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Are dividend stock funds due for a major correction?
People are running to yield, although it would appear they're doing so more heavily in fixed income. Personally, for the dividend stocks I do own, my view is if I like the business, like the assets (and I think assets are a major consideration to me, I like hard, productive assets and that can mean a lot of things - everything from infrastructure to farms to ports) and have a strong long-term view, I certainly don't mind reinvesting over time at lower prices if the shares come down. As I've said before, I've become much more long-term in my views over the last year or so and if I can like the business and the assets over the long-term, to get paid while I wait is a plus.
Are some dividend plays overvalued/richly valued? Sure. However, I don't think that's changing until the market has a considerable correction and they're going to continue to appeal as long as people are getting next-to-no interest on their money.
Personally, I just bought (added to one, another new) a couple of more Canadian monthly dividend plays yesterday.
It is by no means the major emphasis of the report; but it does indicate that many dividend stocks may have reached full value and become glamor stocks.
i believe they would correct if there is a rate uptick. but they are a better asset class now than UST. however, there is a school of thought that says if bonds drop even a little, money may flow into stocks. either way, I would prefer to own them than ust.
K, now that I've read it I say nonsense. That's my short answer. The long version can be found here (and yes I'm being lazy) but it describes fairly accurately what I've been doing to my portfolio over the past 5-6 years as I move away from most of the mutual funds I used to own.
Reply to @scott: Just wish I had done it a lot, lot sooner. Could have been much better off. Hopefully my kids will learn something from their dad's mismanagement. Good luck in the new year.
Whelp, they only raised the tax rate to 20%. At 39%, the world as we know it would have changed. In this case, I'm still all over good dividends.
As mentioned by Scott, everyone is chasing yield and where else are you going to find it with rates at zero? I'd rather own a good company that pays a wee bit than invest in a sovereign govt paying squat with squat.
I do believe in owning - not only what you know - but what you use. For example, I own both local utes paying around 4%. It helps to ease the pain once a month. Who's your phone service with?
Reply to @rono: The utility idea (the "If you can't beat them, join them" is, I believe, the technical term for that method of investing) is a good one.
One of my main themes has been hard assets - if I can get a nice yield, like the business and get a terrific collection of productive, hard-to-replace assets (like Kinder Morgan: http://www.kindermorgan.com/asset_map/KM_System_Map_11-8-12.pdf), that's appealing.
"I do believe in owning - not only what you know - but what you use."
I've thought about investing in Coke lately. I certainly drink enough Diet Coke (and yes, I know it's bad for you.)
Finally, while I don't like Buffett that much (although I can appreciate his long-term success), he once said 'Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.' I'm starting to come around more and more to that way of thinking. Maybe I'm not to the ten year mindset yet, but five, perhaps?
That's it in a nutshell gentlemen. I currently have my local heat, electric, cell phone and internet providing companies all adding to my bottom line either monthly or quarterly as the case may be. With current interest rates in a range between zero and squat why on earth would I put money in a CD or savings account. The pipeline companies (KMP/R/I, MMP, EPD etc.) as Scott mentioned, and as I have numerous times before, pass along my share of the tolls they collect for moving oil and gas across the country. None of these businesses are going anywhere anytime soon. If the market corrects at some point I'll just have the chance to buy more at cheaper prices as described here:
Better yet, at least I think it is, I own most of these within a Roth IRA where none of the distributions to me are taxed. Granted, I'm sure politicians will someday figure out how to get after them but at their current work pace that's a little ways out there. In the meantime I'll continue to monitor my situation, swap for better opportunities along the same themes if they come along and enjoy the ride.
As a side note, yes it was a little scary at first to opt out of a 'diversified' mutual fund into individual equities. Fortunately I had the swoon of 2008-9 to push me over the edge. Heck, people were giving businesses away. I looked at all of the dividend paying funds and equity-income funds and so on and it seemed that none of them were paying a yield any better than the 4% utes rono mentioned and most were less than half that. There was also the matter of the on-going expense ratio's which would never go away. When I compared my list of companies that I might like to own a part of to those held in the mutual funds there wasn't much difference. Therefore, why not own them myself. That part of Buffett's methodology I get.
Reply to @Mark: Another one that I own is Enbridge Income Fund (EBGUF.PK), which is not mentioned as much due to it being a Canadian-listed spin-off of the pipeline co. EBGUF pays a monthly div and yields about 5%, it owns pipeline assets, but also oil storage and renewable power assets.
Brookfield Infrastructure (BIP), which I particularly like given the global nature, remains my largest single stock holding.
I bought into PGDIX early in 2012 with the thought of achieving diversified dividend income. What do you guys think of this fund going forward? Scott, I think you are familiar with this fund. HY bonds remain its biggest holding at ~38% which concerns me slightly, but the fact that it is diversified in other income positions, preferred securities, EM debt, MLPs, global RIETS and more make me think this fund is a good long term holding.
What do you guys think the effect of higher interest rates will be on a fund like this? Will the diversification of income producing assets keep it rolling on?
Reply to @MikeM: If I were looking for an OEF to perform the diversified dividend income function today this fund would be right at the top of the list. I really like the variety of income sources and the 'global' setting. However, I held TIBIX at the time of its inception, a very similar fund in nature, and was drawn to their strategy of providing a 'growing' income stream in addition to everything else. The Thornburg people have done just that albeit they did stumble slightly in 2012. It stays on my watch list but gone are the days when I would buy 2-3 of the same type of fund figuring I was adding diversity. Do note that this is the only share class of this fund which I would consider buying. You can keep the A-C-P shares.
