Several years ago, while fielding questions in an AAII (American Association of Individual Investors) meeting in Northeast NJ, an evaluation was made coming from a professionally directed “Market Cycle Investment Management” (MCIM) portfolio and then for any of several “High Dividend Select” equity ETFs.
My response was: what’s better for retirement readiness, 8% in-your-pocket income or 3%? Today’s’ response will be 7.85% or 1.85%… and, obviously, there isnrrrt one molecule of similarity between MCIM portfolios and either ETFs or Mutual Funds.
I just took a (closer-than-I-normally-would-bother-to) “Google” at four from the “best” high dividend ETFs and also a, similarly described, gang of high dividend Mutual Funds. The ETFs are “marked-to” an index for example the “Dividend Achievers Select Index”, and so are comprised of mostly large capitalization US companies using a history of regular dividend increases.
The Mutual Fund managers are tasked with maintaining an increased dividend investment vehicle, and therefore are expected to trade as market conditions warrant; the ETF owns every peace of mind in its underlying index, all from the time, no matter market conditions.
According to their personal published numbers:
The four “2018’s best” high dividend ETFs provide an average dividend yield (i.e., within your checkbook to spend) of… pause capture your breath, 1.75%. Check out: DGRW, DGRO, RDVY, and VIG.
Equally income unspectacular, the “best” Mutual Funds, despite if slightly higher management fees, build a whopping 2.0%. Take a look at these: LBSAX, FDGFX, VHDYX, and FSDIX.
Now really, how could anyone wish to live on this level of income production with under a five approximately million dollar portfolio. It just can not be done without selling securities, and unless the ETFs and funds rise in monatary amount every month, dipping into principal just has to take place on a regular basis. What if there’s a prolonged market down turn?
The funds described can be best within a “total return” sense, however, not from the income they produce, and I’ve yet to view how either total return, or monatary amount for that matter, can often pay your bills… without selling the securities.
Much as I love premium quality dividend producing equities ( Investment Grade Value Stocks are typically dividend payers), these are just not the result for retirement income “readiness”. There can be a better, income focused, replacement for these equity income production “dogs”; with significantly less financial risk.
Note that “financial” risk (the possibility that the issuing company will default on its payments) is significantly different from “market” risk (the possibility that market price may move below the amount).
For an apples-to-apples comparison, I selected four equity focused Closed End Funds (CEFs) from your much larger universe that I happen to be watching fairly closely since 1980s. They (BME, USA, RVT, and CSQ) offer an average yield of 7.85%, plus a payment history stretching back a normal 23 years. There are a large number of others that produce additional money than any in the ETFs or Mutual Funds mentioned within the “best of class” Google results.
Although I am a firm believer in investing only in dividend paying equities, high dividend stocks will still be “growth purpose” investments plus they just can’t be anticipated to generate the type of income which can be relied upon from other “income purpose” cousins. But equity based CEFs come very close.
When you combine these equity income monsters with similarly managed income purpose CEFs, you do have a portfolio thats liable to bring you to “retirement income readiness”… and this also is about sixty-six per cent the content of an managed MCIM portfolio.
When looking at income production, bonds, preferred stocks, notes, loans, mortgages, income property, etc. are naturally safer and yielding than stocks… as intended with the investment gods, if not from the “Wizards of Wall Street”. They’ve been suggesting for nearly 10 years now that yields a couple of or three percent work best they have to offer.
They’re lying through their teeth.
Here’s a sample, as reported within a recent Forbes Magazine article by Michael Foster entitled “14 Funds that Crush Vanguard and Yield nearly 11.9%”
The article compares both yield and total return, declaring pretty clearly that total return is meaningless if the competition is generating 5 to 6 times more annual income. Foster compares seven Vanguard mutual funds with 14 Closed End Funds… along with the underdogs win in each and every category: Total Stock Market, Small-Cap, Mid-Cap, Large-Cap, Dividend Appreciation, US Growth, and US Value. His conclusion:
“When looking at yields and one-year returns, none on the Vanguard funds win. Despite their popularity, rapidly passive-indexing craze and regardless of the feel-good story many wish to believe is true-Vanguard is usually a laggard.”
Hello! Time to get a retirement readiness income program into high gear which will help prevent worrying about total returns and market price changes. Time to put your portfolio in to a position to make this statement, unequivocally, without hesitation, sufficient reason for full confidence:
“Neither wall street game volatility nor rising rates are likely to have a very negative effect on my retirement income; actually, I am inside a perfect position for taking advantage of all market and rate of interest movements associated with a magnitude, anytime… without ever invading principal apart from unforeseen emergencies.”