced portfolio. But if I can ride out the volitility, what are the opinions on this strategy?
DG investing is popular because:
- it provides a discipline: essentially buy and hold, so no trading, no agonising
- it is simple to understand: from a diversity of sectors, buy blue chips with a history of rising dividends, do not sell
- it favours shares in established companies, often household names, whose products are in daily demand (food, drink, tobacco, oil, health, software)
- it provides an income without shareholder intervention: no rebalancing, no decisions, the divs just land in your bank account
- it ignores price volatility: dividends tend to hold up even when share prices crash. For example in 2007-8 the S&P dropped over 50%, but the drop in dividend payments much less marked, and some companies continued to raise dividends during the crash and indeed thoughout the "lost decade". See https://seekingalpha.com/article/294269 ... -recession.

Seekingalpha.com has a lot of information about dividend growth investing, where contributors describe portfolios of individual shares which have been running for years. The results are in general pretty good. However, it seems that DG portfolios provide less total return than multiasset portfolios which are regularly rebalanced (several posts by Larry Swedroe on Bogleheads). Eric@Servo on Seekingalpha started a lively debate with the DG crowd and acquitted himself very well; that discussion is worth looking at for pros and cons. See also David van Knapp's articles, especially https://seekingalpha.com/article/187516 ... -dividends.

Conclusion: DG is probably not the best option for long-term total return, but provides a fairly sure return and requires little intervention (sound familiar?).
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Re: Dividend Growth Investing

Post by tarentola » Sun Mar 11, 2018 3:46 am

A recent article on Seeking Alpha which provides a good classification of dividend growth shares to consider:
https://seekingalpha.com/article/415331 ... wth-stocks
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Re: Dividend Growth Investing

Post by mathjak107 » Mon Apr 22, 2019 4:05 am

Jeffreyalan wrote:
Tue Feb 06, 2018 8:05 am
The main reason to own stocks that pay dividends is management accountability since the commitment to paying a dividend forces efficient capital deployment decision making.

Also, Shareholders like optionality and the payment of a dividend gives the shareholder the option to increase or decrease their exposure to that entity accross time.

Beyond that there are the usual reasons such as dividend stocks surviving market falls better and the majority of stock returns over the last century coming from dividends.
if only that were really true about better responsibility to shareholders .....

case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition earlier this year.

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on.

as far as performance ----you keep seeing just invest in the so called dividend aristocrats and call it a day .

however what constitutes this group changes all the time so get ready for lots of selling trying to keep up as they get bumped and replaced AFTER THE FACT THEY DID NOT LIVE UP TO EXPECTATIONS . you could be behind the curve here very easily .

these dividend aristocrats are not somehow immune to all the things that effect company's and stocks . Just like other companies, their outcomes change.

in 2009 there were 52 stocks that met the group’s strict criteria.

As of 2012, there were 51.

But of those 51, 13 were different than the original set. So over the course of just 3 years, there was a 27% change in the group’s composition.

in fact going back to 1989's list :

Of those 26, seven are still on the list today, ten were removed because they either cut or froze their dividend, four were removed for an unknown reason, and the remainder were aquired at some point. So at least ten of the 26 had an outcome that is different from the assumption of dividend growth every year through thick and thin.

dividends can be the worst way tax wise to generate income ... a 4% dividend is taxed on 100% of the dividend .. the same dollars as a portfolio draw is taxed only on the gain portion ...

there is zero difference puling the same dollars as the dividend from a portfolio of non div payers as long as the total returns are the same or greater ..your balance will be identical in both cases . it is all only about total return at the end of the day ....

in both cases the investments need to see at least as much appreciation as the draw or they gained nothing or are behind . every payout by exchange rules has to be subtracted off the value of the investment before it can trade again .... if you don't reinvest the dividend then you have less dollars for markets to compound at the ring of the bell .... if you do reinvest then you have the same dollars back as you had pre ex div .... it is merely them handing you a piece of your value and you putting it back via a lower price and more shares not much different then a mutual fund pay out or a stock split
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Re: Dividend Growth Investing

Post by boglerdude » Mon Apr 22, 2019 11:51 pm

If anything, "short" them. I bought consumers staples ETF just before Trumps election, when sentiment was negative and defensive (30 year at 2.33% market predicting low growth/inflation). The ETF got left behind because the narrative changed to "pro-business." The 30 year is still ~3% so now might be a time to buy unloved defensive stuff. But there are better uses of time than portfolio tilting
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Re: Dividend Growth Investing

Post by Smith1776 » Sat Jun 29, 2019 12:48 pm

There are few issues in investing that have me more conflicted than dividends.

