Make The Case for Dividend Investing

[Seppia]

This has been bouncing around in my head a few weeks. What if your strategy rigorously applied consistently loses money? Or perhaps just goes sideways for decades?

Well I guess you just uncovered a bias of mine

I was starting from the assumption that the strategy picked was neither “going all in on TSLA puts” nor “I only invest in canned food and ammo because our society is going to collapse because of the reptilian conspiracy”

I had narrowed the band to a range of sensitive approaches, imagining one would get less return because he/she chose to have less risk and/or volatility.

I probably should have just said:

“Dividend investing may or may not beat “SPY and chill” in the long term, but it also tends to have lesser drawdowns: if that is what helps you stay steady during times of turbulence, it’s worth the price”

My portfolio has probably underperformed the S&P500 in the last 10 years, if anything because I invest internationally, but I am fine with that as I have a tilt towards safety (ie stuff that will hold up well in case things go bad).

I know it feels like we have outlawed recessions through rates cutting and debt, but being Italian I know how crippling it is to live in a country that has to fight with a ratio of debt to gdp around 130.
It’s great when you go from 60 to 130, it’s less great when you stop and the economy lags, because the country has to throw such a huge chunk of the budget into interest expense payments and they cannot afford to spend elsewhere useful.
In japan, salaries are essentially the same, in real terms, than what they had in 1990
In Italy, they’re probably worse: entry level salary for an economics graduate in Milan is the same (nominal terms) today than it was when I started working in 2004.
1100€ or so net per month, in case anybody is interested.

[chris580]

I have an affinity towards dividends because they are a strong indicator the company is managed for the shareholders, not the executives’ perks, bonuses, etc. And…like Jacob said, “you can’t fake dividends.” Not only are there all kinds of GAAP sanctioned accounting tricks that inflate earnings, there is also the possibility of outright fraud. These are the kinds of things that are typically exposed in down markets. Knowing the company is willing and able to send you real cash on a consistent, improving and reliable basis, not just display earnings in an annual report, goes a long way in my humble opinion. This was the original purpose of stock ownership, and it’s possible this may become important for ‘the investors’ again some day in the future.

[chenda]

What's impressive about Japan is that they've handled 30 years of economic stagnation with remarkable success. A lot of lessons for the future methinks.

So what portfolio would have done well for the Japanese income investor post-1989 crash ?

[jacob]

So what portfolio would have done well for the Japanese income investor post-1989 crash ?

For a very long time, it was the USD/YEN carry trade. This in turn boosted or at least supported the US financial markets.

And…like Jacob said, “you can’t fake dividends.”

You can buts it's harder. Failing companies can still borrow money and pay it out in dividends. However, those kinds of shenanigans do show up in the 10Q/Ks even if they may go unnoticed in the simplest screens (e.g. dividend aristocrat type ETFs).

[frommi]

So what portfolio would have done well for the Japanese income investor post-1989 crash ?

Value investing worked in Japan reasonable well. https://greenbackd.com/2013/07/23/has-v ... 0-to-2011/
It has also worked in the US bear market 2000->2003.
Combine it with dividend investing and you should be fine. Just don't forget that at some point it might be a good idea to sell and rebalance. Shannon's demon can work in your favor.

[Seppia]

So what portfolio would have done well for the Japanese income investor post-1989 crash ?

Same as everywhere? A globally diversified basket of stocks.

[dulce]

Great to hear the perspectives offered in this thread. I personally try to only spend the dividends. My current portfolio is about 6% in the tobacco majors (BTI, MO, PM) and 8% in a few oil/natural gas MLPs. Those dividends/distributions alone account for about 33% of my income. The rest is in mostly non tech dividend paying stocks (apart from a large position in BRK.B that is about 6% of my portfolio). Right now I spend about 2.7% of the total stock portfolio. While 2022 was a slightly bumpy ride for total market/spy indexers, I slept fine through that mini bear market.

As other have opined, I am comfortable with potentially under performing "the market" if I know I can stick to this strategy through pull backs and whatever uncertainty the market experiences going forward.

[chenda]

Same as everywhere? A globally diversified basket of stocks.

I suppose the Japanese lesson is not to have all your eggs in one basket, even if it's got lots of international exposure.

[7Wannabe5]

Seppia wrote: There is something reassuring about looking at my investments like a pile of business I own, that generate constant cash for me.

Chenda wrote:That's the way I feel. Psychologically it's almost like owning property, you feel like you own something tangible.

