Hey all....by no means am I a Wall Street type so go easy on me.

I am trying to educate myself on high dividend paying stocks, my intention is to live off of the dividends in 5-6 years.

I am aware of the "Aristocrat" list, but they don't seenm to pay all that high.

I bought ARR, BDN, and TWO that are paying between 12% and 15% regularly, but I question the long term stability.

Any thoughts or advice?

Just a question, why not buy growth stocks paying no dividends now then in 5-6 years sell them and buy the current high divedend stocks then?


Lots of folks do that plan. Including myself.

I'll be evaluating bonds vs money market vs high yielding dividend stocks. What is the best place then.

Find a true fiduciary wealth manager.  They will make it happen. Most people don't have time for DIY or can't negotiate the severe learning curve.  

The aristocrat list, why not just pick a few from that with high divs?

I've heard mentioned, but not researched, high div stocks that use the high div as their eye candy, to detriment of other important factors. I'd want to avoid those.

Dividend investing really isn’t as great as people think, especially in a standard brokerage account. The tax drag on dividends reduces their overall performance when compared to standard long term growth.

If you're living off of the income, does that really matter?  You'll be paying taxes either way.

Yes taxes matter a lot, especially in retirement. You can think of taxes as another form of inflation.

Capital gains can be taxed as low as 0%. Dividends can be taxed up to ordinary tax rates.

I use a company called CONFLUENCE. Their dividend fund has worked well for me.  Not just dividends, but increasing dividend payouts gets you on the list. It's only a part of the diversification of risk.  FYI retired 20 years - and not super old.

Those dividends come at the expense of the market value of your investments.  
ARR currently is 20% of it's price 5 years ago, that decline in price has far outweighed the dividends it has paid out.  
High dividend securities don't outperform a typical stock/bond investment mix over the long run.


The answer is that it depends on your situation.  

Once you're retired and your assets/income become relatively fixed taxes are a big deal.  SS, medicare, etc. all have major tax implications that can be very significant for some people.  This is amplified when you reach RMD age.  
I've only recently come to appreciate how significant a role taxes have in retirement planning - something I never even remotely considered when I was younger.  

I'm not a financial advisor, and this is not advice...but since you asked for thoughts.... the three 'stocks' you listed are REITS. nothing wrong with REITS, per Se, but is that where all your money is?  maybe diversify?

Don't be blinded by just the yield they are paying. you should really take a look at the Price performance of those three stocks, and also the dividend growth rate as well.

If you don't need the dividend payouts for another 5 years, like someone else said,  you might be better served putting your $ into some growth stocks for now.

good luck.

ETA: Here's what $10k invested in the sp500 vs ARR 5 years ago would leave you with today:

Attached File

I played with REITs for a while. Do not recommend.
I would have had better total returns with an S&P500 fund. Just sell off what you need as income.

This x2. Dividends is only a small picture of the likely return on your investment.

REITs are spitting out like 6-7% while ETFs and mutual funds are spitting out 15-30% this year.  Hell, my VIGAX is +38.82% over the past year and +15% over 10yr.  Many REITs are down a percent or two for the year.

I dont look at REITs as the best way to make the most money.  They are a way to diversify your portfolio.  You can expose yourself to the real estate market without having to be a landlord and do landlord shit.  I like owning REITs that own local property.  Now every time I go to the target shopping center, I can tell myself I'm getting a little piece of every dollar spent at that target or panera bread.

Oh Lord no....I put a few thousand dollars in them as an experiment....less than 1% of my portfolio.

Lots of good advice on here, thank you.

You are keying in on some truths right there.  Double digit dividends are almost always not sustainable.  Did you look at the 10 year charts on those three stocks that you bought?

Without writing a book, the high level principle to wrap your head around is that dividends are most commonly a trade off with growth.  There becomes a point where dividends can become so high that growth will turn negative over time as is the case with ARR, BDN, and TWO.  There's some variance in the actual mechanics of how that works depending on the stock/fund but in some situations it's literally the case that they are just returning your own capital back to you in the form of a dividend as opposed to distributing a portion of the earnings.  There are strategies out there where these types of investments make sense but I'm not brushed up on them well enough to explain them.

If you want to build a portfolio for dividend income, Dividend Aristocrats aren't a bad place to start but you don't necessarily need to limit yourself to companies that fall within that fairly strict criteria.  There's plenty of dividend focused funds out there that are designed to provide decent dividend yields along with a reasonable expectation of both price appreciation and dividend growth over time.  You will likely have less total return than an S&P 500 fund but that's that part of the whole trade off thing I mentioned at the beginning.  On the plus side, dividend focused funds are quite often invested in companies that will reduce volatility in your portfolio and experience less downside in bear markets making them an attractive portfolio component in the retirement stage of your life.

Here's some to look at that I screened out last summer and updated earlier this year:

Attached File


I was specifically looking for dividend focused funds that had a reasonably high correlation with the broad market.  The thought exercise was to build a portfolio that more or less tracked the broad market but had a SLIGHT trade off on growth in favor of higher yields and lower volatility.  

@woodsie

Wow! Thank you for that!

Welcome to the world of dividend investing.  You will hear many opinions on this strategy both pro and con.  For the sake of total transparency, I am a dividend investor.  Lets chat about what this strategy isn't first:

1.  Dividends aren't free money.  Your share price is typically reduced by the amount of the dividend.
2.  Outside of a qualified plan, dividends carry a tax liability whether you take them or re-invest them.
3.  You only get qualified dividend treatment after you've held the shares for at least on year.
4.  Ultra high dividends are typically the sign of a company in trouble.
5.  Dividends can be cut, suspended, or eliminated by the board of directors at any time. (Disney, General Electric)

Now that we have that out to the way, why would anyone what this strategy?  The reason is fairly simple and it has nothing to do with math, finance, or tax efficiency.  If has to do with behavioral science.  How do you act and behave in up and down markets.  Most people do the exact wrong thing.  And if that's you, dividend investing might make sense as you never need to sell a share. (assuming you have enough of a portfolio).  

Dividend investing allows you to cleave off a fairly predicable dividend amount that if you hold the shares over a year are treated as capital gains for tax purposes and not ordinary income.  For those in the higher tax brackets, this can be a big tax savings.  Also, due to date of death valuation, it allows you to pass on your portfolio to your heirs with no capital gains tax due.  Not a bad deal while it lasts.

So in short, dividend investing does not make mathematical sense but it might very well make behavior sense.  You will have to determine what kind of investor/person you are and pick a path.

Good luck in your journey.