Balancing dividend income throughout the year

[crimsonghost747]

Just a general question that is not really important when looking at a big picture but I thought it might be worth talking about.

Do any of you pay any attention to balancing your dividend income more or less evenly throughout the whole year? Of course the amount of dividends is what matters but later on I believe many of us are planning to live at least partly on dividend income so it would certainly make things easier to have more or less even distributions for most months. Rent/mortgage, bills, insurance etc. have to be paid monthly.

For example a large majority of my quarterly dividend payers pay in February, May, August and November. So later on down the line I will be looking at a good income during these months but very little during the other 8 months. Now obviously with proper budgeting this will not become an issue but there is a reason why most employers pay their employees a monthly salary, not a quarterly one.

Personally I'm not really worried about this as I have quite a few REITs that monthly and I'm pretty good at sticking to a budget. Just wondering what everyone's view is on this tiny little detail.

[cannew]

Yes I tried to buy stocks which paid their dividend in different quarters, but no I did not and do not try to balance the quarterly dividends. I always tried to buy the stock which was best at that time for my portfolio. Currently my J/A/J/O is almost double the other two.

[Kerim]

I'm a long way from living off of the dividends, but I've always imagined that I would address this issue by using separate accounts. Have the dividends accumulate in their erratic / lumpy fashion in one account, and then transfer my living expenses from that account into another account once a month. The first account would fluctuate a lot, being flush in the end-of-quarter months and lean in the others, but properly planned, should allow a consistent monthly draw.

[cannew]

(04-25-2015, 09:22 AM)Kerim Wrote: I'm a long way from living off of the dividends, but I've always imagined that I would address this issue by using separate accounts. Have the dividends accumulate in their erratic / lumpy fashion in one account, and then transfer my living expenses from that account into another account once a month. The first account would fluctuate a lot, being flush in the end-of-quarter months and lean in the others, but properly planned, should allow a consistent monthly draw.

Just this year I've decided to start drawing down some of my dividend income. I did an "In Kind" transfer of some stocks to the Transfer Agent and they then direct deposit the dividends to my chequing account.

[Dividend Watcher]

Good question, crimsonghost.

We have less than 10 years before we reach 65, which is my "goal post" point. We're not specifically planning to retire at that time but that will be the point where we start finalizing our plans. As of right now, we're planning to do something similar to Kerim.

A couple years before that point, I intend to start letting the dividends accumulate as cash. When we get a couple years of dividends banked, then we'll go back to reinvesting any further cash until we decide what we're going to do. When we decide, we'll just automate a monthly withdrawal of 95% of one years dividends and let the rest continue to sit in the account. This way, when the actual dividends are received, it doesn't matter what month they are paid. They'll just replenish our cash pile as they come in.

If were are in a recession/bear market at the time, then things may be delayed a little because that will probably be an opportune time to invest a little of that cash to boost the dividend stream further.

[crimsonghost747]

(04-25-2015, 08:55 AM)cannew Wrote: Currently my J/A/J/O is almost double the other two.

Could you post a list of those companies?
The idea for this whole thread came when I noticed that, after letting go of PM, I do not have a single stock paying on those months. (except for the ones that pay every month)

[Dividend Watcher]

(04-26-2015, 01:36 AM)crimsonghost747 Wrote:

(04-25-2015, 08:55 AM)cannew Wrote: Currently my J/A/J/O is almost double the other two.

Could you post a list of those companies?
The idea for this whole thread came when I noticed that, after letting go of PM, I do not have a single stock paying on those months. (except for the ones that pay every month)

Here's a good list.

[daat99]

Personally I don't monitor that very much.
I do plan to use the dividends to fund my living expenses but I intend to transfer the dividends from the trading account to my cash account on a quarterly basis.

Basically this means that I intend to get at least the same amount of dividends in each quarter regardless which month payed it.

I also intend to have at least 6 months of living expenses in my cash account so I should be able to plan ahead of unexpected situations that may evolve.

[Kerim]

(04-26-2015, 01:36 AM)crimsonghost747 Wrote:

(04-25-2015, 08:55 AM)cannew Wrote: Currently my J/A/J/O is almost double the other two.

Could you post a list of those companies?
The idea for this whole thread came when I noticed that, after letting go of PM, I do not have a single stock paying on those months. (except for the ones that pay every month)

(04-26-2015, 04:07 AM)Dividend Watcher Wrote:

(04-26-2015, 01:36 AM)crimsonghost747 Wrote:

(04-25-2015, 08:55 AM)cannew Wrote: Currently my J/A/J/O is almost double the other two.

