In case you missed it, the stock market had a rough day today. If I’m reading the numbers right, the S&P 500 dropped around 2.7%, the NASDAQ dropped about 4.0%, and the DOW dropped about 2.1%.
Yet the former iPIG portfolio collected dividends as usual. In fact, both dividends paid to the account today are slightly higher than the comparable dividend paid last year.
Emerson Electric paid the account $14.77, up from $14.70 this quarter last year. Yes, it was a tiny increase, but an increase nonetheless. With a payout ratio of around 60% of earnings, I don’t expect major increases from Emerson Electric, but the company should be able to support increases around in line with its earnings growth over time.
Similarly, MSA Safety (formerly Mine Safety Appliances) paid the account $18.36, up from $16.92 this quarter last year. This one did increase more than that other one did, and it’s coming up on the anniversary of its last boost. No guarantees, of course, but I haven’t seen any reason to believe they would need to break their trend.
It’s days like this that make dividends attractive. In addition to providing some money to potentially re-invest, dividends provide a great reminder that the stocks we own are ownership stakes in companies. And over time, the rewards of ownership are based on the operational performance of those companies, not the market’s daily whims.
Since 2005, our “flat” dividends have increased every year.
When I say “flat”, I use a snapshot of our Jan 1 portfolio for dividend payers with share count. I calculate the “current” total annual dividend for the group.
At the end of the year, I remove any positions I dropped during the year from the first list. Then I do the same calculation with the then current dividends.
Then I compare the two.
Just looking at dividends paid through the year does not work for me because of sales/purchases.
I manage our portfolio to create a set minimum amount of cash flow, 150% of our needed cash.
When prices ramp up for no business reason, I trim a few shares and buy other stock that has gone the other way. It makes our annual dividends received wiggle a little but I always maintain that safety factor.
I am also still always a fan of dividends. Where my perspective has changed a bit is on the use of them in my portfolio.
Initially, I had thought that they would be a useful source of money to reinvest during my accumulation years and then a useful source of spending cash in my retirement years.
Now, I view them as a useful source of money to reinvest during my accumulation years and a useful source of flexibility during my retirement years.
Although I seek out companies that look like they have the potential to continue increasing their dividends over time, I have had enough investments reduce or eliminate their dividends to reinforce the message that dividends are never guaranteed payments.
When a dividend gets cut, it also often takes the underlying company’s stock down with it. For a person relying on dividend income to directly fund retirement, that could create a double-whammy situation of both a loss of income and a loss of the underlying capital to invest elsewhere to replace that income.
As a result, when I do retire, I hope to be in a position to where I I rely on the maturing bonds in my bond ladder and whatever remains of Social Security to directly cover my core costs.
The dividends would then become a useful source of cash to either reinvest in helping maintain the bond ladder or a source of cash to help cover the extras, depending on both the state of my portfolio and my health and energy.
