PP vs Dividend Growth Investing

Discussion of the Stock portion of the Permanent Portfolio

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mathjak107
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 4:33 pm

No timing needed at all if all you want to do is duplicate a dividend flow ....every-quarter just draw the same amount in dollars from a portfolio regardless of how it gets it’s return ..that is how retirees live ......

A 4% dividend or a 4% withdrawal rate from a portfolio still needs the same total return to keep paying and maintain the Same balance ......

There is nothing special about a dividend vs portfolio draw .. there may be some tax differences but how a total return is arrived at is irrelevant when it comes to drawing off cash and income flow .
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Re: PP vs Dividend Growth Investing

Post by dualstow » Thu Mar 19, 2020 4:40 pm

mathjak107 wrote:
Thu Mar 19, 2020 4:33 pm
No timing needed at all if all you want to do is duplicate a dividend flow ....every-quarter just draw the same amount in dollars from a portfolio regardless of how it gets it’s return ..that is how retirees live ......
But as a non-retiree:
A) I would run out of shares and
B) I would reduce my payout in $ even as the company raises the dividend amount.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 5:29 pm

dualstow wrote:
Thu Mar 19, 2020 4:40 pm
mathjak107 wrote:
Thu Mar 19, 2020 4:33 pm
No timing needed at all if all you want to do is duplicate a dividend flow ....every-quarter just draw the same amount in dollars from a portfolio regardless of how it gets it’s return ..that is how retirees live ......
But as a non-retiree:
A) I would run out of shares and
B) I would reduce my payout in $ even as the company raises the dividend amount.
No ,, you would never run out of shares ...you Are selling less and shares as markets increase over time ...it is identical ....

Getting a dividend without seeing at least as much as is subtracted off the share price in appreciation hypothetically would have your share value hit zero value eventually , the same as a portfolio would hit zero shares pulling the same dollars without an equal increase in value to keep it solvent .....

So getting 4 or 5% of a dividend needs a certain amount of share appreciation to not hit zero and deplete ....a portfolio having the same dollars pulled needs the same appreciation to keep having shares to sell

You are imagining differences that do not exist
Last edited by mathjak107 on Thu Mar 19, 2020 5:47 pm, edited 1 time in total.
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Re: PP vs Dividend Growth Investing

Post by vnatale » Thu Mar 19, 2020 5:33 pm

mathjak107 wrote:
Thu Mar 19, 2020 5:29 pm
dualstow wrote:
Thu Mar 19, 2020 4:40 pm
mathjak107 wrote:
Thu Mar 19, 2020 4:33 pm
No timing needed at all if all you want to do is duplicate a dividend flow ....every-quarter just draw the same amount in dollars from a portfolio regardless of how it gets it’s return ..that is how retirees live ......
But as a non-retiree:
A) I would run out of shares and
B) I would reduce my payout in $ even as the company raises the dividend amount.
No ,, you would never run out of shares ...you Are selling less and shares as markets increase over time ...it is identical ....

Getting a dividend without seeing at least as much as is subtracted off the share price in appreciation hypothetically would have your share value hit zero value eventually , the same as a portfolio would hit zero shares pulling the same dollars without as equal increase in value .

So getting 4 or 5% of a dividend needs a certain amount of share appreciation to not hit zero and deplete ....a portfolio having the same dollars pulled needs the same appreciation to keep having shares to sell

You are imagining differences that do not exist
Intuitively I'm agreeing with Mathjak…

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: PP vs Dividend Growth Investing

Post by dualstow » Thu Mar 19, 2020 6:40 pm

mathjak107 wrote:
Thu Mar 19, 2020 5:29 pm
dualstow wrote:
Thu Mar 19, 2020 4:40 pm
mathjak107 wrote:
Thu Mar 19, 2020 4:33 pm
No timing needed at all if all you want to do is duplicate a dividend flow ....every-quarter just draw the same amount in dollars from a portfolio regardless of how it gets it’s return ..that is how retirees live ......
But as a non-retiree:
A) I would run out of shares and
B) I would reduce my payout in $ even as the company raises the dividend amount.
No ,, you would never run out of shares ...you Are selling less and shares as markets increase over time ...it is identical ....

Getting a dividend without seeing at least as much as is subtracted off the share price in appreciation hypothetically would have your share value hit zero value eventually , the same as a portfolio would hit zero shares pulling the same dollars without an equal increase in value to keep it solvent .....

So getting 4 or 5% of a dividend needs a certain amount of share appreciation to not hit zero and deplete ....a portfolio having the same dollars pulled needs the same appreciation to keep having shares to sell

You are imagining differences that do not exist
I’m familiar with that argument and I kind of accepted it albeit without practicing it- until 2008-9. I had not discovered the pp yet. Sure one or two dividends got cut and a few more stalled, but I was able to collect dividends even while share prices were crushed.