We have the classic arguments that are in vogue by Swedroe, Modigliani, and Miller: the whole dividend irrelevance principle.

However, I'm not entirely convinced.

As an example, people often mention how receiving a dividend is the same thing as selling shares, since the price drops by the amount of the dividend. What people frequently neglect to mention though, is that the price of a stock rises by the amount of the dividend leading up to the ex-dividend date. So are the dividends really equivalent to just selling shares? I'm not so sure.

Dividends also have all kinds of behavioural benefits, allowing investors to think more like business owners. The biggest reason why investors don't typically earn the market return is as much due to behavioural errors as fees. (To the tune of something like 400 basis points per year on a long term average.) The income stream can help investors to stay disciplined, especially during market turmoil.

Beyond that, the dividend focus can give you exposure to quality and value factors, as admitted by the likes of Swedroe. It may be a supposedly tax inefficient way, but my observation is that dedicated factor/multi-factor funds have pretty high turnover, making them not that efficient either.
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Re: Dividend Growth Investing

Post by jacksonM » Sat Jun 29, 2019 1:42 pm

Smith1776 wrote:
Sat Jun 29, 2019 12:48 pm
Beyond that, the dividend focus can give you exposure to quality and value factors, as admitted by the likes of Swedroe. It may be a supposedly tax inefficient way, but my observation is that dedicated factor/multi-factor funds have pretty high turnover, making them not that efficient either.
I never even knew what the terms "value" vs "growth" meant when it came to stocks until I found myself interested in the Golden Butterfly variant of the PP, thanks to Tyler's excellent website.

Now I'm the proud owner of a chunk of SCV amounting to about 20% of my entire portfolio and have been for a few years. I'd tell you how it's done so far but I'd have to go check and to tell you the truth I'm not really that interested. All I know is that the overall portfolio has been performing well (quite well, YTD, BTW) and that's all I care about. I only dig into the details about once a year when it comes time to re-balance.

Over on Bogleheads they talk about the "value premium", usually in the context of somebody saying it has always been a myth or else it worked in the past but isn't going to work in the future. Always makes me think of the Jack Bogle maxim that "nobody knows nuthin".

All I know for sure is that the Golden Butterfly has a history of working very well if Tyler's charts are to be believed. Obviously we all know that past performance is no guarantee of future results but that's true of all the assets.

As far as tax efficiency, when I adopted the Golden Butterfly I chose both of our Roth accounts (my wife and I) as the place to put all of the SCV so it's a non-factor.
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Re: Dividend Growth Investing

Post by dualstow » Sat Jun 29, 2019 2:54 pm

Smith1776 wrote:
Sat Jun 29, 2019 12:48 pm
Dividends also have all kinds of behavioural benefits, allowing investors to think more like business owners. ... The income stream can help investors to stay disciplined, especially during market turmoil.
Once upon a time when the earth was cooling and the internet was in its infancy, I read an essay online by a guy who said he really only knew of one "guaranteed" way to ensure a safe financial future for one's heirs: put a million dollars into dividend stocks.

Well, I was young and didn't have that amount to start with. The advice was really for retirees or young parents with bucks. But, I have never been able to shake my love of dividend growers. Over at that other site it's the usual refrain about how the total return is important. That's true. And, that the market will probably beat dividend stocks. Ok, let's say that's true.

