FYI: Regards,

Ted

P.S. How have your been Taylor ?

http://www.123jump.com/fundpdf/481.pdf

Ted,

Thank you for posting this discussion with Alpine's Jill Evans. This may help de-mystify Alpine's dividend capture strategy that the company employs in ADVDX, AOD and AGD.

David 

What a load of b.s.  These funds are not taking advantage of the low dividend tax rate by paying out 10% in dividends.  How is that better than paying tax on 2% dividends and 0% on capital gains?

Also nonsense that the fund can't find a good benchmark because of its high yield strategy.  A one-second look at the total return chart shows that it is highly correlated with the general market.  Indeed, it has an R-squared of 89% to the MSCI World Index.
 

I'm curious.  Most of us posting here are focused on dividend yields, either from individual stocks, CEFs, or OEFs.  As you read Jill's ADVDX portfolio management strategy, how does what she and Kevin do differ from what each of us do with our own personal portfolios?

As you read Jill's ADVDX portfolio management strategy, how does what she and Kevin do differ from what each of us do with our own personal portfolios?

[/quote]

I don't hold any other fund for its cash flow generating (dividend producing) ability.  Just ADVDX.  And the only reason for me to hold it - and probably the only significant way what they do differs from what I try to do - is the dividend capture strategy.  That, for me as an individual, is beyond what I want to contemplate doing.

The rest of their approach, as evidenced by the following snippets, is something I buy in to and try to implement myself to one degree or another.

" . . . our goal is to provide both a high level of qualified dividend income plus a positive total return'

"We look to invest in great companies that are returning cash to shareholders."

"We focus another part of our research toward identifying financially strong companies . . "

" . . . identify companies undergoing a business turnaround."

"We look for stocks where there might be high dividend yields because the earnings and stock prices are depressed for some reason and we expect a turnaround . . "

"We always prefer to invest in stable and sound businesses."

"The first screen we do is by yield . . . "

"When we find companies where our top down view of the world or the industry matches with the bottom-up valuation work, we put them in the portfolio."

"We don't fall in love with names [stocks] and if the story changes, we just sell and move on . . ."

". . . one of the sectors that we like is bulk shipping . . . We like the sector and we own a few of the names in that sector."

Much more in common than differences.  But I suppose one other fundamental difference between ADVDX and my strategy is that they are required to mark to market every day to keep score.  I don't have to do that and can take a different point of view.  But that's another story. 

Regards.

Cliff 

It is not that I don't respect  your positions, but I can not connect the dots on dividend capture.      
ADVDX is a true Bizarro fund using an exact opposite investment strategy used by most dividend investors who invest for stable income and with capital preservation (I know you are not concerned about capital preservation, but I am).
Regardless of whether you are a fund manager or an individual investor, most dividend investors try to find dividend stocks that are undervalued and enjoy the dividend until the market realizes its value.  While this strategy sometimes requires the investor to hold the stock for longer periods of time, the investor has much better control of the investment because his investment is not subject to the emotional short term whims of the market.  Just like with any other investment, income is dependent on the quality of the investment.
Dividend capture does exactly what most dividend investors try to avoid.  When your chasing dividends, regardless of the quality of the dividend, you subject (risk) your capital to the short term whims of the market when you buy the stock before the dividend is declared, and when sell your stock once the dividend has been captured.  You can stick your head in the sand and deny this, but with only one third of its portfolio creating the vast majority of its 200 percent annual turnover your capital investment is most certainly subjected to the volatility of the market.  
Because your capital is subjected to the ability of the manager to find new companies to purchase without getting caught in a short term dividend trap  this really makes dividend capture nothing more than a momentum scheme with a dividend twist.
If dividend capture were not a high risk momentum strategy, then why doesn't Alpine just use dividend capture for a 100% of the fund?  Without the dividend capture component ADVDX would be just an average fund at best. With dividend capture ADVDX has underperformed its peers since its inception.
"We like to be multi-cap when we look for opportunities plus we invest globally."
Before ADVDX, dividend capture was considered a gimmick mainly hawked by the likes of Wade Cook. So far in its short history ADVDX has not been able to show that dividend capture provides income, preserves capital, and has failed its original mandate because it is less tax efficient than its peers.
If your only justification for ADVDX's under-performance is that by re-investing part of the dividend you can increase share numbers, your not creating more value or providing a stable income, your just rationalizing inflation.

helmut

Here are some figures:
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value:
ADVDX-$10,577 
total dividend payout:
$6,341

t

Here are some figures:
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value:
ADVDX-$10,577 
total dividend payout:
$6,341

t

[/quote]

Your point?

helmut 

Another point:

With 100% of dividends taken in cash:(same time frame) 
present value:
ADVDX-$10,577
EADIX-$12,835
total dividend payout:
ADVDX-$6,341
EADIX-$2,718

===========================

t

Another point:

With 100% of dividends taken in cash:(same time frame) 
present value:
ADVDX-$10,577
EADIX-$12,835
total dividend payout:
ADVDX-$6,341
EADIX-$2,718

===========================

t

[/quote]

Again what is your point?

helmut 

So far in its short history ADVDX has not been able to show that dividend capture provides income, preserves capital, and has failed its original mandate because it is less tax efficient than its peers.

[/quote]

Helmut, the question asked was what does ADVDX do that my (or your) strategy does not.  My answer was the only thing that I can discern is appreciably different is the dividend capture strategy for some part of the ADVDX investing vs. my own investing.  I don't do dividend capture and wouldn't contemplate doing it on an individual basis.  I do, however, grant that it can be done without the disastrous consequences some have guessed at if one's objective is cash flow from dividends.

Sometimes a cylindrical object wrapped in a tobacco leaf is just a cigar.  ADVDX is what it is.  Your conclusions above don't apply to me.  In the case of ADVDX, for me,

1) substantial income has been provided,

2) my capital has been more than preserved, and

3) I have suffered no negative tax consequences (and I realize we all have different situations).

If any of those things changed appreciably, I'd probably do what Jill would do - sell and move on.  In the meantime, ADVDX has done, for me, what it was supposed to.  A cash on cash return.

