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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: of 76237  
Subject: Re: Dividend Strategy failing this year Date: 7/1/2008 7:32 AM
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The PRICE change of DVY has done nothing to its income stream. Dividend cuts in the financial sector have.

Ahh...the great dividend reduction that cannot happen in your strategy...

If dividends have been cut, people that retired using your "safe withdrawal rate" are completely hosed. Their income stream has been reduced while inflation makes them need more money.

Game over. Do not pass "Go" and definitely do not collect $200.

In 2006, DVY paid $1.699/share in dividends. In 2007, it paid just 1.157/share. This is a 31.9% *REDUCTION* in dividend. Your entire scheme is based on these dividends increasing by 8% or more per year. And even then it falls apart when you handle inflation correctly.

Q: So what happens in a time like this when your income is cut by one-third AND inflation is higher than your ridiculously low assumption?

A: You get hosed.



You can purchase an income stream at a more favorable price.

Irrelevant to someone that retired 6 months ago. They have no new money to use to buy shares.



Compare the outlook of income and dividend investors to those who depend on price increases for income. This year is a bad year for capital appreciation investors. They have to liquidate holdings.

So do retired investors in your scheme. If they don't, they cannot pay their bills.

Someone that retired with $1,000,000 in 2006 and figured they could have $60K per year needed $61,708.93 in 2007. Too bad their glorious DVY income stream dropped 31.9%. The only way for them to make up the difference is....SELL SHARES!

But I'm sure you will tell me I just don't understand. And you are correct -- I don't understand why anyone would listen to your advice on any financial matter.

Acme
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