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Living off dividends only.

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  • #61




    WisdomTree

    I can’t believe nobody has mentioned WisdomTree in a discussion about dividend investing.

    WisdomTree has series of ETFs which are based on a series of WT Dividend Indices.  They have over a dozen dividend ETFs for both domestic and international equities.

    The design of these index funds is not to ‘chase’ high yield.  The funds merely only own stocks who pay a dividend, regardless if it is a high yield or a low yield.  The big difference in their indices compared to most index funds, is that the portfolio is NOT market cap weighted.  The positions are weighted based on the total gross amount of dividends a company pays relative to the universe of stocks in the index.

    These funds will have both growth and value companies as constituents in the index.  This blended style portfolio helps these funds have a high correlation to broad stock indices.  I have seen the 50 year backtested data from WisdomTree on these dividend indices and they comfortably beat the broad market indices.  Most significant was their outperformance of Mid and Small cap broad indices.

    A diversified basket of various WisdomTree ETFs currently has an average dividend yield of approximately 3.25%.

    Thus, withdrawing 4% a year is not a problem.  This means the portfolio only needs to generate .75% annually in capital appreciation to prevent erosion of original principal.  I have been invested in these funds for over 10 years and have been very pleased.  Sometimes the best ideas are the simplest concepts.

     
    Click to expand...


    where does one buy these wisdom tree etf?

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    • #62
      Couple things on share repurchases, they are discretionary and usually done over time. The board of directors will make a repurchase authorization based on number of shares/dollar limit on share repurchases and a timeframe. Though share repurchases all things being equal positively impact EPS and (hopefully in turn share price), there are more factors that management considers than ‘increase share price’ in my opinion. Additional consideration is to return excess cash flow to shareholders versus holding the ‘cash’ without a high value investment/use. Shareholder repurchases are a significantly more efficient approach versus the double taxation of dividends. Lastly, shareholder repurchase are used to restrain shareholder dilution due to management incentive programs that award stock shares.

      Companies absolutely issue debt to support shareholder repurchases, but the ability to access debt is dependent upon credit standing, collateral, and cash flow. Debt is not an unlimited spigot relative to other strategic considerations including debt maturity profile, staying at a certain credit rating. Also, in aggregate US companies are holding a high amount of cash ($1.9 Trillion; S&P; May 2017) providing a cushion supporting share repurchases or debt repayment. Debt is repaid with a company’s cash flow generation. If interest rates rise significantly, it raises the ROIC on all potential uses of funds, not just share repurchase. Short term, companies have options to change their debt maturities and the mix of fixed vs. floating interest rates to partially mitigate a fast rise in interest rates. Longer term, higher interest rates become the new ‘normal’, except in hyper-inflation situations (Venezuela is an example, though even then it took several years to get there).

      Companies don’t need to be good at predicting financial markets, they need to be good at predicting demand for their product/service. The implication for share repurchase though; is the company buying its own stock at price/valuation that is internally valued at a point lower than the ‘market’? My experience is that companies are bad at ‘valuing’ their own share versus the market. In 2006 – 2008, Sears Holdings purchased hundreds of millions of dollars’ worth of shares at over a $100/share while choking off needed cash flow to support its stores/ecommerce initiatives.

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      • #63







        WisdomTree

        I can’t believe nobody has mentioned WisdomTree in a discussion about dividend investing.

        WisdomTree has series of ETFs which are based on a series of WT Dividend Indices.  They have over a dozen dividend ETFs for both domestic and international equities.

        The design of these index funds is not to ‘chase’ high yield.  The funds merely only own stocks who pay a dividend, regardless if it is a high yield or a low yield.  The big difference in their indices compared to most index funds, is that the portfolio is NOT market cap weighted.  The positions are weighted based on the total gross amount of dividends a company pays relative to the universe of stocks in the index.

        These funds will have both growth and value companies as constituents in the index.  This blended style portfolio helps these funds have a high correlation to broad stock indices.  I have seen the 50 year backtested data from WisdomTree on these dividend indices and they comfortably beat the broad market indices.  Most significant was their outperformance of Mid and Small cap broad indices.