Regards.

Cliff 

Here are some figures:
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value:
ADVDX-$10,577 
total dividend payout:
$6,341

t

[/quote]

Your point?

helmut 

[/quote]

Helmut, I certainly won't presume to answer for T but could the point(s) be:

1) substantial income has been provided - an average of $1,400 per year for about 4.5 years on a $10,000 investment, and,

2) capital appears to have been preserved.

And if one's objective for a part of one's portfolio is substantial income and preservation of capital, well . . . . .

Regards.

Cliff 

Helmut, my point is :

Your statement ("So far in its short history ADVDX has not been able to show that dividend capture provides income, preserves capital, and has failed its original mandate because it is less tax efficient than its peers") is 100% wrong.......

You've dug your hole. Stop fighting, and just fall into it.

You didn't do the real research, and didn't bother getting the real figures as you are more interested in making some sort of 'statement' than acknowledging what  you don't understand..

The reason I sold my own advdx is not because the idea is bad or wrong, or because the fund experienced a correction, but because I felt too many investors in advdx (my investing partners) did not understand what they owned or why they owned it, and were not investors in the fund for Cliff's (and my ) reasons, the right reasons, the real reasons.  I saw this as a real life negative. Advdx is simply too easy to buy and sell, by too many people, with too little understanding........

=============================

Eadix offers the best of Advdx, but with few of it's largest problems...........

Best,

Taylor

"Eadix offers the best of Advdx, but with few of it's largest problems...........

Best,

Taylor"

Yeah, no one sells EADIX after that huge load.   Talk about "fund capture" :o}

Anyone with 25Gs (or an account worth 25Gs) pays less to buy, but yes, you are correct and i understand about the load, and i've mentioned that b/4.

.............In true reality though, those looking for what this fund provides (which IS terrific AND unique) should not keep even a Full Load from stopping them from solvingthisproblemforthemselves.

t  

Cliff,

1) substantial income has been provided,

2) my capital has been more than preserved, and

3) I have suffered no negative tax consequences (and I realize we all have different situations).

OK, tell me how you attribute any of the benefits you just listed to the 1/3 of ADVDX's portfolio dedicated to dividend capture? 

The fact that ADVDX has underperformed many of its global peers must be attributed to either stock selection or methodology.  I esteem you as a pretty astute investor so if dividend capture is the only type of investing you would not do for yourself; why not just find a fund that does nothing but dividend capture?  I suspect that the rest of your portfolio of individual stocks will handily out perform ADVDX.

You can consider converting capital gains into dividends income if you like, but dividend capture does not deliver the benefits listed. To the contrary, dividend capture is a drag to ADVDX's total return, income, and except for short term capital gains (which is usually not a problem with a low turnover dividend fund) does nothing for tax efficiency.  The fact remains that ADVDX is less tax efficient than its global peers.

Sometimes a cylindrical object wrapped in a tobacco leaf is just a cigar.

helmut

Helmut, you know we love ya,  but is there any potential in the near future you're going to eventually stop wasting people's time about this.........

HEY, how about just saying the truth...... "I'm Helmut, and I've bEEN wrong"............

t

Here are some figures:
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value:
ADVDX-$10,577 
total dividend payout:
$6,341

t

[/quote]

I interpretted Helmut's question as meaning data without a comparison provide no information, or at best an incomplete answer.  Having no idea how this would turn out I decided to take a Diehard approach.  Lets invest our $10K in VIMSX (Vanguard Midcap Index) and taken income similar in amounts to ADVDX and see what happens. I figure that 5.5 years is too short for this kind of analysis but I was curious.

Here are some figures for VIMSX (Midcap Index)
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value as of today 
VIMSX - $10,065.10
total cash taken out
6325.58

The index and ADVDX behave very similarly after 5.5 years.  I still do not see what the dividend capture techniques of ADVDX bought.   I believe that spending yield is better than spending shares... but I am not yet a believer in ADVDX because I do not think there is a sustainable method of taking 14% income from a portfolio.

Here are the details

DATE      NAV  Shares  DIV     Income   Sold

2003Oct6  12.18  821  

2003Dec                0.122     100.16

2004Oct6  14.09  738            1169.47  83

2004Dec                0.161     118.82

2005Oct6  16.61  669            1146.09  69

2005Dec                0.191     127.78

2006Oct6  18.83  608            1148.63  61

2006Dec                0.247     150.18

2007Mar                0.005       3.04

2007Oct6  22.53  558            1116.50  50

2007Dec                0.262     146.20

2008Mar                0.004       2.23

2008Apr22 19.58  502            1096.48  56

502 shares at 20.05 are worth 1065 today.

Stats

Helmut !

 There are NO short term cap. gains with ADVDX. You need more research and less carping. All income is taxed at 15% max for dividends.......

It seems that the conclusion of this discussion is that  ADVDX does an OK job of  sustaining one's principal, but it does not provide much capital appreciation. The trade-off is that you get a pretty good tax efficient distribution stream. For some people who need a source of income, ADVDX may be a reasonable part of a person's portfolio.

David

Cliff,

"Much more in common than differences.  But I suppose one other fundamental difference between ADVDX and my strategy is that they are required to mark to market every day to keep score.  I don't have to do that and can take a different point of view.  But that's another story."

My thoughts exactly.

The interview talked about two subject that we have discussed quite frequently here.  The first, asset selection (what to buy and why).  The second, money management (when to buy and sell).

In terms of the first subject (what to buy), one difference between ADVDX and I is that dividend GROWTH is so much less important to me then it is to ADVDX.  But I see similarities between ADVDX and Josh Peter's view of dividend investing.  For example, Josh talks about return in terms of growth, but he isn't talking about share price growth, he's looking at dividend growth.  Remember, for him, return is the sum of current dividend plus dividend growth rate.

Jill gave her criteria for smallest dividend she would accept:

"For example, Monsanto, the corn producer, has about a 0.58% dividend yield but we won’t go much lower than that unless we felt that there was a fantastic growth opportunity."

