UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Author: JWR1945a One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75890  
Subject: Dividend References Date: 7/5/2008 11:29 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Here are three books that will help you build dividend portfolios:

1) Mergent’s Dividend Achievers
2) The Single Best Investment by Lowell Miller and
3) The Dividend Growth Investment Strategy by Roxann Klugman.

All three are helpful even though they are oriented towards capital appreciation instead of income streams. All three contain very specific information. You can compare selections from the past with current results to get a feel for how accurately you can predict the future.

Take Roxann Klugman’s long term dividend growth projections with a grain of salt. It is very hard to predict dividend growth beyond just a few years.

Have fun.

John Walter Russell
Print the post Back To Top
Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63177 of 75890
Subject: Re: Dividend References Date: 7/5/2008 2:35 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
It is very hard to predict dividend growth beyond just a few years.

The irony of this statement coming from JWR is too funny. I guess it's hard to predict, but you can guarantee a CONSTANT growth rate of 8% or more.

This guarantee is given even when your poster child (DVY) has failed to:
(A) achieve this result in the 4.5 years it has been around (it has had just ONE year where it achieved an 8% dividend growth rate); and
(B) has had a year with negative dividend growth.

Between these two conditions, anyone using your strategy starting in January, 2004 would be totally hosed.

I ran the numbers starting on January 1, 2004 with the following assumptions:
(1) Investment A is DVY using an initial yield in 2004 of 3.5% and the real growth rates for 2004-2007. Then, from 2008 forward, I used the bogus assumption that it will return a fixed 7.5% annual dividend growth rate (what it has achieved to date);
(2) Investment B works as "advertised" on JWRs site -- 6.1% initial yield with dividends growing 2% per year;
(3) Starting Funds = $1,000,000;
(4) Portfolio initially 15% Investment A and 85% Investment B;
(5) Inflation: use real data for 2004-2007; then use 4.63% thereafter as that is the annualized rate of inflation since 1970;
(6) Withdrawal needs are dividends received in 2004 plus inflation

Here's the table...

Year  Investment 1    Investment 2   Total                Inflation  Needs(*)       Shortfall
2004 $ 5,250.00 $ 51,850.00 $ 57,100.00 3.388% $ 57,100.00 $ -
2005 $ 5,096.96 $ 52,887.00 $ 57,983.96 3.226% $ 59,034.55 $ 1,050.59
2006 $ 6,128.13 $ 53,944.74 $ 60,072.87 2.848% $ 60,939.00 $ 866.13
2007 $ 6,517.33 $ 55,023.63 $ 61,540.96 4.481% $ 62,674.55 $ 1,133.58
2008 $ 7,006.13 $ 56,124.11 $ 63,130.23 4.630% $ 65,482.99 $ 2,352.76
2009 $ 7,531.59 $ 57,246.59 $ 64,778.18 4.630% $ 68,514.85 $ 3,736.68
2010 $ 8,096.45 $ 58,391.52 $ 66,487.98 4.630% $ 71,687.09 $ 5,199.12
2011 $ 8,703.69 $ 59,559.35 $ 68,263.04 4.630% $ 75,006.20 $ 6,743.16
2012 $ 9,356.46 $ 60,750.54 $ 70,107.00 4.630% $ 78,478.99 $ 8,371.99
2013 $ 10,058.20 $ 61,965.55 $ 72,023.75 4.630% $ 82,112.57 $ 10,088.82
2014 $ 10,812.56 $ 63,204.86 $ 74,017.43 4.630% $ 85,914.38 $ 11,896.96
2015 $ 11,623.51 $ 64,468.96 $ 76,092.47 4.630% $ 89,892.22 $ 13,799.75
2016 $ 12,495.27 $ 65,758.34 $ 78,253.61 4.630% $ 94,054.23 $ 15,800.62
2017 $ 13,432.42 $ 67,073.50 $ 80,505.92 4.630% $ 98,408.94 $ 17,903.02
2018 $ 14,439.85 $ 68,414.97 $ 82,854.82 4.630% $102,965.27 $ 20,110.45
2019 $ 15,522.84 $ 69,783.27 $ 85,306.11 4.630% $107,732.56 $ 22,426.45
2020 $ 16,687.05 $ 71,178.94 $ 87,865.99 4.630% $112,720.58 $ 24,854.59
2021 $ 17,938.58 $ 72,602.52 $ 90,541.09 4.630% $117,939.54 $ 27,398.45
2022 $ 19,283.97 $ 74,054.57 $ 93,338.54 4.630% $123,400.14 $ 30,061.61
2023 $ 20,730.27 $ 75,535.66 $ 96,265.93 4.630% $129,113.57 $ 32,847.64
2024 $ 22,285.04 $ 77,046.37 $ 99,331.41 4.630% $135,091.53 $ 35,760.12
2025 $ 23,956.42 $ 78,587.30 $102,543.72 4.630% $141,346.27 $ 38,802.55
2026 $ 25,753.15 $ 80,159.05 $105,912.19 4.630% $147,890.60 $ 41,978.41
2027 $ 27,684.63 $ 81,762.23 $109,446.86 4.630% $154,737.93 $ 45,291.07
2028 $ 29,760.98 $ 83,397.47 $113,158.45 4.630% $161,902.30 $ 48,743.85
2029 $ 31,993.05 $ 85,065.42 $117,058.47 4.630% $169,398.38 $ 52,339.90
2030 $ 34,392.53 $ 86,766.73 $121,159.26 4.630% $177,241.52 $ 56,082.26
2031 $ 36,971.97 $ 88,502.06 $125,474.04 4.630% $185,447.80 $ 59,973.77
2032 $ 39,744.87 $ 90,272.11 $130,016.98 4.630% $194,034.04 $ 64,017.06
2033 $ 42,725.74 $ 92,077.55 $134,803.28 4.630% $203,017.81 $ 68,214.53
2034 $ 45,930.17 $ 93,919.10 $139,849.26 4.630% $212,417.54 $ 72,568.27
2035 $ 49,374.93 $ 95,797.48 $145,172.41 4.630% $222,252.47 $ 77,080.06
2036 $ 53,078.05 $ 97,713.43 $150,791.48 4.630% $232,542.76 $ 81,751.28
2037 $ 57,058.90 $ 99,667.70 $156,726.60 4.630% $243,309.49 $ 86,582.89
2038 $ 61,338.32 $ 101,661.05 $162,999.37 4.630% $254,574.72 $ 91,575.35
2039 $ 65,938.69 $ 103,694.27 $169,632.97 4.630% $266,361.53 $ 96,728.56