One other drawback was that I already held a significant amount of a HY bond fund (HIX) and didn't really feel the need to add anymore to that exposure.
I will let the bond guru's on the board discuss the impact of higher interest rates on the fund as it's an area where I can add precious little to what you already know.
I'd amend that with "paying negative squat with squat." Go to your brokerage's bond listing and shop for bonds. It's a vast wasteland. Particularly interesting are all the munis with formerly attractive yields that are prerefunded or defeased (at least here in California) and thus paying close to CD rates, except with added risk, transactions costs, and illiquidity. At least with dividend stocks you have equity, and some upside potential when the economy begins to recover.
Yeah, the bond space is a vast wasteland. For that portion of our stuff, I'm staying away from anything from gov'ts other than extremely short term and Inflation protected. Intermediate Corps are fairly decent and you know what you're getting. Otherwise, int'l and emerging plus some hiyield and REIT and, and, and . . . [rono looks around and sees miles and miles and nothing but miles and miles of nothing].
Comments
Are some dividend plays overvalued/richly valued? Sure. However, I don't think that's changing until the market has a considerable correction and they're going to continue to appeal as long as people are getting next-to-no interest on their money.
Personally, I just bought (added to one, another new) a couple of more Canadian monthly dividend plays yesterday.
http://www.ivafunds.com/sites/default/files/downloads/IVA Funds Annual Report Sept. 30, 2012.pdf
It is by no means the major emphasis of the report; but it does indicate that many dividend stocks may have reached full value and become glamor stocks.
http://seekingalpha.com/article/1083851-dave-van-knapp-positions-for-2013-tuning-out-market-noise-with-dividend-growth-investing?source=email_investing_income&ifp=0
Thanks, mi amigo,
I've been morphing into this approach over the past few years but inadvertantly and without rhyme or reason. This will help.
BTW, they only pushed the tax rate to 20% instead of 39.
take care,
peace,
rono
Whelp, they only raised the tax rate to 20%. At 39%, the world as we know it would have changed. In this case, I'm still all over good dividends.
As mentioned by Scott, everyone is chasing yield and where else are you going to find it with rates at zero? I'd rather own a good company that pays a wee bit than invest in a sovereign govt paying squat with squat.
I do believe in owning - not only what you know - but what you use. For example, I own both local utes paying around 4%. It helps to ease the pain once a month. Who's your phone service with?
Hoep everyone has a happy,
Peace,
rono
One of my main themes has been hard assets - if I can get a nice yield, like the business and get a terrific collection of productive, hard-to-replace assets (like Kinder Morgan: http://www.kindermorgan.com/asset_map/KM_System_Map_11-8-12.pdf), that's appealing.
"I do believe in owning - not only what you know - but what you use."
I've thought about investing in Coke lately. I certainly drink enough Diet Coke (and yes, I know it's bad for you.)
Finally, while I don't like Buffett that much (although I can appreciate his long-term success), he once said 'Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.' I'm starting to come around more and more to that way of thinking. Maybe I'm not to the ten year mindset yet, but five, perhaps?
http://seekingalpha.com/article/1087151-dividend-investors-should-get-ready-to-load-up?source=email_investing_income&ifp=0
Better yet, at least I think it is, I own most of these within a Roth IRA where none of the distributions to me are taxed. Granted, I'm sure politicians will someday figure out how to get after them but at their current work pace that's a little ways out there. In the meantime I'll continue to monitor my situation, swap for better opportunities along the same themes if they come along and enjoy the ride.
As a side note, yes it was a little scary at first to opt out of a 'diversified' mutual fund into individual equities. Fortunately I had the swoon of 2008-9 to push me over the edge. Heck, people were giving businesses away. I looked at all of the dividend paying funds and equity-income funds and so on and it seemed that none of them were paying a yield any better than the 4% utes rono mentioned and most were less than half that. There was also the matter of the on-going expense ratio's which would never go away. When I compared my list of companies that I might like to own a part of to those held in the mutual funds there wasn't much difference. Therefore, why not own them myself. That part of Buffett's methodology I get.
Brookfield Infrastructure (BIP), which I particularly like given the global nature, remains my largest single stock holding.
What do you guys think the effect of higher interest rates will be on a fund like this? Will the diversification of income producing assets keep it rolling on?
http://www.principalfunds.com/investor/promo/gdif/innovative_approach.html
One other drawback was that I already held a significant amount of a HY bond fund (HIX) and didn't really feel the need to add anymore to that exposure.
I will let the bond guru's on the board discuss the impact of higher interest rates on the fund as it's an area where I can add precious little to what you already know.
I'd amend that with "paying negative squat with squat." Go to your brokerage's bond listing and shop for bonds. It's a vast wasteland. Particularly interesting are all the munis with formerly attractive yields that are prerefunded or defeased (at least here in California) and thus paying close to CD rates, except with added risk, transactions costs, and illiquidity. At least with dividend stocks you have equity, and some upside potential when the economy begins to recover.
Yeah, the bond space is a vast wasteland. For that portion of our stuff, I'm staying away from anything from gov'ts other than extremely short term and Inflation protected. Intermediate Corps are fairly decent and you know what you're getting. Otherwise, int'l and emerging plus some hiyield and REIT and, and, and . . . [rono looks around and sees miles and miles and nothing but miles and miles of nothing].
peace,
rono