Dividend Growth Investing

Discussion of the Stock portion of the Permanent Portfolio

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Jeffreyalan
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Dividend Growth Investing

Post by Jeffreyalan » Mon Feb 05, 2018 1:34 pm

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?
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Re: Dividend Growth Investing

Post by boglerdude » Tue Feb 06, 2018 3:04 am

If there are growth opportunities its better to invest in them, rather than divert that $ to hand out dividends. Just sell shares when you need the money.
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ochotona
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Re: Dividend Growth Investing

Post by ochotona » Tue Feb 06, 2018 5:07 am

The tax treatment of dividends is bad. No rational reason to have them. People like the bright shiny trinket. It's not what you make it's what you keep after the taxman cometh.
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eufo
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Re: Dividend Growth Investing

Post by eufo » Tue Feb 06, 2018 6:09 am

Can someone explain to me why we'd ever want dividends? It devalues the share price by the same amount and we're taxed on it. It's like we're selling some shares at a profit (even if the value has decreased) and being taxed. Am I missing something here?

I'm not opposed to owning solid companies that offer a dividend. I'm more questioning the value of dividends in general.
Don't agree with me too strongly or I'm going to change my mind
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Re: Dividend Growth Investing

Post by Jeffreyalan » 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.
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Xan
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Re: Dividend Growth Investing

Post by Xan » Tue Feb 06, 2018 9:09 am

Ultimately, dividends are the reasons that a company exists, aren't they? If a company chooses to reinvest rather than pay a dividend, it's ostensibly with the object of ultimately paying a bigger dividend later. Dividends are the way shareholders get paid.
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Re: Dividend Growth Investing

Post by dualstow » Tue Feb 06, 2018 10:16 am

Jeffreyalan wrote:What would be everyone’s opinion here on dividend growth investing?
I'm torn. On the one hand, I have learned the Boglehead view of how a lot of the benefits are illusory, and that it is total return that matters. On the other hand, I'm enjoying the red pill/steak. I also had a PM conversation with a boglehead many years ago who conceded that in his old age he finds the dividends "comforting", although for decades that was never meant to be a part of his strategy.

Pre-pp, I lurked at bogleheads. I still lurk there, but pre-bogleheads, I took my savings and began buying individual stocks, one at a time. First was Altria, then Chevron. I still have 50-60 of them, although I trimmed them over the years to buy index funds. It was easier than selling them outright. These days, I get about 50% of my investment income from stock dividends, and the other 50% from bond payments, not including capital gains.

If I could start all over again, I'd be fine with Vanguard's total stock market index. But at this point in my life, I don't think I'm ever going to get rid of this little herd of livestock, unless it puts me in a bad tax situation.

The bogleheads are wise, but many of them have $10 million dollars, and a large pension or salary + investment income. I'm not in a high tax bracket, and the tax I pay on stock dividends and corporate bond payments is zero. Just before share prices started to fall, my yield on these holdings was about 2.9% and now it's nearing 3.1%. The yield on cost is more than 6%.

I like watching the dividends get a raise annually, and when they don't I tend to sell. Chevron is an exception. I've held on to that. These payments got me through the last real stock crash, '08-'09. And, because I've held on, the shares have more than doubled, though it's taken about a dozen years. Would I have done better with just Tot Stk Mkt? It's certainly possible.

When friends ask me for advice, I always point them toward bogleheads with a brief mention of the pp, but I'm going to let my vp keep doing what it's doing.
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Re: Dividend Growth Investing

Post by boglerdude » Wed Feb 07, 2018 3:27 am

http://www.visualcapitalist.com/power-d ... investing/

Investors are also paid with tax efficient buybacks
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Re: Dividend Growth Investing

Post by dualstow » Wed Feb 07, 2018 8:02 am

Great website, visual capitalist. I used to save all their infographics. The gold one is especially neat.
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sophie
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Re: Dividend Growth Investing

Post by sophie » Wed Feb 07, 2018 8:27 am

I'm suspicious that the dividend stocks are more inflated than the rest of the stock market, because for years the dividends have returned more than cash, and at a better tax treatment to boot. I wonder if the big stock sell-off wasn't in part due to the fact that cash instruments are once again beating dividends for returns.

Nevertheless - I have a long-range plan to buy individual stocks in my Roth IRA, as "deep stocks" that also generate dividends. I certainly wouldn't do it in taxable, not being in Dualstow's bracket. With the increasing popularity of index funds I'm wondering if more ways will be found to game these funds so that they may start underperforming the market, and so owning a few stocks directly would be a nice hedge. Aiming for around 20 stocks eventually in a variety of sectors. Also of course, once you've paid the fee to buy the stock, the holding cost is zero and re-investing dividends happens for free.
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dualstow
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Re: Dividend Growth Investing

Post by dualstow » Wed Feb 07, 2018 4:10 pm

sophie wrote:I'm suspicious that the dividend stocks are more inflated than the rest of the stock market, because for years the dividends have returned more than cash,
Certainly a danger.

I always forget about the 0.00% ER. That's nice, too.
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dualstow
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Re: Dividend Growth Investing

Post by dualstow » Thu Feb 08, 2018 3:25 pm

dualstow wrote:I like watching the dividends get a raise annually
UNP's dividend was raised nearly 10% today. A tiny silver lining (copper lining?) on the day of a deep stock market plunge, where gold and bonds aren't doing much.
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