Not me.  My yield screen minimum is 6%.

Next, she says that the Alpine team follows closely about 200 stocks.  Furthermore: "We have rarely ever had a holding more than 3% of the portfolio. We are diversified in our portfolio so our top ten holdings consist of approximately 20% of the portfolio. We usually keep our holding allocation below 2.5% at the most and the ones that are above 2.5% are generally the ones with a high dividend yield."

Similar to what I do (with individual stocks).  But I don't follow 200 stocks!

"To be a good investor, you have to be able to sell things. We don’t fall in love with names and if the story changes, we just sell and move on to find better opportunities."

Good advice indeed!

I was struck by their 30-40% holding in foreign stocks.  The reasons were twofold.  First, typically higher yields.  Next, typically yearly dividend distributions.  Which leads to money management.

ADVDX uses 3 techniques (buy & hold, dividend capture, special dividends).  I don't do the second or third strategies.  Of those last two, the special dividend strategy is the one that troubles me the most (but not enough to avoid going with the Alpine team).  The dividend capture strategy is the most straightforward one to understand, and one that generates the most discussions around here.

Basically, dividend capture allows ADVDX management to increase the yield received from a given amount of investible cash by a (theoretical) 50% (for stocks paying quarterly dividends.  More importantly, for stocks paying yearly dividends, the increase is 6 fold.  That is, if you have 6 companies (typically foreign), each paying a 2.5% dividend, it's possible to 'capture' a yield of 15% from those 6 (15% is 6 times 2.5%).

Finally, there was NO discussion of sector concentration, which seems to be important to some people.

Anyhow, those are a few of my thoughts.  I was really struck by the candor expressed by Ms. Evans as to how, and why, they do things.

"I believe that spending yield is better than spending shares...but I am not yet a believer in ADVDX because I do not think there is a sustainable method of taking 14% income from a portfolio." 

There's no rule that the entire yield has to be taken without reinvesting part of it back into the fund.The thing a big yield does as far as I'm concerned is provide a wide range of options.-wes

Helmut !

 There are NO short term cap. gains with ADVDX. You need more research and less carping. All income is taxed at 15% max for dividends.......

[/quote]

Siverking,

You missed my point.  The only tax advantage ADVDX has is the conversion of short term capital gains to qualified dividends.

My point was that most dividend paying mutual funds have a low turnover and normally hold a stock more than one year so the advantage ADVDX holds by converting ST CG into dividends is insignificant. 

helmut 

Here are some figures:
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value:
ADVDX-$10,577 
total dividend payout:
$6,341

t

[/quote]

I interpretted Helmut's question as meaning data without a comparison provide no information, or at best an incomplete answer.  Having no idea how this would turn out I decided to take a Diehard approach.  Lets invest our $10K in VIMSX (Vanguard Midcap Index) and taken income similar in amounts to ADVDX and see what happens. I figure that 5.5 years is too short for this kind of analysis but I was curious.

Here are some figures for VIMSX (Midcap Index)
from 10/6/2003 to 4/22/2008
initial investment of $10,000
with 100% of dividends taken in cash: 
present value as of today 
VIMSX - $10,065.10
total cash taken out
6325.58

The index and ADVDX behave very similarly after 5.5 years.  I still do not see what the dividend capture techniques of ADVDX bought.   I believe that spending yield is better than spending shares... but I am not yet a believer in ADVDX because I do not think there is a sustainable method of taking 14% income from a portfolio.

Here are the details

DATE      NAV  Shares  DIV     Income   Sold

2003Oct6  12.18  821  

2003Dec                0.122     100.16

2004Oct6  14.09  738            1169.47  83

2004Dec                0.161     118.82

2005Oct6  16.61  669            1146.09  69

2005Dec                0.191     127.78

2006Oct6  18.83  608            1148.63  61

2006Dec                0.247     150.18

2007Mar                0.005       3.04

2007Oct6  22.53  558            1116.50  50

2007Dec                0.262     146.20

2008Mar                0.004       2.23

2008Apr22 19.58  502            1096.48  56

502 shares at 20.05 are worth 1065 today.

Stats

[/quote]

Stats, thanks for the data.  I'm sure it took some time to put together.

Maybe someday we'll see similar data for SDY, DVY and VYM, once they've had some more years under their belts.

Greg

Helmut,

For the record I don't own ADVDX and would not, at the present time, solely b/c of my portfolio and investing needs and composition.  I use CEF's for the role that I perceive ADVDX as filling and although that is probably a riskier alternative, it's the model I've established and am comfortable with.

As I read your rationale and reasoning, the thing that struck me was that you were describing  value investing:

 most dividend investors try to find dividend stocks that are undervalued and enjoy the dividend until the market realizes its value.

This is a label that fits me and a role I'm comfortable with.  I can identify a bargain but I know that I have trouble with the sell part of the discipline.  As Jill Evans said in her interview:

"To be a good investor, you have to be able to sell things. We don’t fall in love with names and if the story changes, we just sell and move on to find better opportunities."

If I did not have the patience and the willingness to wait out NAV volatility, I could see ADVDX filling that role for me.

The other thoughts that flew into my off kilter brain as I read this discussion were Callan periodic tables and the differences between Growth and Value investing and thoughts of momentum investing and managers.  I believe that for inherent, underlying personality reasons, most investors are much more comfortable in one camp or another.  I even acknowledge that momentum investing , particularly utilizing sector rotations is a viable option.  There is more than one road to Dublin.

I think ADVDX may be the momentum, growth face of dividend investing and that they are applying that discipline and those techniques to value stocks and dividend investing.  Just as we design an AA to encompass all market segments, perhaps the ways and techniques we use for dividend and income could use some additional or alternative methods?

Roberta 

As Stats said:

"I believe that spending yield is better than spending shares"............

He's right......

Spending down shares (eating your own portfolio ,the phony method of comparison used in the above example) as opposed to simply taking the income stream from one's mutual funds in retirement can be much more dangerous over time than just taking income and maintaining ownership of your shares in retirement........

t

Helmut:  I suspect that the rest of your portfolio of individual stocks will handily out perform ADVDX.

