Build a Dividend Calendar

A challenge many face in the investment world is getting investments to the point where you can understand them.  In today's "manage your own assets" world, people have numerous accounts of various types.  Step 1 in gaining control of investments typically involves ordering accounts - taxable, IRAs and 401(k)s, and finally Roths.

Next, if called for, consolidation can take place.  Assuming the investment approach of utilizing low-cost ETFs is the guiding approach. the number of accounts can usually be reduced.  There is no need to have 11 accounts at 7 different brokerages.

Inevitably, there will still be some individual stocks because clients many times want to pick stocks with part of the assets or they may be sitting on large capital gains that need to be managed for tax purposes. A final step is to think through the location of investments to fit a specific asset allocation.

Once all of this is in order ,the sailing is pretty smooth - keeping an eye on performance and asset allocation.  From time to time, rebalancing is necessary to align the asset allocation.

Another exercise which is helpful, quite easy, and helps in understanding the big picture is to build a dividend calendar.  This is especially important if, like many investors today, you are using high dividend paying stocks as a substitute for bonds.

Build a Dividend Calendar

Assume a portfolio comprised of 100 shares of Johnson & Johnson (JNJ) and 100 shares of Schwab's dividend ETF (SCHD).

There are a number of sites that give dividend information.  One I like is www.nasdaq.com.  Scroll down the left hand side and click "Dividend History."  Next, put in the ticker symbol for JNJ in the "Get a Quote" box.  This is what you come up with:

CLICK TO ENLARGE As you can see, JNJ had to be held on 5/28, the dividend will be paid on 6/11, and each share will receive $.66. Thus, the owner of 100 shares will get $66.

Doing the same exercise for SCHD shows the last payment date, but you can easily estimate the next payment as being made around 6/22 and estimate the amount using the previous payment.  The amounts then would be filled in at the appropriate dates on the calendar.  Note that you can save your stock list, making it easy to update data as stocks declare their dividends.

I like to put the amounts on an Excel spreadsheet so that I can easily set up formulas to calculate totals, yields, etc.; but old schoolers can also write amounts to be received on paper calendars.

Finally, it is worth checking that payments for the correct amounts are made into your accounts.  At Schwab, for example, you check the "History" tab and put in the symbol to get:

CLICK TO ENLARGE As you can see, the dividend for OHI was paid 5/15 on 200 shares.  Just for practice, check (using the Nasdaq link) to see if the correct amount was received on the correct date.

For Retirees 

Income for many retirees is obviously crucial, and they face the challenge of weathering a market downturn.  Some advisors recommend a bucket approach, others position the portfolio in an extreme defensive position, thereby giving up the potential for a higher quality retirement.  I recommend that a retiree's portfolio be positioned so that at least 60% of the income need is met by interest and dividends. This means, for example, that, if your nest egg is $1.0 million and you are seeking $40,000/year inflation adjusted (4% rule-of-thumb), you should identify approximately $24,000 in interest and dividends.

This 60% interest and income positioning, along with the cash portion of the asset allocation, has historically successfully weathered sharp market downturns ,enabling retirees to participate in the ensuing market upturns.  Note to the weak hearted:  I'm not saying it has been easy!

Disclosure:  This post is for educational purposes.  I and my clients own securities mentioned. Individuals should do their own research or consult a professional before making investment decisions.

Dividends vs. Bond Yields

Dividend Payers vs. Bonds

The battle between dividends and bond yields rages on.  Times are atypical.  Typically, a bond allocation can easily be met by buying a well-diversified portfolio of bonds tracking the overall market--an ETF that tracks the Barclay's Aggregate Index, such as AGG or SCHZ.

But today the 10-year Treasury note yields 1.7% and high risk bonds trade at historically low-yield spreads.  Furthermore, investors are becoming more aware of bond market risks.  They are more aware of falling prices as yields rise, and junk bonds facing yield spread widening risk in the event the economy surprises on the downside.

Understandably, investors, including especially those in retirement or close to retirement, are looking around.  Stocks with dividend payouts exceeding the yields on their bonds have caught their eye.

Not only are investors using dividend stocks in the stock allocation portion of the portfolio, they are also substituting dividend stocks for fixed income.  The thought here is to forget about price and focus on dividend yield.  Hold for the long run and seek issues with a history of raising the dividend.  **Think about this:  if you have $1.0 million and need $30,000/year, then a portfolio of stocks that paid 3% and had a history of raising dividends might be interesting to consider.  Along these lines, how would one find such a listing?

Today this is actually quite easy to do, given the excellent research and writings of dividend bloggers. Here is a recent posting by Dividend Growth Investor, one of the best in this genre:  "Dividend Investing Articles to Enjoy."  In the post, the first article contains a favorite listing by Dave Fish which has an Excel spread sheet listing companies with at least 25 years of increasing dividends.  This is an excellent source for dividend investors.

