02-15-2014, 04:26 PM
(This post was last modified: 02-15-2014, 05:01 PM by hendi_alex.)
Here is one thing that puzzles me about the DG model. When accumulating relatively slow growth stocks which only yield 2%-3% on the average, when does additional accumulation no longer make sense? I mean, it will take a 2.5% yielding stock about 8 years at 10% annual dividend growth rate to yield 5% against investment. During that period inflation will erode a significant portion of the purchasing power of those dividends. So counting inflation the yield is perhaps at best 3.5%-4% in inflation adjusted dollars. Who could survive on the paltry cash flow that results when using a safe withdrawal rate from those earnings? It would seem to me that a typical dividend growth investor would need to switch to higher yielding income stocks at some point, or would have achieve a huge portfolio in order to replace 50%-70% of current income. So going back to my original assertion, wouldn't one need to switch away from 2%-3% yielding stocks at least 12-15 years prior to retirement.
At 9 years into retirement and at age 63, I don't consider any buy to hold dividend stock that currently yields less than 5%. All lower yielding stocks are held in my IRA and are used strictly as covered call plays where they usually generate 10%-15% per year. I expect the portfolio to kick out at least 6%-8% in cash flow per year! but am actually striving for 10%-12%.
At 9 years into retirement and at age 63, I don't consider any buy to hold dividend stock that currently yields less than 5%. All lower yielding stocks are held in my IRA and are used strictly as covered call plays where they usually generate 10%-15% per year. I expect the portfolio to kick out at least 6%-8% in cash flow per year! but am actually striving for 10%-12%.
Alex