Actually, no.  My overall yield on all individual company investments is 7.0% compared with ADVDX's yield of about twice that.  If I were to look at expected returns, I might add the 7-8% growth of dividends/distributions of my individual holdings and say the expected returns are about equal.  But I usually don't do that.

As you know, I'm not really a 'fund' guy.  They're all black boxes to me, sort of artificial investing constructs.  I'm more in to businesses and companies.  I'm not the guy to deeply analyze all the moving parts of ADVDX.  To me, it's the investing equivalent of a pipe wrench.  It's in my toolbox.  It's not my only tool.  It works well for accomplishing certain things.  It doesn't work so well for other things.

As a friend of mine says, "Ya gotta love 'em for what they are, not for what they aren't."

Regards.

Cliff 

Cliff,

"As you know, I'm not really a 'fund' guy.  They're all black boxes to me, sort of artificial investing constructs.  I'm more in to businesses and companies.  I'm not the guy to deeply analyze all the moving parts of ADVDX.  To me, it's the investing equivalent of a pipe wrench.  It's in my toolbox.  It's not my only tool.  It works well for accomplishing certain things.  It doesn't work so well for other things."

Likewise.

ADVDX has a current yield of 15% or so, and some dividend distribution growth/shrinkage rate.  I treat it as if it's just another individual stock in my portfolio!

VWEHX has a current yield of 8% or so, and some interest distribution growth/shrinkage rate.

FRO(ntline) has a current dividend yield of 11% or so, and some growth/shrinkage rate.

And so forth.

I need a maximum sustainable 6% rate of withdrawal to adequately fund my retirement.  This is 50% more then the assumed 'safe' 4% rate.

What are my risks of having adequate income during retirement and/or running out of money?

Helmut !

 There are NO short term cap. gains with ADVDX. You need more research and less carping. All income is taxed at 15% max for dividends.......

[/quote]

Silver:

That's because all their short term losses cancel out any short term gains.....

Hummm?  Is that a good thing?

best,

Bill

"I need a maximum sustainable 6% rate of withdrawal to adequately fund my retirement.  This is 50% more then the assumed 'safe' 4% rate.

What are my risks of having adequate income during retirement and/or running out of money?"

No risk of running out of money using the period certain strategy.

Plenty of risk of having adaquate income, depending on what your dollar benchmark is for the 6% withdrawal.

If it is 6% of your surviving portfolio amount at the beginning of each year, then you can't possibly know is that will be adequate, unless you know what the TR of your portfolio will be.

best,

Bill

Bill,

"If it is 6% of your surviving portfolio amount at the beginning of each year, then you can't possibly know is that will be adequate, unless you know what the TR of your portfolio will be."

Aha!  If the number of dollars of dividend and interest yield distributions is constant, or increasing each year, that's what you spend.  As long as the number of those dollars increases each year, with inflation, you'll be able to buy the same amount of goods and services 30 years down the road as you can today.

Regardless of the value of your portfolio.

What you have forgotten is that, for constant, or increasing, yield dollars, the PERCENTAGE yield decreases, or increases, depending on the value of the portfolio.

That is, 6% (of the INITIAL value of the portfolio), in dollars, is 8% of next years portfolio value, if the value of the portfolio has dropped 33% over the year.

"What you have forgotten is that, for constant, or increasing, yield dollars, the PERCENTAGE yield decreases, or increases, depending on the value of the portfolio."

I ain't forgotten nuttin'.

What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats.

We don't need to go into the number of stocks that have lowered divys this year alone.

If you can get constant or increasing yield dollars, end of discussion.  But my point was that YOU DON"T KNOW THAT in advance.  So if you really NEED 6% of your starting portfolio plus inflation (6+3), then you are indeed taking a lot of risk by any normal standard.

And if the dividend rate is raised by politicians who are responding to constituents cries for shutting off the gravy train to the "rich", then many of your high yield companies may cave to their shareholders pressure and cut their divys.  This will force you to really compromise in order to find stocks that will support 6% + inflation, requiring you to take more and more risk.

Then one day your gravy train may turn into eating Gravy Train :o}

-------------------------------------------------------------------------------------------------------------

Invest worldwide for reasonable, growing yields.....:o}

best,

Bill

Bill,

"What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats."

What you can't seem to grasp is that corporate management determines the size of the dividend, based on it's financial situation, not the price of it's shares.  The market, not that same management, determines share prices.

Please explain WHY a company would cut it's dividend SOLELY because it's share price has been cut 50% by the market?  I can see (and have seen) the market clobber share prices for companys that might, or actually do, cut or eliminate dividends, but not the other way around.

IOW, what is the dog and what is the tail in this particular dog and pony show?

"We don't need to go into the number of stocks that have lowered divys this year alone"

Nor the number that have kept their dividend constant, or the number that increased divys this year alone, nor the number that pay no dividend.

"But my point was that YOU DON"T KNOW THAT in advance."

Absolutely.  That's the risk you take by investing in a dividend paying stocks.  The risk is that the company will cut, or eliminate, it's dividend.  Just like you don't know, in advance, that share prices will increase 10%.

Tell me, is it a greater, or less, risk investing in a non-dividend paying stock, expecting it to appreciate 10% per year, compared to investing in a stock with a 10% current yield?

"So if you really NEED 6% of your starting portfolio plus inflation (6+3), then you are indeed taking a lot of risk by any normal standard."

I agree.  The 'normal' standard is 4%.  5% is risky (eg, a retirement starting in 1965).  6% has a probability of success somewhere south of 90% or so.  By normal standards.

"And if the dividend rate is raised by politicians who are responding to constituents cries for shutting off the gravy train to the "rich", then many of your high yield companies may cave to their shareholders pressure and cut their divys.  This will force you to really compromise in order to find stocks that will support 6% + inflation, requiring you to take more and more risk."

You're starting to sound like a democrat!