You'll also want to read the article from Dividend Ninja's site on why dividend stocks are not bond substitutes.  This, obviously, argues against the view up for consideration here; but it is good to consider different points of view.

In fact, I would argue for thinking about over-allocating to the stock allocation by 10% (for example, if the allocation is 60% stocks, make it 70%) with strong dividend payers and under-allocating by the same 10% to the fixed income portion.

**There are two ways to construct a portfolio.  The predominant way is with a view towards beating the market in terms of total return.  The second way, that is little discussed but seems to be a driving force among those building dividend portfolios, is to construct a portfolio to yield a given income stream with little thought to the price movement of the assets - especially over the short term.

Disclosure:  Investors should do their own research or consult a professional before making investment decisions.  The information here is for educational purposes.

Teach Your Kids About Stocks -Dividends (Con't.)

When people talk about bonds today, more often than not the conversation will get into dividend paying stocks.  This reflects the favorable comparison for dividend-paying stocks relative to bonds. For example, Johnson & Johnson (TKR = JNJ) has a dividend yield of 3.60% (go to Yahoo! Finance and put in the ticker symbol to find the yield) compared to the yield on the 10-year U.S. Treasury note of 1.98%.

How to find 10-year Treasury yield:

• www.bloomberg.com
• click "Markets"
• find "Government Bonds" in drop-down list
• find yield indicated in the graphic

 CLICK TO ENLARGE  In making the comparison, the point is made that dividends frequently are increased over time, whereas the holder of the 10-year Treasury note will get the same payment over the 10-year period.  To truly convince yourself, go to Yahoo! Finance and check out the dividend paying record of JNJ!

To see the difference, note that, if we invest $5,000 in the Treasury, we will get $100 in interest/year (5000*.02).  On the other hand, if we buy $5,000 of JNJ, we will get $180/year (5000 * .036) based on the current yield.

Even the well-diversified iShares Dow Jones Select Dividend Index (ticker symbol DVY) yields considerably higher at 3.37% compared to the sub 2% yield on the 10-year Treasury.

Looking at the numbers,it is easy to see the compelling case for dividend-paying stocks.  It is easy to understand why people argue that the low interest rate policy of the Federal Reserve is pushing investors, especially those who need high income,  into riskier assets.  In this regard, it is useful to reflect on the essential difference between bonds and stocks.  Very simply, we know the price of the bond at a future date.  For example, the 10-year Treasury note will have a price of $100 on 2/15/2022 - its maturity date. In contrast, the price of JNJ, or DVY for that matter, is unknown going forward.

Which do you prefer - the 10-year Treasury, JNJ, or DVY?

Disclosure:  My clients and I own some of the securities mentioned  in this post.  It is intended solely for educational purposes.  Individuals should do their own research and/or consult a professional advisor before making investment decisions.

The Highest-Yielding Stocks in the Dow Jones Industrial Average

Source: Capital Pixel

The Dow Jones Industrial Average (DJIA) is the most quoted stock average among followers of the markets.  "Where's the Dow?" is the question people ask when they want to know how the market is doing.  The average is comprised of 30 stocks and has been used since 1896 to track the market.

Most market participants are somewhat familiar with the DJIA, but how many can name the highest-yielding stocks in the average?  And what is the yield on the highest yielders?  This is especially interesting today because, for the first time in decades, the dividend yield on market indices is above the yield on Treasury bonds--which has led many to rethink the whole bond allocation question.

In any event, these questions are readily with a neat table I found on The Dynamic Dividend blog listed in the "Weekly Reading" list on the Dividend Pig's blog.

Here's the first part of the table:

Source: The Dynamic Dividend

CLICK TABLE TO ENLARGE,/b> As you look at the yields, recall that the yield on the 10-year Treasury note is slightly below 2%! Furthermore, the payout on the Treasury is fixed for the next 10 years; whereas many dividend payers increase their payout.  In fact, one of the really good reasons to follow the dividend bloggers (as I call them) is that they do great analysis to identify those companies likely to increase dividends.

Be sure to visit Dynamic Dividend to see the compete list and follow its updating, especially if you are looking for ideas among dividend payers.

2012 Dividend Aristocrats

Source:

melmelsmith.com

Dividend aristocrats are S&P 500 companies that have increased dividends for 25 years in a row.  There are 50 companies on the list.  A listing, including number of years dividends have increased for each company, has been produced by Dividend Growth Investor.  Note that near the bottom of the post is a listing for so-called "Dividend Champions."  This is a broader listing with less stringent capitalization requirements.

These lists are excellent starting points for those building a portfolio to create a specific income stream as well as those just looking to pick up a little yield.

Create a Dividend Table (Part 2)

Yesterday we took step 1 in creating a dividend table for a simple portfolio of 5 exchange traded funds.  The goal is to understand when payments will be received, approximately how much they will be, and the overall yield on the individual securities as well as the portfolio.