Could you post a list of those companies?
The idea for this whole thread came when I noticed that, after letting go of PM, I do not have a single stock paying on those months. (except for the ones that pay every month)

Here's a good list.

I love the tesselation site, and that is an interesting and helpful link.

But I would caution against making the month of payment a high priority in deciding which companies to purchase. Sure, if you are eager to own several companies and they are all presenting a similar valuation at the moment, you could use the month of payment as a factor. But if you use that as a starting point, then you're likely to be buying at inferior valuations.

You'll have lots of options to manage your distributions, so I'd focus on building the best possible portfolio first, without too much emphasis on the timing of distributions.

[crimsonghost747]

I'm bringing this thread back to life!

I've been thinking about this a lot lately. And after some calculations etc, I've found a way that seems like it would work for me.

Monthly budget = trailing 12-month average cash flow. At first I wanted it to be a shorter time frame but I quickly realized that it's not doable with my portfolio. It might work if you have a pure buy and hold portfolio with quarterly dividend payers but I trade options, I have fixed income instruments that pay out once per year and I have maybe around 10% of my portfolio in stocks that pay once or twice a year instead of quarterly. So 12-months was the shortest amount of time where the trailing average remained relatively stable. Anything shorter and those once in a year payments made it jump much higher than what I need and a bad month or two with options pulled the average below what I require for a decent life. Just for reference: in 2018 my best month was 21% of the total cash flow for the year. And my worst month had a negative cash flow.

I think this requires a cash buffer of at least 1 year's expenses. Right now I have a way too large cash buffer (though Trumpet and his twitter account are trying to make me spend it!) so I actually won't be moving any money out of my investment portfolio, rather I'm reinvesting it and eating from my cash pile. This is just a way for me to calculate what sort of money I should be spending each month. And being the super cheap person that I am, it's more about having a number which I must spend rather than having a number that I can spend. :p

[fenders53]

(08-24-2019, 12:43 AM)crimsonghost747 Wrote: I'm bringing this thread back to life!

I've been thinking about this a lot lately. And after some calculations etc, I've found a way that seems like it would work for me.

Monthly budget = trailing 12-month average cash flow. At first I wanted it to be a shorter time frame but I quickly realized that it's not doable with my portfolio. It might work if you have a pure buy and hold portfolio with quarterly dividend payers but I trade options, I have fixed income instruments that pay out once per year and I have maybe around 10% of my portfolio in stocks that pay once or twice a year instead of quarterly. So 12-months was the shortest amount of time where the trailing average remained relatively stable. Anything shorter and those once in a year payments made it jump much higher than what I need and a bad month or two with options pulled the average below what I require for a decent life. Just for reference: in 2018 my best month was 21% of the total cash flow for the year. And my worst month had a negative cash flow.

I think this requires a cash buffer of at least 1 year's expenses. Right now I have a way too large cash buffer (though Trumpet and his twitter account are trying to make me spend it!) so I actually won't be moving any money out of my investment portfolio, rather I'm reinvesting it and eating from my cash pile. This is just a way for me to calculate what sort of money I should be spending each month. And being the super cheap person that I am, it's more about having a number which I must spend rather than having a number that I can spend. :p

While I do understand the logic, having a cash buffer seems like an easy solution.  If worrying what month a stock pays it's dividend causes an income problem, you are living month to month IMO.  Maybe you retired from work a month or so too early?

[crimsonghost747]

I was never talking about worrying which month a stock pays a dividend, rather I was wondering what sort of a strategy people are using in order to distribute it more or less evenly throughout the year. If you are a simple buy and hold type of a person, then your quarterly income is pretty stable. But as I said, I have negative months (from bad trades) as well as some months where I'm making over 100% more than the month before, so it was necessary to find a system that balances it and also adjusts for changes in my earnings.

A simple cash buffer and "withdraw X per month" is the most simple solution (and indeed very close to what this is) but you need a way to determine X. If you just stick to X being one figure, then it will quickly lose touch with reality and you will find your cash buffer either increasing or decreasing. When your money is coming from a salary, it's normal for X to be the same for every single month because you are earning the same amount of cash each month. But when it's investments then every time I buy or sell something; every time a company raises or lowers their dividend; every time the interest rate on the cash buffer changes; every time I make a trade... the old X becomes out dated.

This trailing 12-month average is basically a more or less automated way to keep X in line with what I am actually earning right now. And it does not involve guessing anything about the future. (because I'm not good at that) It automatically balances out the highs and lows and automatically ensures that my cash buffer remains at a stable level.

While at first this might seem like making things overly complicated, in reality all that I need to do is change 2 numbers in my spreadsheet once per month and everything stays up to date.