Message Font: Serif | Sans-Serif
No. of Recommendations: 6
Bruce wrote:

If so, the tale of the tape here is what is your annual dividend income doing? Going up? Declining? In this approach, cap gains are only a means of reivesting to boost total annual dividends.

Correct, and my dividend income has been steadily climbing at a rate approaching 10% per year.

Great concept. But my problem here is how to select and when to sell. If you had done this with stocks like F, EK, TXU or POM (to name a few), all undervalued with high yields, you would have experienced a dividend cut and subsequently, a stock price reduction. And having this happen more than a couple of times a year in a portfolio would most certainly cause the bottom line annual portfolio dividend total to decrease...and if this happens, you might as well save time and buy a portfolio of bonds.

The question of when and what to sell is easily answered. I rebalance every yearq and the choices are mechanical. I simply make sure I am still holding the best stocks each year as indicated by the dividends and other things I've mentioned previously per the MSN Stock Screener.

It turns out that I have held both F and EK and experienced the dividend cuts. That is why I dumped them on the next rebalance (F last year, and EK this year). Overall, these two dividend cuts did reduce my income, but not enough to significantly effect my overall portfolio.

I would never have purchased TXU or POM because they are utilities, and utilities never offer much price appreciation potential. I restrict all my purchases in this part of my portfolio to either the Dow 30 or the S&P 500 Industrials.

In the 15 years that I have been using this approach, EK and F have been the only two that have ever cut their dividends.

This approach seems perpetually labor intensive and high risk.

It takes me only about an hour a year to run the MSN stock screener and my Excel spreadsheet and make my trades. The rest of the year, I just watch the acount grow.

Why not select growing dividend payers (like REITS, MLP's, utilities and BDC's), constant dividend payers (preferreds) and just to juice things up, variable but very high dividend payers (Royalty Trusts), hold them forever and live happily ever after off the growing annual portfolio dividend income?

I also hold a significant portfolio of REITs (about 15% of my total holdings) consisting of AVB, EOP, EQR, HCP, PLD, SPG, and ICF. These stocks are nearly totally uncorrelated with the S&P 500, which greatly reduces my overall portfolio volatility while maintaining overall gains at about 11% (same as the S&P 500). This allows me to withdraw a slightly higher percentage from my portfolio each year than the Trinity study suggests. Incidently, I only rebalance my REITs about once every 3 or 4 years, because they normally remain fairly well balanced on their own. I think that is because they are far less volatile.

I don't buy MLPs or Utilities, because I don't understand them well enough. Maybe someday.

Since I have mentioned other parts of my portfolio, I must also mention that the vast majority of my portfolio is in VBINX, the Vanguard Balanced Index Mutual fund. It generates a nice 2.5% dividend while growing at about 10% per year.

On top of that, I also hold large percentages of TXN and XOM stock that I am slowly selling to get the percentages down. TXN is way too volatile for me. I only own it because I worked there, and it was part of my retirement package. The XOM is a good growth and income stock, and I will probably hold on to most of it.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.