Let's see.  I, and Cliff, have money in FRO, which pays an 11% dividend.  Obama gets the good rev. wright to bash rich white women, so Cliff and I email FRO management that we want a dividend cut.  Nay, we DEMAND a dividend cut.  They do it, so we both sell, and put that money into some good old growth company, say XOM, and count on a 1% dividend, with long term share price growth to support a 6% rate of withdrawal.

Yes, I do agree, this would be a more risky alternative (then simply holding high yield FRO!).

Look, the bottom line, for my portfolio, is that it's current yield is 11.6%, and the number of yield dollars it generates has grown about 6% per year over the 5 years of my retirement, even after withdrawals have been taken.  According to Josh Peters, my expected portfolio return, going forward, is 17.6%, regardless of what happens to the value of my portfolio.

Even though I have never taken the full 6% out, I feel quite comfortable doing so, if needed.

Hi El,

"What you can't seem to grasp is that corporate management determines the size of the dividend, based on it's financial situation, not the price of it's shares.  The market, not that same management, determines share prices.

Please explain WHY a company would cut it's dividend SOLELY because it's share price has been cut 50% by the market?  I can see (and have seen) the market clobber share prices for companys that might, or actually do, cut or eliminate dividends, but not the other way around."

Agree with first paragraph.  The market cuts prices for two reasons; (1) the lowering of all boats in a down market, pure panic and a good reason to buy more shares at higher yields, or (2) a real reason, like missing its quarterly profit estimate by 20% and the prospect of it going even lower due to some economic or event factor, and as you point out, an announced dividend cut.  Obviously, I was referring to the #2 in my remark above.

"We don't need to go into the number of stocks that have lowered divys this year alone"

Before this downturn, we were lead to believe that dividends were hardly ever cut.  Every sector is subject to the same type of crisis.

"But my point was that YOU DON"T KNOW THAT in advance."

"Absolutely.  That's the risk you take by investing in a dividend paying stocks.  The risk is that the company will cut, or eliminate, it's dividend.  Just like you don't know, in advance, that share prices will increase 10%"

Ahh, but I'm not the one declaring the 6+3 is safe as long as my yield is above 6 as you are.  I'm not the one saying I "need" 6% in adjusted dollars of my original portfolio as you are.

"Tell me, is it a greater, or less, risk investing in a non-dividend paying stock, expecting it to appreciate 10% per year, compared to investing in a stock with a 10% current yield?"

Red herring alert! Red herring alert! Red herring alert!  Your old fallback when things get dicey; compare to the mythical no dividend stock investor.  Let's focus on the real discussion.

"And if the dividend rate is raised by politicians who are responding to constituents cries for shutting off the gravy train to the "rich", then many of your high yield companies may cave to their shareholders pressure and cut their divys.  This will force you to really compromise in order to find stocks that will support 6% + inflation, requiring you to take more and more risk."

"You're starting to sound like a democrat!"

In other words, "Your right Bill, I could be in deep kimche if rate on Dividends and CGs go up, and companies begin to concentrate of price appreciation and LT CGs that are only realized when the shareholder sells."  I don't have to be a Democrat to see what may happen.  But your weak answer to this concept is an answer in itself. All you have to do is look at the history of dividends when the CG tax was lowered, while the dividend tax was left the same; lower dividends.  It's a risk alright.

"Look, the bottom line, for my portfolio, is that it's current yield is 11.6%, and the number of yield dollars it generates has grown about 6% per year over the 5 years of my retirement, even after withdrawals have been taken.  According to Josh Peters, my expected portfolio return, going forward, is 17.6%, regardless of what happens to the value of my portfolio."

Well, I haven't read the book yet, but my understanding is that Josh doesn't recommend ultra high yield stocks, so I assume this is another one of those situations where you have taken his formula for return and applied it to your risky portfolio to come up with that conclusion.

If you really had a way to get a safe 17.6% going forward, you could be a billionaire by next year.

I will admit, however, your ability to make outlandish statements about your investment strategy and portfolio seems to be growing faster than 6% per year :o}

---------------------------------------------------------------------------------------------------------------------------

Invest worldwide in reasonable,  growing dividends.

best,

Bill

Stats,

I interpreted Helmut's question as meaning data without a comparison provide no information, or at best an incomplete answer.

Thanks, That is exactly what I meant.

I still do not see what the dividend capture techniques of ADVDX bought.

This has been the crux of my debate all along.  Unfortunately the ¾ of ADVDX's dividend that is produced from dividend capture is speciously argued as income, but if ADVDX (a multi-cap global fund) has been no less volatile and produces no more returns than a domestic mid-cap domestic index fund, it is hard to see the logic.  

Roberta,

As I read your rationale and reasoning, the thing that struck me was that you were describing value investing: 
   
Your analysis of my post is right on.  I've never considered value investing and dividend investing mutually exclusive.

 This is a label that fits me and a role I'm comfortable with.  I can identify a bargain but I know that I have trouble with the sell part of the discipline.  

As Bill might say, if you are investing in mutual funds, you are paying your fund managers to have a disciplined entry and exit strategy. This is where the mechanics break down for dividend capture.  Can anyone explain how ADVDX's managers manipulate the entry and exit strategy for dividend capture to prevent serious capital losses during a down market, or just under performance in any market? It does not seem to be working very well so far.

Momentum investing implies rather than using fundamentals, the investor tries to take advantage of the same market irrationality that will cause economic bubbles.  Buying stocks just long enough to capture dividends seems more like playing roulette than investing to me.

Buying dividend paying stocks when the fundamentals determine the stock is under valued is one thing, but buying stocks just long enough to capture the dividend, then selling it is quite another. How do you prevent the share price getting whipped sawed by the market?

Cliff,

As you know, I'm not really a 'fund' guy.  They're all black boxes to me, sort of artificial investing constructs.  I'm more in to businesses and companies.  

You hit a homerun of logic!  Businesses and companies have tangible fundamentals to focus on. Fund managers that use tactics such as leverage, options, and dividend capture to magnify returns also magnify risk however you define it. Undervaluing that risk could be a mistake.

