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.

ElLobo:

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.

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.