Dividend Income instead of portfolio withdrawal

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per1222
Posts: 1
Joined: Thu Jul 27, 2017 10:17 am

Dividend Income instead of portfolio withdrawal

Post by per1222 »

I would like to model taking dividend payments from both taxable and retirement accounts only without touching the principle. A well constructed dividend growth portfolio based on high quality dividend aristocrat like companies has the potential to continue to growth in net asset value while annually delivering approximately a 3 to 4% dividend income stream. This means the taxable portfolio would continue to grow throughout retirement. I don't see any way to model this correctly within FRP. I'd also like to take only dividend payments from my retirement accounts and believe at least initially the dividend may be sufficient to satisfy RMD (but don't know enough about RMDs as to whether that would continue).

My goal is to live only on my dividend income and preserve the underlying investments. There is also dividend growth each year in these accounts so I see about a 5% overall increase annually (the portfolios have dividend stocks, REITs, and fixed income bonds).

Living only on a dividend income stream that increases annually would suggest that the portfolio values should be preserved throughout the plan instead of some drawdown scenario. How to model this?
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Dividend Income instead of portfolio withdrawal

Post by jimr »

Unfortunately, this isn't something that you can model with this planner.

The main issue is that if you never touch principle, your probability of success will always be 100% because by definition the portfolio can never be exhausted and your plan can never fail.
NickK
Posts: 6
Joined: Tue Feb 13, 2018 10:12 am

Re: Dividend Income instead of portfolio withdrawal

Post by NickK »

If the dividend exceeds your needs, then there is not much reason to do much analysis. Such a problem!

For those of us who's dividend does not meet their spending needs, analysis is important because you need to "eat the geese that lay the golden eggs" .. if you catch my metaphor.

Would this work ...
- Using the additional inputs tab, create an income stream that approximates the dividend stream (as a manual income stream not tied to the Monti Carlo analysis the results cannot model losing some or all of the income stream). For example, if the dividend stream is $54,000 show an income stream of $54,000
- For that income stream, use a COLA approximating the CAGR for the dividends (dividends, not the stock)
- Set the CUSTOM investing style RETURN to market return(%) minus the dividend rate (%) (there is someone whos presented this equation and it is well respected as a long term growth value ... but I can't find the details about it now). Now the Monti Carlo only models the growth portion but not the dividend contribution.

If there are investments other than dividend stocks, then the RETURN needs to be a weighted average for the whole portfolio. Alternatively, it may be better to run multiple scenarios (prorate the expenses and other incomes between one for the dividend investments, another for everything else) and then add the results together.

This may be a bit of a kludge but could provide insightful output regardless.

EDIT: Instead of multiple scenarios, can you use the "additional inputs" tab for all investments (none on the main page) and let the software shake out the proportions?
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angelodan
Posts: 2
Joined: Mon Jul 19, 2021 1:34 pm

Re: Dividend Income instead of portfolio withdrawal

Post by angelodan »

It`s unlikely that anything can be modeled with high accuracy. After all, this`s not maths and here you`re dealing with risk, so I don`t advise you to rely on accurate calculations. The idea of passive income from dividends is very close to me, now I`m fully striving for it. I think 3-4% is also a good result. Again, it all depends on what kind of company you decide to invest in. I can offer you what I use https://www.suredividend.com/dividend-aristocrats-list/. Of course you can use other sources, the main thing is not to invest in everything. Companies are many, but not all of them are able to withstand crises in unstable times.
Last edited by angelodan on Sun Feb 20, 2022 2:20 pm, edited 1 time in total.
target2019
Posts: 20
Joined: Fri Dec 20, 2019 8:41 am

Re: Dividend Income instead of portfolio withdrawal

Post by target2019 »

I think FRP might help you generate the numbers for a further analysis in your spreadsheet program.

I'd set up another file to do this, and not mess with current setup. The file would just have the isolated dividend-only accounts. Enter a custom return and std dev. Maybe that would be very low growth number?

Enter your expense number and inflation estimate. Add an additional annuity income input for your dividend number. COLA that by something between 5-10% (expected growth of dividend).

Then you could use Sensitivity analysis, etc. to analyze, or copy the run data to a spreadsheet.
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