If you combine Salaryman/Renaissanceman/Businessman/WorkingMan diagram with Cash-flow diagram then you (as center focus of diagram) are the Renaissanceman square separated from a cluster of Businessmen squares with a flow of dividends coming from each. Each Businessman square would also be attached to a cluster of Salaryman Squares. The Workingman squares would be attached to a rough mix of Businessman and Salaryman squares, because maybe installing tile in business one week and residence the next, but they wouldn't be very often attached to the Renaissanceman Square, because ideally Workingman is embedded in Renaissanceman to the extent needed. The thing that bugs me is what I perceive as a lack of balance in terms of both flow and scale between integrating the Businessman and the Workingman in the Renaissanceman. For example, if I remember correctly, chenda owns some more towards tangible rental real estate, so she might hire some Workingman squares to help her with tile, and if one of her properties was purchases with a minor passive partner, she might flow "share of profits" to him, and she might even hire somebody on part-time salary to assist with paperwork. And similar applied to my very small tangible-within-my-domain book business.

Also, the whole sleep-well-at-night psychological aspect of passive investing implies the existence/necessity of a non-embedded Guard/Soldier/Lawyerman and/or maybe Governmentman in the diagram. For example, one wouldn't sleep well at night investing in gold mine in war-ridden region of Rwanda, both because "at a distance" and "no functional Guard/Governmentman" to walk/enforce the boundaries of contract. This is also why one of the primary hassles involved with owning property/investments that are tangible/near-at-hand/active is the task of fulfilling/delegating the role of Guardman yourself. At least this is the role I personally suck at the hardest.

[Sclass]

I guess it depends on what we personally feel is right on for us.

I find the decoupling of the business activity and the income attractive with dividend investing. There is an introverted part of me that likes to just buy stocks online, have dividends automatically deposited, withdraw from a faceless ATM, then walk around spending cash anonymously for my modest needs.

I don’t believe I’m an introvert. I just like to separate the money getting from the people stuff. It’s a limiting way of doing things but it feels good to me. When it comes to money stuff I want to be invisible to the people world.

I think I have too many traumatizing childhood memories of collecting late rent for my folks’ rentals.

Or maybe I’ve just gotten really lazy.

[7Wannabe5]

I think I have too many traumatizing childhood memories of collecting late rent for my folks’ rentals.

Yes, this is exactly the sort of thing I was thinking about. I was also slightly traumatized helping my second "husband" with his disputes with his tenants, even though I was always playing "Good Cop' to his "Bad Cop." Other examples would be the minor traumas I suffered in my book business dispute with Amazon (especially when I realized that there was no way I could "win" against Bloated Behemoth Bully of a Monopolistic Corporation embedded in Semi-Corrupt/Decrepit Oligarchy) or my dispute with City Code Officer about my urban permaculture project.

I also happened upon this in an essay on Marx by Schumpeter:

Nor did he (Marx) glorify the workmen into heroes of daily toil as bourgeois love to do when trembling for their dividends.

It's odd how it is simultaneously true that dividends evoke "safety" and "trembling." It's also interesting to contemplate the qualities that differentiate the Renaissanceman from the Bourgeois/Burgher. It seems like FatFIRE pretty much is Bourgeois/Burgher. Hey, I like it, because now we have BaristaFIRE and BurgherFIRE

[jesmine]

Here is a link from Jacobs Day 21 Makeover that is helpful for Dogs of Dow Dividends
https://www.indexarb.com/dividendYieldSorteddj.html

[WingsOnFire]

I guess it depends on what we personally feel is right on for us.

I find the decoupling of the business activity and the income attractive with dividend investing. There is an introverted part of me that likes to just buy stocks online, have dividends automatically deposited, withdraw from a faceless ATM, then walk around spending cash anonymously for my modest needs.

I don’t believe I’m an introvert. I just like to separate the money getting from the people stuff. It’s a limiting way of doing things but it feels good to me. When it comes to money stuff I want to be invisible to the people world.

I think I have too many traumatizing childhood memories of collecting late rent for my folks’ rentals.

Or maybe I’ve just gotten really lazy.

Oh wow I so get this. I like to do things to help others, but I don't like doing things for money. I'd so much rather get my income from dividends and work for free I do sell my paintings but I prefer to sell via an agency than straight to friends.
Also, I don't think I will ever want to be a landlord again (though I did have a good experience before, when I owned a tiny studio apartment in a popular area of our capital city).
Even though I was letting the tenants of my house live without paying any rent for the time being so there wasn't even money involved..
So now I'm actually having to think about how, and whom, I will help in the future. Giving my time, doing things I can do, even giving money are okay as long as that is the end of the transaction. Letting people in control of my property, starting business together etc. - not for me, no more.