ADVDX is the quintessential black box.  A large yield may make one feel warm and fuzzy all over, but as far as investing in something that feels good hoping the logic and positive results will follow doesn't work for me. I've already been there, done that, and I own the T-shirt.  

The fact that most of the big fund families have not followed suite tells me that dividend capture is still a pretty dicey proposition.  Vanguard is doing managed distributions, market neutral long & short funds, fundamental indexing, and commodities. Vanguard has shown they have no problem keeping up with the competition with aggressive investing ideas. 

With the investor success Alpine has had with ADVDX and its CEF cousins, I just have to believe Vanguard and the other big fund families with all their R&D have investigated dividend capture thoroughly so I'm still waiting to hear from them.  

Bill,

What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats.

Excellent point!  When you add 40% in a HY bond fund to your portfolio you need an even bigger crystal ball.

helmut

Bill,

"Obviously, I was referring to the #2 in my remark above."

Obviously, what you said was that a company would cut its dividend if the market tanks its share price, which is bass ackwards.

"Before this downturn, we were lead to believe that dividends were hardly ever cut."

No, JWR has presented data, as has Stats, that show the dividend history of the market, actually, the S&P500.  They have shown the periods where diviedends were cut, and the periods where they were not.  You cannot predict, beforehand, what will happen.  What has been suggested (not that you were lead to believe) is that companys (well managed companys) tend to want to pay a stable dividend.

"Let's focus on the real discussion."

OK, let's focus.  I believe a 6+3 withdrawal (of the initial value of the portfolio) from a portfolio whose initial yield is 10% is not only fairly safe but has a probability of success approaching 100% to provide that level of withdrawal forever.  The risk that it does fail is that the individual companys held within the portfolio will cut, or eliminate, their dividends.

In dollars, this means that a portfolio that provides $10k of dividend and interest yield, for $100k of initial portfolio value, will provide an initial $6k of spendable cash the first year, and the amount of spendable cash available each year afterwards can be increased by the rate of inflation.  If inflation is 3%, then $6180 will be spent in year two.

The risk is that the dollar amount of the yield generated will fall below that amount required for the withdrawals.  That is, the dollar amount of the yield will fall below $6180 in year two.

Your position is that 6+3 is risky, regardless of the yield.

The discussion question is what YOU would do, if you needed 6+3 from your portfolio?  Your 'standard' answer is that you wouldn't withdraw 6+3, that you would cut back and not go broke if you had to.  So, discuss how you would decide that 6+3 was too much?  How much of a market tank would it take for you to decide that you needed to tighten the belt this, or next, year.

My point is that the $10k shows up in a money market account during the year, or it doesn't.  If I need more then what shows up, I have to start selling assets.

This isn't red herring.  It's seed corn!

"Well, I haven't read the book yet"

The underlying concept of the book is that the return an investor should expect from an individual stock is the sum of all of the dividends he receives while he holds the stock.  It's the basic Dividend Discount Model.  That expected return is the sum of the current dividend yield of the stock and it's dividend growth rate.

In Josh's book, a stock that pays a 6% dividend, and has a long term expected dividend growth rate equal to inflation would support a real, inflation adjusted 6% rate of withdrawal during retirement.  That is, the retiree would withdraw, and spend, the yield, and the amount of spendable cash would be in real, inflation adjusted dollars, over time.

Bill,

Furthermore, in terms of THIS thread, ADVDX throws off $15,390/year if you have $100k invested in the fund.  Spending 6+3, or $6000, leaves $9390/year to 'adjust' for inflation.

Bill,

Furthermore, in terms of THIS thread, ADVDX throws off $15,390/year if you have $100k invested in the fund.  Spending 6+3, or $6000, leaves $9390/year to 'adjust' for inflation.

[/quote]

ElLobo,

Do the math for me and show me how 6%+3 worked for ADVDX in 2007.

helmut 

helmut,

ADVDX NAV on 1/3/2007 was $12.95.  $100k in the fund, on that date, was 7722 shares.

During 2007, each share of the fund generated a total of $1.641 distributions, for a total yearly distribution of $12,671 for all 7722 shares.

Withdrawing and spending $6000 of this means that $6,671 was put back into the fund.  ADVDX NAV on 12/31/2007 was $12.13.  Assuming the reinvestment NAV was the average NAV for the year ($12.13 + $12.95)/2, or $12.54, then $6671/$12.54, or 532 shares were purchased during the year.  The total holding, on 12.31/2007 was the initial 7722 shares plus 532 shares purchased during the year, or 8254 shares.

If each share of ADVDX again distributes $1.641 in 2008, then a total of $13.544 will be received.  If inflation was 3% for 2007, then a total of $6,180 will be withdrawn, and spent, in 2008.  Since the dollar amount of the yield will be $13544, while $6,180 will be spent, then $7364 will be reinvested, in 2008.  Note that this is MORE then what was reinvested in 2007, even though the per share distribution was the same in 2008 as in 2007.

During 2007, each share of the fund generated a total of $1.641 distributions, for a total yearly distribution of $12,671 for all 7722 shares.
I believe a 6+3 withdrawal (of the initial value of the portfolio) from a portfolio whose initial yield is 10% is not only fairly safe but has a probability of success approaching 100% to provide that level of withdrawal forever.

ElLobo,
A $100,000 invested in ADVDX on 1/3/2007 would have made the 6% goal, but would have missed the 3% by about 2.75%.
If you have another 30 year period like the one that started in 1965 would you be willing to give retirees your nearly 100% guarantee of a successful 6% +3 withdrawal?
What if you have three years of negative returns followed by five or six years of 7% to 8% total returns?
This is not an indictment of ADVDX, it is just a criticism of unrealistic expectations.  Although funds like CWGIX and CAIBX both would have survived a 7% yearly withdrawal since their inception, I would never recommend it much less propose nearly a 100% probability of success.  
I know that past performance is not a guarantee of future results, but it is probably better than future conjecture.
A $100,000.00, at full load, in CAIBX at its inception in 1987 would produced $140,583 with a 7%distribution finishing with an ending balance as of 8/31/2007 of $373174.
 CWGIX has a shorter time frame as it begins in 1993 and your withdrawal is $100,997.00 and the value is $393,997.00.
I think it unwise to preach that higher yields ensure success. Especially when you have no evidence, just conjecture on hypothetical future returns.
Since you have enough if's and supposing in your calculations to campaign for office, I thought I would add a couple of my own.
I would think if an engineer had really built a better mousetrap, he would have more actual facts to back it up ☺.

helmut 

"Obviously, I was referring to the #2 in my remark above."