In normal times, your argument makes more sense to me. In times like this, it is nice to collect the cash and not sell.

Also, share splits have become far less common. That means I have only a few shares of some companies like Lockheed. Selling just a tiny number of shares results in a lot of proceeds. Therefore, I can’t keep selling shares. Of course, with index funds, that’s not a problem. I would be able to just sell $x dollars worth and Vanguard would sell fractional shares.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 6:51 pm

In the end pulling out that cash either way will leave you with the same balance and income ....whether you do it from a portfolio. Or they pull it off your share value there is zero difference in an up or down market ..... obviously if you have one share of a very expensive stock and want to draw income you planned badly ....

In the accumulation stage you should be reinvesting those dividends other wise if it is income you want then you need to plan like a retiree would based on short term needs as well .....it really would make little sense buying something you can’t rebalance Nor your only investment ?

In the end in practicality there really would be no difference comparing apples to apples .

I Mean we can all dream up some scenario where an exception exists to everything .. but most of us seeking an income stream do it from diversified portfolios with dividends , interest and appreciation
Last edited by mathjak107 on Thu Mar 19, 2020 6:58 pm, edited 1 time in total.
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Re: PP vs Dividend Growth Investing

Post by dualstow » Thu Mar 19, 2020 6:57 pm

mathjak107 wrote:
Thu Mar 19, 2020 6:51 pm
In the end pulling out that cash either way will leave you with the same balance and income ....whether you do it from a portfolio. Or they pull it off your share value there is zero difference in an up or down market
I can’t pull it out during a down apocalyptic market. It’s demoralizing. But I will gladly receive dividends, knowing that one day, I will sell the shares in an up market.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 6:59 pm

dualstow wrote:
Thu Mar 19, 2020 6:57 pm
mathjak107 wrote:
Thu Mar 19, 2020 6:51 pm
In the end pulling out that cash either way will leave you with the same balance and income ....whether you do it from a portfolio. Or they pull it off your share value there is zero difference in an up or down market
I can’t pull it out during a down apocalyptic market. It’s demoralizing. But I will gladly receive dividends, knowing that one day, I will sell the shares in an up market.
Same thing though ...it may be mental masturbation letting them subtract it off the share price and you like it but in a down market the share price is down the market action plus the payment added to it so it is what it is..there is no magic money here ..
It comes at a price the same as taking it out of your account.. total return is total return and you can draw off whatever you like .

Markets don’t care how many shares you have , they compound on dollars invested

100 shares at 1 dollar going up 10% is no different than. 200 shares at .50 cents going up 10% ....

No matter how the money gets pulled out to give you it comes off the dollars left that markets compound on
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 7:09 pm

A portfolio that goes down 10% and has a 4% draw taken is down 14% after rebalancing and drawing that money compared to where you started .

A stock that falls 10% and has a 4% dividend paid out is down 14% in value from where you started out .

In either case if market action doubles it you have exactly the same thing ,markets are compounding the same remaining dollars
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Re: PP vs Dividend Growth Investing

Post by dualstow » Thu Mar 19, 2020 7:18 pm

I have no argument with the math, Jack. In fact, I didn’t have an argument with it at the beginning of the thread. Or in ‘07.
But it’s still harder to sell shares when there are no splits. Not emotionally harder, but truly trickier. And selling when things are good to create one’s one dividend feels very different from selling after a crash like this.

Something more concrete than mere emotion: If a company cut or temporarily suspended the dividend payments for some reason, I did not respond by selling some shares of that particular stock. This has only worked for me by holding a variety of companies.

You would probably rather just have a mix of good stocks and sell those down. That’s fine for you. And in fact, I am a fan of VTSAX (total market) for the pp. But, as a non-retiree, it’s been good for me to collect dividends even as share values are temporarily down because they are oversold, then squashed by the coronarecession.

Share value turns on a dime. It would take much longer for the dividends to get cut, as the companies assess whether they should be.
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Re: PP vs Dividend Growth Investing

Post by mathjak107 » Thu Mar 19, 2020 7:38 pm

If I needed income , which I do ,it comes from rebalancing a diversified portfolio yearly..

In fact what we did five years ago is start with the years desired income up front in cash ready to go.....

Through out the year all dividends in the iras get reinvested ...all dividends , and interest in the taxable accounts get buffered in a cash bucket .that goes towards next years spending ....at years end we see what we are short , rebalance and refill for spending again ....down years like this would have bonds being sold ......

It is much easier I find to buffer the income then try to live hand to mouth ....some years our funds produced as much as 70 k in dividends , interest and gain distributions...other years like 2018- we saw as little as 30k ......so buffering works better for us than trying to live off a stream directly that varies year to year.

How that buffer is filled or the source is irrelevant ..... some years our income has more distributions from the funds on their own and less rebalancing by us and some years the reverse .....

With rates so low now and dividends being cut it will take more rebalancing of the portfolio at years end unless we recover
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