Dividend question

Investing Education Investing Beginners
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I’m glad I found this community. I live in a tiny country town where if you mention “stock market”, folks around here think it’s a “trade days” event, bartering for stock car racing parts!

Dividends: is holding a dividend stock (or stocks) strictly for the dividend and not necessarily being concerned with the +/- movement a good idea? For example “O” (Realty) or even “MO” (Atria Group). Both of these were mentioned yesterday in the article “Financial Freedom? These 5 Dividend Stocks Offer Fantastic Passive Income to Help You on Your Way.” By Justin Pope.

And a little different topic, related to the above question.

Logic/Emotion. We’re all dealing with the bottom line $. I’m sure most of y’all have a bottom line that’s much higher than my top line :grin: but with faith (and lots of questions and studying) I’ll get there. I hate (despise, detest, loathe) seeing red. So as to not let my -run screaming- emotions get the best of me, what are some of the logical ideas, tricks or items to look for to know when to calm down or run?

Or should I find a therapist?

Shane.

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Hi @FoolishMusician,

Dividends: A portion of our portfolio is dedicated to dividend payers. I call it our “Dividend Core.”

My Guide line 5 deals with this:

5. Manage portfolio for 2 purposes:
  A. Dividend/Interest: Keep income stream at 150% of Income Shortfall or higher.
  B. Growth portion:  Manage for growth only.

As of tonight’s close, our portfolio looks like this:

Portfolio Components:

Growth 43.52% of portfolio:

AMD, ANET, DDOG, ENPH, GLBE, MNDY, NET, PANW, SHOP, SNOW, TTD

Dividend Core 40.08% of portfolio:

ABBV, ABT, AEP, CAT, F, KMB, NLY, O, OKE, PAYX, PEP, PG, SWK, WFC

Other Dividend 10.92% of portfolio:

CRM, GEHC, LLY, PAYC

ETFs 3.60% of portfolio:

BIV, HYGV

Money Market Funds 1.88% of portfolio:

SWVXX

Trading 0.00% of portfolio
Cash 0.00% of portfolio

Cash Target: 8.00%
GD Index: -0.43%

Portfolio Makeup:

Indiv. Stock: 94.52%
Bond ETF: 3.60%
Money Market: 1.88%
Trading: 0.00%
Cash: 0.00%
Options/Short: 0.00%

Here is where the rubber meets the road, Cash Flow produced by our portfolio:

Portfolio Cash Flow vs Income Shortfall: 231%

Dividend Core 191.87%
Other Dividend 6.71%
ETFs 22.39%
Money Market 10.01%

What I like about this:

  1. No selling needed to provide cash. My wife is not an investor so this would take care of her if/when I “depart.”
  2. Most of our companies have solid histories of annually raising the dividend. Since retiring in 2005, our dividends have increased every year including the 2007 to 2010 recession. (Based on per share payment)

Top 10 Cash Producers: 81.08% of Cash Flow:

  1. O 28.78%
  2. NLY 14.81%
  3. HYGV 6.96%
  4. KMB 6.30%
  5. ABBV 5.11%
  6. SWVXX 4.33%
  7. AEP 4.00%
  8. SWK 3.92%
  9. OKE 3.78%
  10. PG 3.08%

I do too. BUT …

When everything is going red, it is time to selectively invest cash that is available.

If you maintain a cash position, when markets/stocks are getting slaughtered, you should be carefully buying good companies that are being driven down.

That said, a cash position without a plan on how/when to deploy it may just be a wasted resource.

This is easy, stay calm. NEVER RUN. That is when the bears will run you down and eat you! :sob:

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
https://discussion.fool.com/u/gdett2/activity (Click Expand)

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Yes! This helps a lot! Thanks so much!

My wife seems to think saving cash is a wasted resource! :grin:

I almost asked a question about “cash position” , but I decided I should do what I tell my kids when they have a question “Ask Google” - I got the answer to what it is, however, is it a necessity to keep a cash position in my brokerage account? I keep any excess cash in my savings account because it has a higher dividend. It’s easy to move money to the other account if/when needed. I’d like to think this is a good idea.

