Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[Buehler445]

Originally Posted by Rain Man

Here's a theory that I'll propose. It seems dumb at first glance and maybe it is, but I don't think so.

I'm approaching retirement. I've got enough cash right now that I don't have to sell any stocks for at least a couple of years. I'd like to get a return on my stocks, but obviously we're in a high risk time right now.

If I buy dividend stocks with a long-term hold perspective, I get a regular payment from them. Maybe 2 or 3 percent on most of the blue-chip stocks. So since I won't have a need to sell stocks for a while, it seems like a good strategy is to buy them regularly on a dollar cost averaging strategy. If the market keeps going down, I don't really care since I'm not selling them. I'll get the dividend and some positive return, and at some point the stock will come back up and I'll be ahead of the game. At the same time I'm not trying to time the market at all.

It seems like this will work other than a scenario where they drop more than the dividend amount and I have to sell them. But my goal is to never sell them. What do you think?

I think it's a valid strategy.

The knocks on it would be:

Companies cut dividends for cash flow (in recessions)

At 2-3% you won't outpace inflation. Since you're going to live to be 900 that could be a concern for you.

There has probably been a flight to quality to dividend stocks already as the rest of the stock market is puking blood. If that's the case then it is probably likely the new investors will bail when higher returns can be achieved in other stocks. So they could decrease while the rest of the stock market recovers.

I'm certainly open to being wrong here, but that's what I'd worry about.

Also keep an eye on what they do to the tax code on any non-tax shelter accounts.

[Rain Man]

Originally Posted by scho63

You can get much better than 2-3% dividends without pushing your risk into the danger zone.

Do tell.

Originally Posted by KCUnited

Seems you could stagger them to create monthly income to offset expenses

Stagger buying or try to stagger payment schedules? I'm just buying small amounts each month, so I am staggering the buying. These are very small purchases, though.

Originally Posted by Buehler445

I think it's a valid strategy.

The knocks on it would be:

Companies cut dividends for cash flow (in recessions)

At 2-3% you won't outpace inflation. Since you're going to live to be 900 that could be a concern for you.

There has probably been a flight to quality to dividend stocks already as the rest of the stock market is puking blood. If that's the case then it is probably likely the new investors will bail when higher returns can be achieved in other stocks. So they could decrease while the rest of the stock market recovers.

I'm certainly open to being wrong here, but that's what I'd worry about.

Also keep an eye on what they do to the tax code on any non-tax shelter accounts.

Yeah, the dividend cuts of March 2020 were a body blow to me. I had a bunch of dividend stocks in place just for income in a downturn, and then a whole bunch of them eliminated their dividend when times got tough. That didn't seem fair.

And agreed, I keep hearing that money is moving toward the dividend stocks in tangible companies. But they're still by and large down, so it seems like if I'm buying now there's still some upside in price.

[Rain Man]

Oh, and here's another thing I've been thinking about recently.

A bunch of stocks eliminated their dividends in 2020. Airline stocks, cruise stocks, hotel stocks, some retail stocks, etc. Obviously a lot of them are still down. There are probably other stocks that eliminated their dividends as well.

I don't know if/when those stocks will come back, but I would think that at some point they would reinstate dividends and that'll cause a price bump. Assuming that those stocks are probably not going to go lower, and I don't see that the downward forces are going to get worse, it seems like we should start loading up on them.

[lewdog]

Originally Posted by Rain Man

Oh, and here's another thing I've been thinking about recently.

A bunch of stocks eliminated their dividends in 2020. Airline stocks, cruise stocks, hotel stocks, some retail stocks, etc. Obviously a lot of them are still down. There are probably other stocks that eliminated their dividends as well.

I don't know if/when those stocks will come back, but I would think that at some point they would reinstate dividends and that'll cause a price bump. Assuming that those stocks are probably not going to go lower, and I don't see that the downward forces are going to get worse, it seems like we should start loading up on them.

Honest questions here and I'll start you off with this.

How will you know that these stocks are not going to go lower as you stated above?


Cash dividends reduce the size of a company's balance sheet and paying these out has the company lose part of its liquid assets. What if a beaten down company can't get it's cash flow back? What happens to dividends for companies who never return to glory?

"Investing in the company's future and growth increases the value of the stock as well as expands your returns. That's exactly why high yields should not be chased as they do not reflect well on a company's plan for growth in future returns. This is why you shouldn't only buy dividend stocks."

You do know that dividends come right off the stock price? A dividend is NOT a bonus. When dividends are paid out, the stock price decline in the same amount of the dividend.

Dividends can be a part of a winning plan but IMO you must focus on blue-chip companies that are proven. Given your timeline, I wouldn't risk it on ANY other than great companies that pay a dividend.