However, rarely do they make a distinction between dividend growers that are usually paying less than 3% yield and high dividend stocks like a utility, AT&T, something like that. Sure, if you buy Iron Mountain (6% yield), expect the dividend payments to barely keep up with a sinking share price. McDonald's, Pepsi, Chevron, etc are another story. They've never really gone crazy with regard to yield, but they always pay, and they usually give you a raise once a year. (Chevron took a few breaks since I started). That's what the unknown author of the essay was talking about.

I like dividends because they supplement my income. I mostly round out the stock allocation with VSMAX (Vanguard small-cap blend), and I certainly don't count those stodgy stocks as anything but vp territory. The VSMAX is in the pp.

I have weeded out the dividend payers that have faltered, but I have finally given up on the idea of letting them go altogether. The strategy is quite literally paying off. It's been about sixteen years. So far, so good.

P.S. behavioural - I thought you were an American with that 1776 in your handle. O0
I’m getting the distinct feeling that ‘Python for Dummies’ was written by one.
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Re: Dividend Growth Investing

Post by Xan » Sat Jun 29, 2019 3:55 pm

dualstow wrote:
Sat Jun 29, 2019 2:54 pm
P.S. behavioural - I thought you were an American with that 1776 in your handle. O0
Adam Smith was Scottish, wasn't he? With "Wealth of Nations" published in 1776?
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Re: Dividend Growth Investing

Post by Smith1776 » Sat Jun 29, 2019 4:22 pm

Heh, not an American, just a fan as you guys can tell.

And yep, Smith in my username is in homage to Adam Smith. It's a curious coincidence that The Wealth of Nations was published in the same year as the founding of the U.S. -- 1776!

Edit: Getting back to dividends though. Yes, I have considerable intellectual sympathy for this approach. I have a good chunk of change in the iShares Core MSCI Global Quality Dividend Index ETF (XDG).

https://www.blackrock.com/ca/individual ... x-etf-fund

It has just about everything I like in a one-stop shop dividend fund. Low fees, international diversification, doesn't overextend for yield, screens out negative price momentum, and has quality screens for financial health and consistency.
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Re: Dividend Growth Investing

Post by dualstow » Sat Jun 29, 2019 8:31 pm

Xan wrote:
Sat Jun 29, 2019 3:55 pm
dualstow wrote:
Sat Jun 29, 2019 2:54 pm
P.S. behavioural - I thought you were an American with that 1776 in your handle. O0
Adam Smith was Scottish, wasn't he? With "Wealth of Nations" published in 1776?
I’d just assumed that was a bust of Anna Nicole Smith!
No, honestly, I thought Add’em Smith was born far later.
I’m getting the distinct feeling that ‘Python for Dummies’ was written by one.
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Re: Dividend Growth Investing

Post by Kriegsspiel » Sat Jun 29, 2019 8:39 pm

dualstow wrote:
Sat Jun 29, 2019 8:31 pm
Xan wrote:
Sat Jun 29, 2019 3:55 pm
dualstow wrote:
Sat Jun 29, 2019 2:54 pm
P.S. behavioural - I thought you were an American with that 1776 in your handle. O0
Adam Smith was Scottish, wasn't he? With "Wealth of Nations" published in 1776?
I’d just assumed that was a bust of Anna Nicole Smith!
No, honestly, I thought Add’em Smith was born far later.
BRO! Brush up on your economic history. Smith was an Edinburgh dude. If I know anything about Edinburgh, it's that they serve warm beer, and Adam Smith, at one point, lived there and published TWON around the time of the Revolution.
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To sleep: perchance to dream: ay, there's the rub;
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Re: Dividend Growth Investing

Post by dualstow » Sat Jun 29, 2019 9:24 pm

I honestly was not paying attention to the Smith, much less Adam Smith. Only the 1776.
I know it sounds silly — investing forum and all. If you had asked me what the name was preceding the 1776 in the username, I don’t know that I could have answered without looking.

Spelling variations like colour or behaviour do catch my eye. Go figure. O0

At the same time, I’ll concede I’m not really an economic history buff.
I like dividend history...
I’m getting the distinct feeling that ‘Python for Dummies’ was written by one.
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