09-07-2015, 05:38 PM
I ran this comparison because of comments made on my Income Investing board at I.V. Would be interesting to compare the roughly ten year performance versus a typical DG type of stock or versus a DG ETF. My main point is that a steady stream of income can be squeezed from any type of stock as long as the underlying company is executing well. To me total return is the trump card. The higher total return stockover a period of years will provide greater potential harvests than any dividend stock, regardless of the yield and regardless of the rate of dividend growth.
Here is my comparative analysis, cut and paste from my IV post.
"Yes Facebook, google, twitter, they are not going to be paying out divs any time soon so a need for income won't be met through that venue, although maybe Apple might help out. "
I've never understood this attitude about income versus growth. To me there would seem to be no real difference between dividends declared versus selling a few shares to capture corporate retained earnings. One decreases the value of the position no more than the other. Income can be harvested anywhere that an investment is generating earnings or free cash flow.
Just for example Two ETFs were chosen: VNQ and IWF. VNQ is a REIT fund and IWF is a fairly balanced growth fund. An approximate 10 Year span was reviewed.
$10k was used to buy 189 shares of VNQ at the, beginning of 2005 for $53, the mid range price. Dividends in 2005 totaled $3.56 per share or $673. At the end of 2014 the dividend was $2.92 ($552 per year) and the share price was $81 (NAV = $15309). The most recent close is $72 (NAV =$13608).
To keep it simple for IWF, 4% of shares were sold each open in January. The position started with 208 shares and ended with 144 shares. ETF distribution gradually increased from $0.32 to $1.27. The first year's dist + div gave $475. The 2015 dist + div gave $742. NAV after the distribution sat at $13,968. At $94 per share, the current NAV of remaining shares is $13,536.
If calculations are correct, IWF appears to have been the superior choice with its increasing stream of cash flow coming from share price appreciation combined with significantly increasing dividend steam. Both positions have retained comparable value through 2014, but while the annual distribution of VNQ had dropped to 3.6%, the harvest for IWF had increased to 5.3% or as noted above $552 versus $742.
My point is not that one approach or the other is superior, but rather that the terms growth or income are very misleading. Any investment class in the market can be systematically milked for income, and can be done in such a way as to not burn through principal. All stocks are 'income' if that is how the investor wants to use them. Most of my ETFs yield less than my eventual target withdrawal rate of 4%-5%. Not to worry! Shares will be liquidated to make up the differce and IMO there is little danger of dipping into principal over the longer term.
Here is my comparative analysis, cut and paste from my IV post.
"Yes Facebook, google, twitter, they are not going to be paying out divs any time soon so a need for income won't be met through that venue, although maybe Apple might help out. "
I've never understood this attitude about income versus growth. To me there would seem to be no real difference between dividends declared versus selling a few shares to capture corporate retained earnings. One decreases the value of the position no more than the other. Income can be harvested anywhere that an investment is generating earnings or free cash flow.
Just for example Two ETFs were chosen: VNQ and IWF. VNQ is a REIT fund and IWF is a fairly balanced growth fund. An approximate 10 Year span was reviewed.
$10k was used to buy 189 shares of VNQ at the, beginning of 2005 for $53, the mid range price. Dividends in 2005 totaled $3.56 per share or $673. At the end of 2014 the dividend was $2.92 ($552 per year) and the share price was $81 (NAV = $15309). The most recent close is $72 (NAV =$13608).
To keep it simple for IWF, 4% of shares were sold each open in January. The position started with 208 shares and ended with 144 shares. ETF distribution gradually increased from $0.32 to $1.27. The first year's dist + div gave $475. The 2015 dist + div gave $742. NAV after the distribution sat at $13,968. At $94 per share, the current NAV of remaining shares is $13,536.
If calculations are correct, IWF appears to have been the superior choice with its increasing stream of cash flow coming from share price appreciation combined with significantly increasing dividend steam. Both positions have retained comparable value through 2014, but while the annual distribution of VNQ had dropped to 3.6%, the harvest for IWF had increased to 5.3% or as noted above $552 versus $742.
My point is not that one approach or the other is superior, but rather that the terms growth or income are very misleading. Any investment class in the market can be systematically milked for income, and can be done in such a way as to not burn through principal. All stocks are 'income' if that is how the investor wants to use them. Most of my ETFs yield less than my eventual target withdrawal rate of 4%-5%. Not to worry! Shares will be liquidated to make up the differce and IMO there is little danger of dipping into principal over the longer term.
Alex