You must also not get into the habit thinking that high dividend paying companies will out pace growth stocks over the long term. Many growth stocks that have amazing growth and stock returns, pay no dividends. Granted your timeline is different but this is a statement for the general masses reading this thread.

Don't solely focus on dividends. Focus on overall returns.

https://rationalthinking.net/why-you...vidend-stocks/

[Rain Man]

Originally Posted by lewdog

Honest questions here and I'll start you off with this.

How will you know that these stocks are not going to go lower as you stated above?

I don't. But the things that initially knocked them down aren't getting any worse, and are indeed subsiding. They just haven't gone up because new things have arisen. But I don't know that they'll do better or worse than other stocks going forward.

Originally Posted by lewdog

Cash dividends reduce the size of a company's balance sheet and paying these out has the company lose part of its liquid assets. What if a beaten down company can't get it's cash flow back? What happens to dividends for companies who never return to glory?

Yeah, but there's a market that likes dividend stocks for income reasons. I can't find any research at the moment that says that the net influx of those investors will push the price up, but I do know that cutting a dividend will drive a price down as those folks leave. (I have sad experience with that on GE and T.)

Originally Posted by lewdog

"Investing in the company's future and growth increases the value of the stock as well as expands your returns. That's exactly why high yields should not be chased as they do not reflect well on a company's plan for growth in future returns. This is why you shouldn't only buy dividend stocks."

I'm not only buying dividend stocks. However, at my stage of life I'm not trying to hit home runs. I'm just trying to get on base. Dividends may offer lower growth, but they also generally offer lower risk due to the types of companies that pay them. I'm willing to accept lower growth prospects in exchange for lower risk going forward.

Originally Posted by lewdog

You do know that dividends come right off the stock price? A dividend is NOT a bonus. When dividends are paid out, the stock price decline in the same amount of the dividend.

Yeah But I don't have to sell the stock to get the income. I like that.

Originally Posted by lewdog

Dividends can be a part of a winning plan but IMO you must focus on blue-chip companies that are proven. Given your timeline, I wouldn't risk it on ANY other than great companies that pay a dividend.

I think most companies that have offered dividends have been stable. We just got rocked by an anomalous event in 2020. This is why I have the theory that those companies will at some point decide that they need to start offering them again. The hotel chains are the ones that I think will get back to normalcy soonest, companies like MAR and H and HLT. Those are big companies that I think are past the crisis and their stock prices are above where they were in February of 2020. I think they're past due to start paying dividends again.

Originally Posted by lewdog

You must also not get into the habit thinking that high dividend paying companies will out pace growth stocks over the long term. Many growth stocks that have amazing growth and stock returns, pay no dividends. Granted your timeline is different but this is a statement for the general masses reading this thread.

Agreed. I doubt that they will outpace growth stocks. My plan is to keep growth stocks in my IRAs, which I hopefully won't tap into (other than RMDs) until I'm 80. They're often more volatile, but will grow more. In my investment accounts that will provide my income during my first 15 years of retirement, I like dividend stocks that generally have lower risk and spin off cash for me so I can sell them off slower.

Of course, the painful thing is that some of those dividend companies completely tanked in 2020 and aren't back. But I think they'll get back to some semblance of normalcy at some point. The cruise ships are running again, demand for hotels is high, people are back in the malls, and the airlines can't keep up with demand.

[philfree]

Dividend growth stocks. Just yesterday I read a spiel on a dividend growth stocks subscription with Marc Litchenfeld. It was Larry Kudlow and him. The Oxford Club

Forever Dividends

Here's some key points.

To identify a Forever Dividend stock, you want to see...

A public commitment to raising dividends every year
A high initial yield of double the S&P 500’s average
High growth of the dividend by more than 10% annually
A low payout ratio of 75% or less
And a low cash flow ratio, also of 75% or less.


I didn't subscribe but I found it educational.

[Rain Man]

Originally Posted by philfree

Dividend growth stocks. Just yesterday I read a spiel on a dividend growth stocks subscription with Marc Litchenfeld. It was Larry Kudlow and him. The Oxford Club

Forever Dividends

Here's some key points.

To identify a Forever Dividend stock, you want to see...

A public commitment to raising dividends every year
A high initial yield of double the S&P 500’s average
High growth of the dividend by more than 10% annually
A low payout ratio of 75% or less
And a low cash flow ratio, also of 75% or less.


I didn't subscribe but I found it educational.

Interesting.

I'll admit that I'm kind of irrationally a fan of dividend stocks. I think some of it is psychological. If I'm having to sell stocks in retirement to fund my lifestyle, that's a retreat in my mind. I'm giving up assets. But if I'm getting dividends, my original asset stays intact. That would help me sleep at night.

