I am a dividend-focused investor, managing money professionally at a time when “dividend stock investing” is growing in popularity. That’s why I think it’s important to point out the flaws in conventional wisdom regarding dividend stocks. This will certainly not be the last time I cover this subject, but for now here are a few headline items. They all relate to the same issue, which is that many investors take shortcuts to investing for dividend yield. Shortcuts work for a while…and then they blow up on you. Let’s see if we can spare you that calamity.
For many investors, dividend investing is a way to fund their lifestyle in retirement, or as a supplement to their working income. But I worry that my own profession, the investment advisory and management industry, is losing sight of that bottom-line goal. So many popular dividend ETFs don’t yield enough to support someone’s lifestyle unless they have an 8-figure net worth. For example, some of the largest dividend ETFs yield 2.50%-3.00%. If you plan to retire and live on $100,000 a year, you will need $3-4 Million in principal to produce that. If your goal is $150,000 a year in retirement income, you are talking $5-6 Million. This is a familiar problem to bond investors, who have seen income from Treasuries, Corporates and Munis fall to pathetically low levels.
Source: Forbes
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- Wealth is a Journey, Dividend Stocks Can Take You There
- 3 Higher-Quality, High-Yield Dividend Stocks
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Whereas the dividends are low, the stock market is @ its historical highs. So, if you have invested 5 years ago ... you have had huge capital appreciation. It's not as if the dividends are low due to dividend cuts.
Interest rates are starting to go up again. So, i expect long term corporate bonds and treasuries to yield much (i.e. face value is going to drop).
My goal is to supplement dividends with long term capital gains. The essence of dividend investing or investing in general is not about how much we invest ... but about how long we are invested. I try to maximize both time & money.
Hopefully, I will end up with enough money to eek out a living.