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Dividend fund investing/strategies


StassneyHorn

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Didn’t see a thread specifically for dividend stocks/etfs etc. For people who are involved and utilize them, how do you use it and what fund(s) did you pick?

Examples being an HOA payment for a condo. Maybe you downsized, sold the house and put in a fund that pays monthly that covers rent. Utilities, Groceries, anything you have a payment plan on etc

I know the big hitters in the space are considered SCHD, JEPI,JEPQ, QQQI. Curious what the board may have? I saw a video with a guy who used Yield Max ETFs to pay for a solar panel installation at his house and got me thinking after he acknowledge the fund probably goes to 0 at some point. Won’t pretend to know what covered call options are, but I do comprehend qualified vs non qualified dividends

 

 

 

 

Edited by StassneyHorn
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Covered call options are selling call options against a stock position you own.  Used to generate income from a stock position from the option premium.  The trade is covered (you own enough of the stock to cover the call) so you aren’t stuck buying the stock at a price that loses money.

IMPO the biggest mistake in dividend investing is yield traps like AT&T over the last decade.  The 7% dividend looks great but the stock slowly erodes in value.

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One ETF I just started putting into recently is DGRO. I wanted to start moving some risk out of S&P/Nas into something that still focused on large caps, but more stable the closer I get to retirement.

Then from my ESPP, I've been selling my LT gains once a year and buying some individual dividend stocks (F, VZ, ET, MPLX, DVN, MPW), with the thought of using those dividends as an income stream in retirement. Mostly mixed results with that, so may start moving those into a dividend ETF or large cap value fund as well. Let somebody else find the values/yields and I'll just tinker around with a few individual stonks.

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I went down the dividend yield path for a few years investing in, and carefully watching, their performance.

I ended up dramatically rolling back my investments in higher dividend stocks because at the end of the day a company must generate earnings and grow those earnings in order for an investor to receive money in the form of dividends or stock price appreciation. 

I found that high dividend stocks might deliver great dividends, but over time their stock prices offset some of those distributed earnings, or the stock price didn’t grow enough to make their performance attractive as compared to other investments in terms of total return.

However, I’m not saying there is no role for high dividend stocks in a portfolio. There is something to be said for locking in the returns from dividends, as opposed to having all your returns in price appreciation.  As a result I do hold a few higher dividend ETF’s, VYM and VYMI.

I stay away from higher yield stuff because there are real questions about the total return potential over the long term. There is some pretty big downside risk with a lot of it. 

Of course with the market valuations so high right now, having some money in higher dividend investments could end up being a somewhat savvy move. 

 

Edited by Dbeasy
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I don't chase dividends.   I do have VTI which has a yield around 1.25%, but currently I reinvest the dividends.   Next year, I will use them as part of my income in retirement.   I get some dividends, but also keep the upside in the market with a total market index.  

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Since I’m still working and contributing, I don’t worry about dividends in the tax advantaged plans. Just want growth. 

On a brokerage account, I’ve been playing around with throwing excess money here and there into dividend stocks. First it was individual and lately more into SCHD and SPYD ETFs. The eventual goal is to earn $1,000/mo in dividends by retirement. Whether I stick to path, who knows.

At first I chased yield but realized that too many of those stocks either lose price or they offer anemic dividend growth. I’ve become more interested in higher quality stocks that grow dividends by 4-5% per year and have solid cash flow. I figure that is the best long term play.

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I have been playing around with some of the higher risk higher yield dividend stocks in my play account on schwab. I have about 10k total invested in JEPQ, SPYI and SVOL. The yields are great but not sure SPYI and SVOL are holding their value. There is some erosion there. Still fun to fuck around and see if there really are some 10% dividend winners 

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15 hours ago, Dbeasy said:

I went down the dividend yield path for a few years investing in, and carefully watching, their performance.

I ended up dramatically rolling back my investments in higher dividend stocks because at the end of the day a company must generate earnings and grow those earnings in order for an investor to receive money in the form of dividends or stock price appreciation. 

I found that high dividend stocks might deliver great dividends, but over time their stock prices offset some of those distributed earnings, or the stock price didn’t grow enough to make their performance attractive as compared to other investments in terms of total return.

However, I’m not saying there is no role for high dividend stocks in a portfolio. There is something to be said for locking in the returns from dividends, as opposed to having all your returns in price appreciation.  As a result I do hold a few higher dividend ETF’s, VYM and VYMI.

I stay away from higher yield stuff because there are real questions about the total return potential over the long term. There is some pretty big downside risk with a lot of it. 

Of course with the market valuations so high right now, having some money in higher dividend investments could end up being a somewhat savvy move. 

 

It really comes down to a point where you have to decide what your goal is:  Income and some form of principle value stability or Performance.    

 

Here's why it makes a difference...

 

1) If my goal is income and stability, then I can shut off DRIP in a dividend portfolio, take the income (especially if I have a portfolio yielding a sufficient % or $ amount) and never have to touch the principle value of the portfolio

2) If my goal is performance, then I'm going to have to sell shares to raise capital in order to distribute for income.  In down markets, that can lead to serious erosion and quite likely blow up my plan (if you were to take too large a distribution).