Obviously, what you said was that a company would cut its dividend if the market tanks its share price, which is bass ackwards. 

What I said was: "What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats."

Take some of your high yield and buy some glasses :o}

"OK, let's focus.  I believe a 6+3 withdrawal (of the initial value of the portfolio) from a portfolio whose initial yield is 10% is not only fairly safe but has a probability of success approaching 100% to provide that level of withdrawal forever.  The risk that it does fail is that the individual companys held within the portfolio will cut, or eliminate, their dividends."

Well Duh??? 

How about you give me a list of 25 companies who have paid a 10% dividend distribution on the initial value of a hypothetical $100,000 portfolio every year for the last 30 years?  When you can do that, then we can have a discussion about the real odds of you having been able to pick those 25 companies 30 years ago.

"The discussion question is what YOU would do, if you needed 6+3 from your portfolio?  Your 'standard' answer is that you wouldn't withdraw 6+3, that you would cut back and not go broke if you had to.  So, discuss how you would decide that 6+3 was too much?  How much of a market tank would it take for you to decide that you needed to tighten the belt this, or next, year."

I don't need 6+3 and I don't think that "needing" 6+3 is safe under any conditions.  VG Distribution Focus managed payout fund of 7% nominal is about as far out on the risk curve as I would go. 

I have already decided 6+3 is too much (since I don't need it), so I don't have to torture my rationalization skills trying to figure out how to make it work, or when it won't work.  I never contemplated walking between two buildings on a high wire either, and don't intend to start now.

I always thought that the best money management plans and strategies were needed to be put in place BEFORE retirement, not just retire and then try to find a way to find a way to meet my needs.

"In Josh's book, a stock that pays a 6% dividend, and has a long term expected dividend growth rate equal to inflation would support a real, inflation adjusted 6% rate of withdrawal during retirement.  That is, the retiree would withdraw, and spend, the yield, and the amount of spendable cash would be in real, inflation adjusted dollars, over time."

So then, in addition to the 25 stocks above with a 30 year history of 10% yields, perhaps you could also share a list of 25 more stocks with a 30 year history of 6% yields plus  growth of yield equal to historical inflation on a year by year basis?

I already showed that Wellesley could not only provide my 4+actual inflation for over 30 years but that the nominal value of the original portfolio grew to within 6% of  the real inflation adjusted amount.  Helmut showed similar type results for one of the American funds.

best,

Bill

helmut,

"A $100,000 invested in ADVDX on 1/3/2007 would have made the 6% goal, but would have missed the 3% by about 2.75%."

Not so.  6+3 refers to a rate of withdrawal.  The 6% is the percentage of the INITIAL value of the portfolio that is being taken out.  That dollar amount is adjusted, each year, by the rate of inflation, commonly assumed to be 3%.

In my ADVDX example, which you asked me to provide, 6% of the initial $100,000 value of the portfolio is, well, $6000.  That's what is being withdrawn and spent, the first year.  Assuming a 3% rate of inflation, 1.03*$6000, or $6180 is withdrawn, and spent, in year two.  That is, $6180 is 3% more then $6000.  That's the terminology.

$100000 invested in ADVDX generated $12,671 in distributions that first year (2007).  Of that amount, $6000 was withdrawn, $6,671 was NOT withdrawn, but reinvested in more shares of the fund.

So, the rate of withdrawal from this portfolio is 6+3.  The dollar amount of the distribution in year two was $13544.  This is $13544/$12671, or 1.07.  That is, the DOLLAR amount of the yield, due to reinvestment of the yield NOT withdrawn into additional shares, is increasing at the rate of about 7% per year.

You are basically taking 6+3 from a portfolio that is yielding 12.7+7.

I don't understand what you are saying whenever you say this missed it's goal by 2.75%?  Please explain, using my numbers.

Bill,

"What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats."

Why would a company cut the dollar amount of it's dividend in half, if the market first cut it's share price in half?  I sure hope you understand dividends enough to know that a company doesn't target a certain PERCENTAGE dividend, rather then a certain dollar amount of the dividend!

"I don't need 6+3 and I don't think that "needing" 6+3 is safe under any conditions."

You just can't seem to discuss this, can you!

Bill,

"What you can't seem to grasp is that it is highly unlikely that stocks that have fallen 33, 40, 50% will continue to pay the same dividend unless that fall is due solely to an outward tide lowering all boats."

Why would a company cut the dollar amount of it's dividend in half, if the market first cut it's share price in half?  I sure hope you understand dividends enough to know that a company doesn't target a certain PERCENTAGE dividend, rather then a certain dollar amount of the dividend!

"I don't need 6+3 and I don't think that "needing" 6+3 is safe under any conditions."

You just can't seem to discuss this, can you!

[/quote]

"Why would a company cut the dollar amount of it's dividend in half, if the market first cut it's share price in half?  I sure hope you understand dividends enough to know that a company doesn't target a certain PERCENTAGE dividend, rather then a certain dollar amount of the dividend!"

How about because the reason the price was cut in half was because the earnings were cut by 75% or even a net loss?  Ever hear of Washington Mutual?

"I don't need 6+3 and I don't think that "needing" 6+3 is safe under any conditions."

You just can't seem to discuss this, can you!

Are you serious?  Apparently not agreeing with your risky strategy is considered not discussing to you. I've given you ample opportunity to convince me over the last year, and I remain not.

Am I not allowed to have my own withdrawal strategy?