We went to Yahoo! Finance and found the payout record of SCHX.  It pays quarterly in September, December (actually right before Christmas!), March, and June.  On the basis of the most recent payment, the amount is approximately $560.  This information will eventually go into a table with the issues listed down the left hand side and the months across the top.

Using the approach described yesterday, we can go to Yahoo! Finance, put in the ticker symbol for each security, click "Historical Prices" and then "Dividends Only" and find the following:

SCHA (Schwab small cap ETF) pays quarterly--Sept., Dec., March, and June.  It is paying approximately $.10/share/quarter and will pay approximately $97.50 each quarter on the 975 shares held. Its yield is 1.11% as reported by Yahoo! Finance.

BSV (Vanguard short term bond ETF) pays monthly.  It is paying $.128/share/month and will pay approximately $82 each month on the 646 shares held.  Its yield is 2.05% as reported by Yahoo! Finance.

BND (Vanguard total bond market ETF) pays monthly.  It is paying $.213/share/month and will pay approximately $ 109 each month on the 513 shares held.  Its yield is 3.25% as reported by Yahoo! Finance.

VCSH (Vanguard short term corporate bond ETF) pays monthly.  It is paying $.147/share/month and will pay approximately $ 105 each month on the 716 shares held. I ts yield is 2.31% as reported by Yahoo! Finance.

CLICK TABLE TO ENLARGE  Here is a simple table created in Excel showing the weighted yield of the portfolio as well as the yield of each issue.  Notice the overall yield is 2.05%.

As stated in yesterday's post, an investor in the so-called decumulation stage would want a portfolio having a yield of at least 2.4% (60% of the annual 4% payout of the portfolio) in order to feed the cash account during a market downturn.  With the table set out here, it is easy to see how this would be accomplished by reducing SCHA, for example, and increasing VCSH.

It is important to note also that there are ETFs that index the dividend paying part of the market.  DVY is one example that yields 3.51%.  DVY, or a similar issue, would go a long way towards bolstering the yield of the portfolio.  Finally it is worth noting that dividend yields and interest payouts change and should be updated as necessary.  I would expect, given recent market developments, that dividend yields will increase over time and yields on bond ETFs will decrease.  Again, they need to be monitored to avoid unpleasant surprises.  Investors who buy individual stocks will see the value of issues like VZ, INTC, et al. in raising portfolio yield.

Disclosure:  The information here is for educational purposes only.  No recommendations are intended.  I hold some of the securities mentioned.  Individuals should do their own research and/or consult professional advice before making investment decisions.

Create a Dividend Table

A really good way to better understand your portfolio, whether you manage it or an advisor manages it, is to create a dividend table showing when dividends will come in on a security level basis and then derive a weighted average yield for the portfolio.  This become crucial when an investor reaches the decumulation stage when investors need to draw down their nest egg.  Using the rule-of-thumb, that 4% of the nest egg can be drawn down, and a recommended approach to have at least 60% of your income satisfied by dividends and interest requires a yield of at least 2.4% (.04*.6).  Creating a dividend table enables an investor to see the overall yield and to even get ideas on how to bolster yield.

Finding the Dividend Payout For a Security

There are many sites you can go to find dividend payable dates.  Let's start with Yahoo! Finance and with the first security in the portfolio:

Source:Schwab

SCHX is the commission-free Schwab large cap exchange traded fund.  The portfolio shown on the left  holds 4,030 shares.

Step 1 is to go to the Yahoo! Finance link above and put in the symbol SCHX as shown:

Source: Schwab

Click "GET QUOTES."  This takes you to a page with a lot of basic information.  FYI:  It provides real time prices during the trading day. Many sites provide prices on a 15-minute delayed basis.  Also, note that it lists other stocks that viewers have looked at as well as the one you are getting a quote on.  This is a good page for the beginning investor to putter around on.

In getting a quick idea of the dividend payout record, we want to click "Historical Prices" on the left side of the page as shown:

Source Schwab

This takes us to :

Source: Schwab

Click "Dividends Only" and then "Get Prices" and we get the dividend payout record we are after:

Soutce: Schwab

You can quickly see that SCHX pays quarterly and that we can expect approximately .14 * 4,030 (number of shares) = $564 sometime around 9/20.  The actual date can be pinned down, but that is the subject of another post.  In fact, every investor should be aware of ex dates, payable dates, dates of record, etc.  But, as I say, that is a subject of a future post.

So step 1 in creating the table is to do the above for each security and, for each one, create a line item showing the security, # of shares, dividend expected, and date expected.  Eventually we want to get at the weighted yield of the portfolio.

As with many of these procedures, it takes longer to explain than it does to go through it.  It is a great exercise for the DIY investor.  I suggest that "newbies" try their hand at finding the amount of the dividend, etc. for the second issue in the portfolio above.