 

 

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1 hour ago, Trey3216 said:

It really comes down to a point where you have to decide what your goal is:  Income and some form of principle value stability or Performance.    

 

Here's why it makes a difference...

 

1) If my goal is income and stability, then I can shut off DRIP in a dividend portfolio, take the income (especially if I have a portfolio yielding a sufficient % or $ amount) and never have to touch the principle value of the portfolio

2) If my goal is performance, then I'm going to have to sell shares to raise capital in order to distribute for income.  In down markets, that can lead to serious erosion and quite likely blow up my plan (if you were to take too large a distribution).

 

 

Agreed. The post retirement financial planning and projection tools don’t do a great job today assessing the risk between a portfolio with say, a 3% dividend rate that could be applied to expenses, vs a 2% dividend rate.

It’s difficult to tell whether you could avoid some sequence of returns risk by having some lower return/higher dividend investments. Because while that extra dividend helps pay the bills and avoid stock sales in early years of retirement, if the overall stock returns don’t grow enough over the years to offset higher spending due to inflation, you’re stuck anyway. 

For me it became an academic exercise because I can cover expenses with just dividends from a standard retirement portfolio. But if I had that decision, I would probably make sure I covered a decent portion but not all of my expenses with dividend investments, and then the rest with total return investments. There might be some times here and there where I had to sell stocks, but not a ton. 

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I watch videos where people strongly criticize dividend investing. The claim is that dividends only take from the stock price and you’re better off buying a growth stock. Plus better to hold off and pay LT capital gains instead of continuous div tax. I understand those thoughts but I see a place for both. It doesn’t have to be an either/or choice especially as your portfolio grows.

ive also found dividend investing can become a game. How much can I grow the monthly income. I believe I’ve invested a much larger amount than I would have anyways.

but it’s cool if someone else hates this strategy. 

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1 hour ago, Nice Guy Eddie said:

Plus better to hold off and pay LT capital gains instead of continuous div tax.

qualified dividends and LT CG are the same rate.

 

1 hour ago, Nice Guy Eddie said:

I watch videos where people strongly criticize dividend investing

dividends are definitely a hot button topic on any investing discussion board.  The fervent dislike by some is quite weird to me, but to each their own I guess.  

I think a key point around dividends thats commonly overlooked is it takes emotion out of converting stocks to cash.  

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I own Tobacco (Altria).  The business is going anywhere, they print profit, and it just gets pumped out as dividends. Have some energy and utilities and other old-world economy stuff that doesn't have attractive name appeal for price appreciation but they keep rolling in the earnings.

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4 hours ago, 52-80 said:

I own Tobacco (Altria).  The business is going anywhere, they print profit, and it just gets pumped out as dividends. Have some energy and utilities and other old-world economy stuff that doesn't have attractive name appeal for price appreciation but they keep rolling in the earnings.

Sounds like we’re using similar strategies. I hate tobacco with a passion but happy to own their dividend stocks. I grew up watching my parents smoke constantly, and that was what I smelled like. I figure the universe owes me those dividends today guilt-free.

find me a solid, consistent revenue stock that pays out a 4-5% yield, and I will accept that boring money all day.

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I’m not that sophisticated of an investor, but this is my strategy. I hold most of my big dividend paying stocks in an IRA so that I don’t have to deal with taxes on those payments each year.

I put my low dividend, high growth potential stocks in my taxable brokerage account. I’m typically a buy and hold investor so I’m not dealing with the short term tax rate. This gives me more flexibility because I have more control over when I pay the tax man vs dividends that are going to come when they come. For example, I can sell a big winner when I have something benefiting my tax situation going on with a rental property.

Is this smart? Who the hell knows but it’s been working for me.

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20 hours ago, Larry T. Spider said:

I’m not that sophisticated of an investor, but this is my strategy. I hold most of my big dividend paying stocks in an IRA so that I don’t have to deal with taxes on those payments each year.

I put my low dividend, high growth potential stocks in my taxable brokerage account. I’m typically a buy and hold investor so I’m not dealing with the short term tax rate. This gives me more flexibility because I have more control over when I pay the tax man vs dividends that are going to come when they come. For example, I can sell a big winner when I have something benefiting my tax situation going on with a rental property.

Is this smart? Who the hell knows but it’s been working for me.

There's several thoughts.  

 

1) You're going to pay taxes on an IRA account on withdrawal regardless (if it's traditional).   You've been paying ordinary income tax your whole life, so if you can create enough income via dividends where you're not selling the principle in order to distribute only the dividends, who cares about the tax inefficiency of it (especially if you're wanting to leave the principle amount as a form of legacy)

2) The buy and hold large growth stocks in a taxable account for long term benefit is not a terrible play.  Why pay 20-30% tax down the road when you withdraw it when you can pay 15% tax down the road if you need to sell it?  

3) If you do have to begin selling principle value of the dividend stocks in order to generate the income needed in retirement within a qualified account, you will likely devour the growth at a faster pace and begin distributing the contribution at an earlier date....lowering your tax burden.  

 

 

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I'm in long on SCHD with reinvestment on but more of a "never sell" position for the distant future. The bulk non-401k is in VTI/VOO which is the better longterm play than SCHD/dividend chasing but having a dividend position is something I enjoy personally even if it isn't technically the absolute best ROI.

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