I’ve spent most of my life not being smart with money, and although I had a great time, I’m kicking myself now!

Thanks again for all of the above!

Shane.

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I think the answer is some of both. If you want the dividend for income you probably prefer stocks that have paid a dividend for years. Those that regularly increase their dividend is a plus but reliability is your priority.

Dividends tend to support share prices but even so prices fluctuate with the markets. Buying when prices are down locks in better yield and gives potential for capital gains.

Special situations do happen. At the start of Covid oil prices were negative briefly for lack of storage. I got Exxon paying 9+% and since the price has tripled. But not without risk. There were rumors they considered cutting the dividend.

No free lunch in dividend investing but reasonably conservative when you make good choices.

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Stocks can be divided into 3 groups: non-dividend payers, dividend payers, and dividend growing payers (increase their dividend on a yearly basis). As a whole, the last group does better historically.

I am retired and primarily live off the dividends my portfolio generates. I choose stocks that mostly have a history of increasing dividends for 25+ years, often called Dividend Champions or Dividend Aristocrats (do a search and you can find the lists). Sometimes I do choose stocks with a history of 10-15 years of growth. Plus, I try to buy them when they are undervalued. Like getting something on sale as long as the underlying reason for buying in the first place is still there.

On top of that, I tend to keep about 6 months of living expenses in cash/CDs to act as a cushion. Not nessarily a bad thing for someone still working too. Main reason, if you are laid off or injured or lengthy illness, unemployment and disability insurance can take up to 6 months to kick in. Meanwhile, you still have bills to pay.

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FM, I’ll offer this, using my brokerage account as an example. I’m at Fidelity. Their “cash sweep” account (what most brokerages call it) is a federal money market account, meaning it’s constantly invested in short term Treasuries or TBills. They’re currently yielding almost 5% annually, (because the Fed has raised interest rates) which is a great return on cash. Is it a necessity? No, but if you don’t have cash in the brokerage account you can’t buy anything without selling something else first.

There are a number of alternatives to buying individual dividend-producing stocks. If you’re new to investing and with a low tolerance for capital loss, you may want to stay away from individual stocks. There are exchange traded funds that invest in both equity and fixed income items that yield on average a good rate, and by including high quality growth stocks in the mix these funds provide a solid total return. There are also global high yield funds (ex: SPHY) that currently sport a 7.5+% yield because their mix includes somewhat lower quality bonds(higher yielding to compensate for the risk). There are other funds beyond that that we could talk about if the time comes such as preferred stocks and closed-end income funds).

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Hi @FoolishMusician,

I want to have quick access to have the cash moved and invested. I can do that with pretty well, but I have a problem with that. I can only do it with our taxable account. Our other 2 accounts are Roth IRA’s which are “money out only” for us. And since our taxable account is only 0.77% of our portfolio, it does not make sense for me.

The idea of a cash position is to take advantage of a “market blip”, a pricing over-reaction or a market decline.

Example: On Feb 21, I bought additional shares of PANW at $269 after their earnings release the night before. I believed the market was over-reacting. Having a cash position allowed this.

Example 2: During the Covid Plunge from February 20th to March 18th, 2020, our portfolio dropped 34.82%! On March 16th, our portfolio dropped 11.83%! Yes, in a single day, -11.83%! Scary, right?

Starting at -10% and continuing through -30%, I invested our cash position in steps. As dividends were paid, they were invested the same day.

That paid-off, helping our portfolio finish 2020 up over 102%.

For me, a cash position is “money on hold.” I want immediate access to it. I would never hold it in something I have limited access to like a money market fund that must be sold, since I lose at least 1 day on that.

Some brokers offer money market for their sweep which is fine since the broker handles the sale/purchase of the money market fund “in the background”, done automatically.

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
https://discussion.fool.com/u/gdett2/activity (Click Expand)

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Yes, thanks to all of you. So, my thought processes are going in the right direction. You all are helping and allowing me to refine those thoughts. That is much appreciated. I’ve looked at my portfolio with different eyes over the last week.

Shane.