Transcript:
Easan Arulanantham:
You know, should I be using dividend stocks to generate my income in retirement?
Tom Vaughan:
I like dividend stocks in this environment, they’re doing quite well. If you take a look at some of these kinds of high dividend ETFs, you know, where they buy stocks that have got high dividends or consistently increasing dividends, there’s all kinds of flavors of those, those are all doing a lot better than the market. Not all, but obviously, a majority are doing better than the market right now. And that’s because when you know, interest rates come up, people are really looking for that dividend payer stock, especially because their bonds portfolios are getting hit right now, you know, I think the total stock market total bond market index is down four and a half percent so far this year, for example. And so dividends are starting to recede, you know, stocks are starting to see some of that money from bond players. So actually, I have, just from a strategic standpoint, or a targeted index standpoint, I think dividend stocks are a pretty interesting play right here. And I do like them, in terms of overall long term, looking at trying to generate your income at a dividend stocks, I’m not as a favor of that, just because they are kind of cyclical, you know, they go up and down and up and down, I’d rather have an overall balanced portfolio that I’m withdrawing from, that can handle more of the different cycles, because you got everything in there, then trying to push so much of my money into dividend stocks, and trying to generate this income, because I could end up with a lot of valuation drop, which we’ve seen several times. And honestly, a lot of companies that pay high dividends do so because their stock isn’t growing. It’s their way of kind of attracting people into there. And if they ever got forbid, cut their dividend, like AT&T is trying to do, the value could drop quite a bit. So you might be getting a 5% dividend and lose 5% on the price, or more. And so that that’s why I’d be a little bit careful. As with anything, you don’t want to put everything into one particular category, but from a targeted standpoint, adding it to a portfolio. Yeah, I have no problem with that right now. I think it’s, I think it’s a good idea.
Easan Arulanantham:
So your point is, when we use when we have a portfolio, we shouldn’t focus it for kind of just one thing. So like, if we focus our portfolio just for dividends to generate income, yeah, we lose kind of our flexibility in handling different markets, essentially.
Tom Vaughan:
Yeah, I’ve seen it before. I’ve seen portfolios come through, we do the analysis. It’s all about high dividend paying stocks. And if you look at the long term rates of return on those, they’re not as great as a broad based portfolio. Again, because they’re cyclical, generally speaking, the overall growth isn’t that great on the price, and yes, you’re getting your dividend, but you’re not getting any growth. I’d rather have the combination of say a smaller dividend and some growth, long term that’s worked out pretty well. So just a difference in style. And I just feel like you know, any portfolio that’s shoved into one corner, could do great when that corners in favor but could have some real problems long term, because there’s nothing that stays in favor forever. It seems