I realize that I'm likely giving up some total return, but in a normal market I don't want to find myself selling stocks in a downturn so I can buy a pizza or broccoli. With dividend stocks I won't really care about normal stock market fluctuations so much because I'm not selling the stock.

The kicker this past couple of years is that the markets have been far from normal. Massive drops, big runups, and as I mentioned earlier, stable dividend stocks that immediately lowered their dividend to zero, which screwed over my strategy. But with change comes opportunity, so I'm trying to figure out if there's way to get some of that money back.

[philfree]

Originally Posted by Rain Man

Interesting.

I'll admit that I'm kind of irrationally a fan of dividend stocks. I think some of it is psychological. If I'm having to sell stocks in retirement to fund my lifestyle, that's a retreat in my mind. I'm giving up assets. But if I'm getting dividends, my original asset stays intact. That would help me sleep at night.

I realize that I'm likely giving up some total return, but in a normal market I don't want to find myself selling stocks in a downturn so I can buy a pizza or broccoli. With dividend stocks I won't really care about normal stock market fluctuations so much because I'm not selling the stock.

The kicker this past couple of years is that the markets have been far from normal. Massive drops, big runups, and as I mentioned earlier, stable dividend stocks that immediately lowered their dividend to zero, which screwed over my strategy. But with change comes opportunity, so I'm trying to figure out if there's way to get some of that money back.

It's probably good to have dividend and growth stocks both.

And I also look very closely at cash on hand and debt.

If a company has a lot of cash in the bank... and it isn’t heavily in debt... again, you can expect the dividend to continue to rise quickly.

[Halfcan]

Originally Posted by lewdog

None.

I'm not catching a falling knife in these market conditions.

Here are the ones I am interested in for a combination of reasons.

52-week lows.
Nice Dividends.
Near or below Book Value.
Good Earnings.
Good debt ratios.

ET
ING
SUN
RKT
FE
FDP
CNO
CM
AMD
CONN
GILD

Any thoughts? I am looking for long-term holds with dividends and growth.

[lewdog]

Originally Posted by Halfcan

Here are the ones I am interested in for a combination of reasons.

52-week lows.
Nice Dividends.
Near or below Book Value.
Good Earnings.
Good debt ratios.

ET
ING
SUN
RKT
FE
FDP
CNO
CM
AMD
CONN
GILD

Any thoughts? I am looking for long-term holds with dividends and growth.

Only one of those I'd touch is AMD but I don't think it pays a dividend?

I'd consider GILD for the dividend. Pass on the rest.

[Rain Man]

Originally Posted by Halfcan

Here are the ones I am interested in for a combination of reasons.

52-week lows.
Nice Dividends.
Near or below Book Value.
Good Earnings.
Good debt ratios.

ET
ING
SUN
RKT
FE
FDP
CNO
CM
AMD
CONN
GILD

Any thoughts? I am looking for long-term holds with dividends and growth.

I don't have any of those except GILD, and GILD has been slightly better than cash. I've had the stock for several years and it's actually down over that time, but the dividend is large enough that I'm getting about a 2 percent annual return. That's not going to cut it in the long run, but I've been holding the stock because it's (slightly) better than holding cash and I'm already holding more cash than I should.

I have no idea what the prospects are, but something needs to change for it to be promising.

[Rain Man]

Originally Posted by lewdog

Only one of those I'd touch is AMD but I don't think it pays a dividend?

I'd consider GILD for the dividend. Pass on the rest.

I keep thinking about buying AMD, and should have. I've got a few other chipmakers and they've all generally done well, but I missed the boat on AMD.

[lewdog]

Originally Posted by Rain Man

I keep thinking about buying AMD, and should have. I've got a few other chipmakers and they've all generally done well, but I missed the boat on AMD.

Hasn’t been at these levels since July of ‘21, 50% off it’s high currently.

Just saying.

[Buehler445]

I think industry thinks of dividends like prehistoric times.

The way I see sentiment of management is that once they can get away with dumping a dividend they won’t go back.

Probably not for utilities etc.

Pure speculation here but I’d guess they’d reserve cash for acquisitions to bump stock prices. That’s pretty much what GE did. Fell in love with acquisitions that would bump their earnings they could extrapolate their (better) earnings multiple to and bump their stock price. Then when the acquisitions didn’t yield corresponding earnings multiples they had to pay the piper. Cut the dividend and divested. And Emmelt ate shit and his successor lasted 9 months.

Pure speculation but history rhyming and all.

[Rain Man]

Originally Posted by lewdog

Hasn’t been at these levels since July of ‘21, 50% off it’s high currently.

Just saying.

(Finger hovers over button.)