If I determined I needed 6+3 in order to live the way I wanted to, I would have stayed working.  It is simple as that.  Its too friggin risky for ME.

I don't know or care if its too risky for YOU.

You may very well get 6+3 for a while, or your entire retirement.  I can't predict the future.  But your not even satisfied with that.  You not only want the 6+3, but you also have some need to convince everyone that it isn't risky.   I think most would agree that it is riskier than 4+3 when that withdrawal is coming from reasonable levels of dividends, income interest, and capital gains.

best,

Bill

For all the other investors out there like me that is on a lower level of investing I would like to throw out another way of doing it.

Lets say you have build your dividends up over the years in an old ele. util. like Southern Co.(SO) and it is time to start withdrawling for the good times ahead in retirement. Since its hard to eat percent lets talk cash!  For an example lets say you have build up your dividends to $300 a quarter, but only need $150 of that amount for your needs so why not set up a free direct debit of your account of $50 every month to buy more shares so that every quarter after that your dividend will be more! Just let your dividend be direct deposited in your bank account, take out your $150 the first quarter and let the rest take care of its self ever month. Of course the next quarter you will have to figure out how much to take out since it will be more with new shares bought from last three months. Dividend increases should take care of inflation where you will have a good chance of staying even. Boom times and recession will be the same since ele. bills are paided in both. Of course all costs will be zero, but you have the risk of taking dividends from a company that has been paying them since 1955!

Ask yourself will it work!

:-) ( my second smile).

Copie

Copie's way is easier and make more sense to me.  :-)

4+3, 5+3, 6+3, etc. -- I'd rather think in term actual dollars.

Greg

Hi Copie,

Here is the problem.  I know you aren't suggesting that someone in retirement put their entire nest egg in SO.  So maybe you are suggesting a basket of utility stocks (I'm looking at your statement: Boom times and recession will be the same since ele. bills are paid in both.)

I believe Vanguard tried that with their Utility Fund which they turned into dividend growth fund in late 2002.

The results don't seem to agree with your above statement.  Not only did the TR fall by -19% in 2001 and -23% in 2002, but the income yield fell from an average of about 5% to about 2.5% despite what had to be a much higher yield for the individual stocks. 

I surely do agree that those inclined to hold individual dividend yielding and dividend growing stocks will have lower expenses and if they can hold enough stocks to feel well diversified, then they should see good results.

Your strategy of using just the yield you need and reinvesting the rest is very sound and works with individual stocks or Mutual funds alike.

The biggest difference is I'm trading perhaps .2% per year for more diversification, and professional active management.  I have come to the conclusion that that is what works best for my temperament.

While you may hold a stock like XOM for 20 years, my managers will likely buy XOM when it is depressed, sell it when it reaches a certain target price, and then buy something else.  That doesn't seem like a very good way to grow dividends, after all they may hold the stock only 2-3 years.  The new stock they buy will have to be bought at the current dividend, which should be pretty good since they are buying it at a depressed price.

However, although the fund itself isn't seeing a great increase in payout per share, all those reinvested dividends are causing an increase in payout.  Certainly this is not equal to owning and holding the  individual stocks where the dividends are growing, because you are reinvesting both the dividends and the growth of dividends, whereas I'm only reinvesting the dividends and whatever growth there is during the holding period.

But the great equalizer is that I am also reinvesting the capital gains from all those stocks that are being sold by my managers.  My funds are averaging around 3-4% in capital gains per year.  That is 3 to 4% of the NAV per share, which is generally a lot higher than a 7-10% growth of a dividend.

So see?  We both can smile :o}

best,

Bill  

Bill in my dealings with util. stocks it seems they are not ones to day trade with as share price appreciation is not one of their strong points. No I did not mean for everyone to put total savings in SO, but to bring out a cheap simple way to have a raising income that would have a good chance to keep up with inflation. PGN is another util. that has the same type no cost plan as SO and their are others that may not pay as much percent as these two, but would match a lot of funds in net yield.  I like a util. stock when talking about steady income every quarter unlike funds that may have more some quarters and less other quarters. Bonds funds, IMO, have up and down interest because of market or interest rates, where as ind. stocks like util. may not increase their dividends every year, but they will go to end to keep from decreasing them. On a scale from 1 to 10 with bank cd's being at a safe 10 and ind. bonds(short term) being at a safe 9 then I would put SO at a safe 7 or 8 in keeping their dividend steady with the ideal that 4 mil. ele. accounts are not going to close.

In taxable accounts would not a util. stock be better since their would not be any capital gains taxes to pay, but in a tax free like a Roth then they should be even except for not knowing what kind of income the funds will turn out each quarter.

Pro's and con's both ways!

Copie

:-} ( my new smile like yours).(One of these days I am going to take a computer course) 

ElLobo,

I don't know what I was thinking of.  It must have been sunspots.  I'm just not use to you talking in terms of income certain strategies.
I guess the bottom line after everything is said and done is that you have never shown any evidence that portfolios whose yield is higher than five percent is any safer in retirement than using a total return strategy with lower yielding investments regardless of the distribution method.
In my opinion you weaken your case even further by not differentiating between income yield and distribution yield manufactured by managed distribution, or capital gains converted into yield by dividend capture.

helmut

Bill,

I can't talk for copie of course, but for me, there's another whole aspect of this.  I'm using these dividend stocks to replace much of the role of bonds in my portfolio.  Your way will probably equal higher total return but this way will increase the total return over bonds.  Since fluctuation in  NAV doesn't yank my chain and the dividends are providing the cash flow to pay my bills and meet my cash flow needs (alert - fighting words ), I don't need to sell shares for income and I need a lower bond allocation to avoid the necessity of selling shares to provide for cash flow needs, therefore I'm increasing the total return of my entire portfolio although not necessarily in this individual area.

The other part of this, I have trouble with is what the funds invest in.  There was and is much investment in telecom companies and other things in utility funds which severely changes their natures from widows and orphans dividend funds to a much riskier animal.  I see the same kind of things in trying to evaluate health funds b/c of biotech.

Roberta