Look at the massive shortfalls. At the end of the 30-year period, not only are the shortfalls still growing, but the growth rate is getting faster. In fact, you cannot overcome this by limiting your increased withdrawals to the increase in dividends received -- you will fall more and more behind inflation every year for the rest of your life. (This is true no matter how you try and work your withdrawals.)

I used to think that JWR at least had some reasonable thoughts even if he had done substandard "research" and used faulty assumptions, bad math, and a stick-your-head-in-the-sand manner of addressing problems. After running these new numbers and finding that it is actually IMPOSSIBLE for his methods to work out when you use any kind of real-world data, I no longer will even give him that much credit.

Of course, JWR would say that I just don't understand. But he no longer replies to any of my posts, so I don't expect to even see that!

Acme

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: MarinBMWZ4 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63182 of 75890
Subject: Re: Dividend References Date: 7/5/2008 5:13 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Take Roxann Klugman’s long term dividend growth projections with a grain of salt. It is very hard to predict dividend growth beyond just a few years.
-----------------
But you insist that the long term dividend growth must be at least 8%, for the retirees expected term, 30 years. How can you say that and then do a 180 on the other?

MZ4

Print the post Back To Top
Author: JWR1945a One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63184 of 75890
Subject: Re: Dividend References Date: 7/5/2008 6:21 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
But you insist that the long term dividend growth must be at least 8%

8% per year is a low dividend growth rate. You have to be able to maintain a reasonable portfolio, not an outstanding one.

If you are uncomfortable with assuming an 8% per year growth rate, find out what you would consider reasonable and adjust the withdrawal amount according to the income allocators. Remember, the issue here is cash management. Some investments have high yields, some have lower yields but rapid dividend growth.

Don't get caught in the trap that the stocks in your portfolio remain the same. You have to monitor dividend quality. You have to replace some stocks from time to time.

The term is indefinite. So long as you are able to meet the requirements of the two portfolios, you will be able to withdraw the specified amount (plus the specified inflation rate).

Have fun.

John Walter Russell

Print the post Back To Top
Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63197 of 75890
Subject: Re: Dividend References Date: 7/6/2008 4:23 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
8% per year is a low dividend growth rate.

Then why has DVY exceeded it only for ONE year in its history? Why has DVY failed to average this rate over its history?

Low my <nether region>.

Acme

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Advertisement