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Top 5 Dividend Stocks Follow Up

October 2, 2018

The following is an email I received in response to my blog on Thursday and will address the issues raised.

“Your comments focus on the ‘forever’ aspect of the headline. I think it’s at least as significant to those on the cusp of retirement, or already in the midst of it, that the “top 5 dividend paying stocks” would likely be the focus. To avoid invading one’s principal beginning at retirement, I think that income generation is the key. My interest is to identify those stocks with maximum dividend payout, but with “limited” risk, and reviewing performance on a sufficiently frequent basis so that bailing out of a given stock, hopefully before catastrophe hits, is feasible.”

I’ve addressed these important and big picture concerns in previous blogs, but this question pulls together apprehensions of many clients so I will address each of his concerns here with some direct comments.

  • My blog suggested that the “top 5” and “forever” are myths and any desires along those lines should be disregarded.
  • I agree that income generation is a key factor, but not the only factor. Cash flow should be the primary factor.
  • Comment: Cash flow can be comprised of interest, dividends, possible sales of investments (which include bank CDs, bonds and stocks) and possibly cashflow from annuities or even reverse mortgages. Cash flow is a multifaceted project that needs planning and careful design. Retirement accounts provide cash flow in just another form of how the investments are titled and should fall into one of the latter categories except for reverse mortgages. Pensions and Social Security cash flow should be considered but are usually not subject to investment decisions, so are not specifically covered in this type of discussion.
  • As a general rule the stocks with maximum dividend payouts do not have “limited” risk and since there are many types of risks, the risks need to be defined.
  • Comment: High dividend paying stocks typically will not increase in value as much as the owners might want or need them to; will be subject to drops in value based on rising interest rates in the economy; and the dividend payout might not keep up with inflation thereby eroding eventual buying power. Further, with regard to individual stocks, there is no guarantee of the sustainability of the dividends.
  • All individual stocks are subject to specific risks of those companies. I suggest that mutual or index funds are better ways to invest.
  • If you own specific stocks you have to always be “reviewing performance” so you could get out before “catastrophe hits.” This requires you to have greater insights and knowledge than professional traders and the market as a whole. I do not believe this is likely for most of us. One bit of information is that whatever data you will use for your reviews would be old news by the time it gets to you.

Here are links to four blogs I posted in June and July that address the issues covered in today’s blog: Perhaps these would present a better course of action than suggested in the question posited to me.
https://partners-network.com/2018/07/17/if-you-dont-believe-me-read-barrons/
https://partners-network.com/2018/06/05/investing-temptation/
https://partners-network.com/2018/07/10/predetermined-percentage-withdrawals/
https://partners-network.com/2018/07/05/investment-withdrawals-during-retirement/

Enjoy!

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