High yield dividend portfolio

[Tim Smith]

Is there a super safe area I should be heavily weighted in? I can find enough stocks and etf's with a dividend over 10% to build my portfolio. Would chasing yield like this eventually destroy the value of my portfolio?

As I find myself repeating on this site a lot recently .... RISK RISK RISK RISK !

"Safe" is 3–5% yield or less.

Once you pass 5%, the risk curve increases exponentially and gets very steep very quickly.

The difference in risk between 5% and 10% yield is already "a lot".

Given your health issues and imminent retirement, you should not be chasing yield !!

Preservation of capital should be your absolute foremost priority.

If you can gain a little yield off that capital then great, but don't put it at risk by chasing double digit yields.

 

[HappyTrader]

You could consider a combination of dividend and draw down. A real simple approach and suggestion could be holding the SPY ETF (which tracks S&P 500).

It will give a dividend of about 2.5%, and you draw down 5.5% per annum. It is 'about' the average growth rate of the S&P 500, so you may break even (or at least, last a couple of decades).

You could also diversify across a few ETFs (SPY, IJH/IJR, etc) to help balance the risk.

One other option, although a bit more maintenance, is a simple buy & hold w/ option write:

For example:
SPY @ 237.69
Buy 1,300 shares of SPY for 308,997$
Write Covered Call JAN-2019 for 245$ (Premium = 15.32$)

Total premium collected = 15.32 * 1300 = 19,916
Total Dividend Collected = ~4.58 (for 22 months) = 4.58% * 308,997 = 13,904.865

If SPY does not reach 245, total profit = 33,820 (about 10.9%)
If SPY reaches or exceeds 245, total profit = 33,820 + 9,503 = 43,323 (about 14%)

Risk: You are holding SPY ETF and the market could go down, therefore you are stuck holding an asset that has dropped in value. But this goes for most asset classes anyways.

If SPY drops below a point where writing covered calls at break-even is no longer worthwhile (ie. spy drops to 100$ and a CC at 240$ would be 0.01 (not worth writing)) you then just continuously collect the dividend until SPY recovers.

You can mitigate a bit by writing calls even further out (to generate some premium), or drawing down a small amount until it bounces back.

 

[just21]

You could buy stocks that are expected to grow but do not pay a dividend and sell enough every year to fund your expenses. Berkshire Hathaway should grow by 12% a year. Visa by 16% for example. Read the articles and comments on www.seekingalpha.com where a lot of dividend investors hang out.

 

[Tim Smith]

Berkshire Hathaway should grow by 12% a year. Visa by 16% for example.

You cannot seriously believe what you've just written, do you ?

What planet do you live on !

Yeah, sure, stocks will grow double digits a year forever !

 

[newwurldmn]

Comment after a few brewski's : Once you understand how the sausage is made, your appetite may shift elsewhere. Consider PIMCO's PCI closed-end fund. Yield about 10% and chart seems appetizing.

There's a little bit of a scam here. PCI gives a 10% yield but it looks like 5% of that is coming from principal. Over the last 3 years PCI has given you approx. 30% in dividends and lost 15% in stock value. If you look at a typical high yield bond fund (like VWHEX) you will see it yields about 5% with no price appreciation/depreciation. Which is all consistent.

 

[pann2310]

I would say it might help to have a few strategies to rely on. Below is a link to a valuable author on seeking alpha that details long-term investing strategies that have and may continue to outperform S&P 500. They are centered around (1) Dividends (2) Small Cap (3) Low Volatility (4) Value (5) Equal weight.

You might then consider adding additional more active strategies to the above that might include options, momentum and contrarian...in particular premium selling might be something to consider. This is not free money and requires an investment of time but it can be worth the effort.

http://seekingalpha.com/author/ploutos/articles#regular_articles

 

[stepandfetchit]

There's a little bit of a scam here. PCI gives a 10% yield but it looks like 5% of that is coming from principal. Over the last 3 years PCI has given you approx. 30% in dividends and lost 15% in stock value. If you look at a typical high yield bond fund (like VWHEX) you will see it yields about 5% with no price appreciation/depreciation. Which is all consistent.

My reference to "sausage making" applies to PCI!

 

[murray t turtle]

Due to unexpected health issues I am soon to be retiring. I have enough capital to double my SS check if I can earn over 8%. I am considering a diversified portfolio of high dividend stocks and etf's. I have many questions and concerns hopefully you guys can chime in with some constructive ideas.



My questions are. Are etf's and their dividend safer than stocks? If I diversify between the two and several different industries would that be safe? I notice bond etf's, pipeline stocks, reit's are plenty full in the high dividend yield category. Is there a super safe area I should be heavily weighted in? I can find enough stocks and etf's with a dividend over 10% to build my portfolio. Would chasing yield like this eventually destroy the value of my portfolio?



Any constructive feedback someone may have would be welcome. Thanks

%%
Sounds like you,15RMS, meant yield + capital gains-not much pays a dividend over 10%--single stocks like FORD did in 1920-1930s.........?? IBD[investors Business Daily] has dividends info-but still single stock risk??

NO stocks; -DIA, SPY, SDY....... are NOT, repeat NOT ''super safe'' !! BUT SPY, SDY.......[S&P 500 tracker] is much safer than single stocks-50% draw downs are to be expected, so a 2% + yield on SPY $250/+could easily go to 2% on $125, or less?? Good question; many of us like ETFs. Would holding high/medium dividends payer$ like GM , DAL hurt you-- they went belly up goose egg zero, bankrupt ,aware of that??

 

[HappyTrader]

%%
Sounds like you,15RMS, meant yield + capital gains-not much pays a dividend over 10%--single stocks like FORD did in 1920-1930s.........?? IBD[investors Business Daily] has dividends info-but still single stock risk??

NO stocks; -DIA, SPY, SDY....... are NOT, repeat NOT ''super safe'' !! BUT SPY, SDY.......[S&P 500 tracker] is much safer than single stocks-50% draw downs are to be expected, so a 2% + yield on SPY $250/+could easily go to 2% on $125, or less?? Good question; many of us like ETFs. Would holding high/medium dividends payer$ like GM , DAL hurt you-- they went belly up goose egg zero, bankrupt ,aware of that??

One small caveat here:
Although dividends are often quotes as a % (i.e., 2.5% on SPY). It is actually a dollar amount per share. Right now it's about 4$ per share per year (rough number for sake of math).

Unless there is a corresponding dividend cut, even if the SPY should drop by 50% the dividend should continue to be 4$/share (or about 3.6% yield). (The yield will go up as the price of the underlying goes down).

So it is not so much a sudden drop by 50% one should worry about, but rather, a significant market/economic problem that results in a large percentage of the S&P 500 dividend payers having to cut their dividend. This does not happen too often. Many companies keep their dividend even if the share prices drop. Also, a 50% drop in the S&P does not mean 50% in each company in the S&P. The dividend payers tend to drop less than other companies.

One could also diversify a bit into the Aristrocrat ETF that focus on S&P 500 Dividend Payers that have not lowered dividends in the last 30? years.

 

[eganon69]

You may want to consider preferred stock shares rather than traditional stock shares. You can typically get better dividends that are almost as safe as bonds in the company and safer than stocks.