        A diversified basket of various WisdomTree ETFs currently has an average dividend yield of approximately 3.25%.

        Thus, withdrawing 4% a year is not a problem.  This means the portfolio only needs to generate .75% annually in capital appreciation to prevent erosion of original principal.  I have been invested in these funds for over 10 years and have been very pleased.  Sometimes the best ideas are the simplest concepts.

         
        Click to expand…


        where does one buy these wisdom tree etf?
        Click to expand...


        They are traded like any other ETF.  You can purchase them anywhere - Schwab, Fidelity, TDA, Scottrade, and etc.

        Comment


        • #64




          And so it begins. The great unwind of the financial engineering bubble.

          Most don’t know the exposure they have to corporate debt by owning stocks.
          Click to expand...


          I find it interesting that you characterize Cramer's GE comments on dividends 'A great unwind'.  Where were you (and your comments) the since 2010 on GE when it performing perhaps one of the most significant financials unwinds in history?  GE is now a pure industrial company because of its actions over the last 6 plus years unwinding/selling off its financial businesses.

          GE having a AA+/A1 LT rating is not good enough for you it appears.  I guess if GE isn't good enough for you as a potential investment, perhaps you should increase you gold/pet rock miner allocation.  Your ability to focus upon one data point and extract an entire macro-economic thesis of doom and gloom is very impressive.

           

          Comment


          • #65
            Meh...I'm just gonna try to get $7 million plus across all accounts in a 3 fund setup and see if I can live off the interest and dividends

            Comment


            • #66




              The following quote is from the “the Oracle of Manitoba”, Randy McDuff.  What do people think about this approach?

              “Here’s how I planned my retirement:  I built a portfolio of securities that paid modest dividends. I didn’t put more than 2% of my portfolio in any one security. I didn’t put more than 10% of my account in any one industry. The companies selected had to pay dividends that were less than 35 percent of their after tax income to qualify.  I kept buying these stocks until the dividend income earned from that account matched my pretax employment income.

              Then, I could afford to retire.  I would never want to be in a position where I would have to sell stocks in a bear market.  I could go on a one-year holiday and not have to watch my portfolio.  With enough stocks and periodic dividend increases that exceed inflation (over time) I probably won’t ever run out of income.

              So here’s “my” magic number.  If you need to match $120,000 of pretax employment income and you can find a portfolio that will pay you 2 percent dividends, then you’ll need $6 million.  If you can build a portfolio that pays you closer to 3 percent then you’ll need $4 million.  In short, bank on a 2 percent to a 3 percent dividend yield, and figure out what you’ll need to invest to match that income.  Then, you can retire in style!”
              Click to expand...


              Yup, if you have enough money that you can use a 2% SWR, you can pretty much invest it in anything you like.

              Edit: Oh, didn't realize this was a Zombie thread. Thanks Crixus.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

              Comment


              • #67
                @Wealthy Doc. It would appear that the forum is denigrating your approach as being "psychologically appealing".

                Bollocks. I've been doing the same thing for 23 years and can report roughly 400K in dividend stream. Sour grapes dude.

                Tax drag. Absolutely!  MHO.

                Comment


                • #68




                  @Wealthy Doc. It would appear that the forum is denigrating your approach as being “psychologically appealing”.

                  Bollocks. I’ve been doing the same thing for 23 years and can report roughly 400K in dividend stream. Sour grapes dude.

                  Tax drag. Absolutely!  MHO.
                  Click to expand...


                  I wonder if, psychologically, being dividend focused helps people tolerate a higher stock:bond ratio than they otherwise would.

                  But as I noted above, if you have enough assets that you're getting $400K from stock dividends, it doesn't really matter much what your asset allocation is. You've already won and even if all of your dividends are cut 50%, you're still fine.
                  Helping those who wear the white coat get a fair shake on Wall Street since 2011

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