Early Retirement Extreme Forums

I currently have a portfolio of $192k. Of all this money, only $7k is in equities (index funds.) The rest is split between short term t-bonds and cash, which are earning nothing.

I have become more weary of index funds as increasing amounts of ass tech companies join the S&P 500 due to the endless flood of Fed liquidity. What concerns me is that the dividend yield on VTI, VTSAX, etc, is 1-2%. You're riding entirely on capital gains. I want to eat from the fruit of the tree, not cut down the tree and hope that it grows back later.

Take AT&T's stock, for example. Why would you not buy this stock at a 9 p/e and a 7% dividend yield? They have a massive barrier to entry maintained by the FCC and the national security complex has an active interest in their success. ATT is pretty far off their all time highs, but that just makes their dividend yield look even more appealing. I've been considering building my own portfolio more and more lately since the S&P 500 let Tesla in.

Federally protected dividend stocks seem like the last safe haven of securities investing (kind of like the section 8 of stocks, lol.) Bonds are dead with such low yields. Tech stocks have pulled forward most of their future returns at best, and will come crashing down to earth/reality at worst.

What do y'all think? Is there anyone out there with a portfolio built (or at least built in part) on a similar thesis?

That's exactly what I've been doing the last few weeks, buying T and XOM. T's ex-date is Friday. Also hold VZ, which I plan to sell throughout the year when I need the funds. T's dividend is super super safe; XOM's is a position on oil staying above $50 or so.

You know what high-dividend stocks have sneaky government protection? Tobacco companies. The Master Settlement Agreement was the smartest thing the tobacco companies ever did. The states sold bonds against their future payments so now NEED the tobacco companies to stay in business.

Bank stocks are similarly safe/government-buttressed, and cheap.

Long MO, PM and BAC

RFS wrote: ↑

Tue Jan 05, 2021 4:15 pm

Take AT&T's stock, for example. Why would you not buy this stock at a 9 p/e and a 7% dividend yield?

Because its past year total return is -20%, pretty much flat since April, with no evidence that the price is going to start going up after you buy it. Assuming you don't think you can time the bottom, why invest in companies with flat or declining prices?

The payout ratio is currently over 100% which may be a problem if their earnings growth projections don't match reality. Regardless, a high dividend means they are choosing to pay out their profits over reinvesting more in their company or buying back their own shares. If their executives don't believe in reinvesting in the company, why should you?


I have also put AT&T on my watch list. These are not necessarily my arguments but I present them to you as questions that I think would be good to think about before making the purchase.

A middle-ground option to get away from the tech bubble but without having to become a skilled stock picker would be sector funds. VDE (Energy) and VFH (Financials) are underweight sectors within the S&P500 compared to their history.

Lucky C wrote: ↑

Tue Jan 05, 2021 4:48 pm

The payout ratio is currently over 100% which may be a problem if their earnings growth projections don't match reality.

Like with REITs, payout relative to earnings doesn't make as much sense as payout relative to cash flow because depreciation costs are significant. This reduces earnings though the cash is still there for the dividend. Bigger question is whether sales are growing. I consider it unfortunate that T (unlike VZ) is trying to turn itself into a media+phone company. Complicates things ... (then have to keep track of what people wanna watch on TV .. ARGH).

Nah. I'd rather ride the momentum of FED printing, growth stocks, EV hype, chip makers, and tech. But this is accumulation phase Lemur. I'd imagine my thoughts will be different if I was already 25x+ expenses or I get a rude awakening from a crash. Really I'm hoping subconsciously the gains I pick up from momentum investing will be greater than any subsequent crash as opposed to just sitting on the sidelines or playing its safe watching a slow decline in principle.

...

Last quarter T's operating cash flow was $12bn, investing (mostly capex) was $3.4bn and dividends were $3.7bn. They sold about $2bn in stock, not sure why (executive options?) and ended up with over $8bn of free cash flow, $6bn if you don't count the stock. That's after paying the dividend. They're a cash monster.

Not sure if free: https://www.wsj.com/market-data/quotes/ ... /cash-flow

Wait wait, do Exxon now!

XOM lost $700m last quarter. But add back in some $5bn in depreciation expense and operations generated $4.4bn. Capex was $3.3bn, which provides for most of the $3.5bn investing cash flow and dividends were $3.7bn. So just from these numbers they need to earn another $2.6bn to cover the dividend. Sales were $45bn, with oil lower than it is now; in the two quarters before corona they were $63bn each when oil was in the $50-60 range... I'll let y'all finish the thought, although I presume they've put some eventually necessary capex on hold until the global panic ends.

https://www.wsj.com/market-data/quotes/ ... -statement

I dont know about the government protected part but it felt like in certain circles dividend stocks were all the rage after the great recession, say 2010 to 2015. I like the stability and predictability but I'm not sure I could pick or maintain a portfolio of them.

Side note along the lines of the sector investing comment, there are indices of dividend stocks in various flavors. I started to go down that path and still have some money in in one.

Some of my best-performing positions are old Finnish companies listed on the Nasdaq Helsinki stock exchange. They have been returning cash to investors and have sold at a nice discount during the pandemic. Do you (US based) folks look outside US for opportunities?