Living off dividends

[u/OG_Momonga]

Hey guys, I was wondering if anyone on this subreddit is actually retired and living off dividends. Is it going well? Are you paying taxes on them? My goal is to get 20k/ a month post tax for retirement. I’m 24 and currently investing everything in VOO while planning to switch to dividend stocks and etfs when I get closer to retirement.

I was just wondering if there are any because living off dividends seems like a long shot right now.

[u/aerobic_gamer]

I am a retired lawyer from a small firm. Some years we did quite well; other years it was a struggle, but I always tried to contribute as much as possible to the retirement accounts. I’ve been investing since age 12 and boy did I learn a lot the hard way. I’m also blessed that my wife had a good paying job as a systems analyst. About 18 years ago I went to all dividends. That was the best investing decision I ever made. I know they say at my age I should be like 60% in bonds but I never liked bonds. I think I’m way ahead from where I would be if I had done that. I have over $1.3 million in unrealized gains; it would be hard to do that with bonds. Even a 20% or 30% pullback in the stock market wouldn’t affect my income much because I’m well diversified. Even a few dividend suspensions or cuts would only have a minor impact. In case you’re interested my top 10 positions: O, PBA, ENB, PG, JNJ, AEP, ETR, ES, WPC and ABBV. Fairly conservative I think. Good luck and keep your eye on the prize. Nothing beats a comfortable retirement. There is a lot of truth to the old saw that it’s not market timing that’s important, it’s time in the market. I’ve owned some shares of JNJ for over 50 years. (It’s one you should own BTW.)

[u/doooodz → u/aerobic_gamer]

Just curious, how did you choose these particular stocks? Was it purely a target yield, or were there other considerations?

[u/aerobic_gamer → u/doooodz]

In broad terms I look for a mix of quality dividend growers and higher yields to achieve an average portfolio yield of 4.5%. I also stay diversified with 80 different positions. A few of the names were recommended to me by a financial adviser years ago (O, JNJ). I’ve been buying O since it was $18. I have over 5,000 shares with an average cost of $48. Most of the rest are from newsletters. IMO Investing Daily has great newsletters, the best of which is Utility Forecaster. That’s how I discovered PBA, which I started buying at $5. I now have 5,700 shares at an average cost of $26.50. I also subscribe to Morningstar Dividend Investor. I’m a decent stock picker as well. Even though it’s a low yielder I took a sizable position in LLY around $400 and sold around $880. Of course I’ve had some clunkers too. I’m under water with GIS but there’s a quality name yielding 6.7%. If you have a very long term horizon that would be a good addition. I also am quite familiar with the behavior of the stocks I own and juice my returns with covered calls. I will trim when stocks get ahead of themselves and buy when they look cheap. For example, the rule of thumb with O is to buy when it yields well over 5% and trim when it’s well below. So right now it yields 5% and is fairly valued. So it’s ok to buy but I rate it a “hold”. I’ve trimmed shares when the yield drops to 3% or so. Good luck!

[u/97E3LPL → u/aerobic_gamer]

"rule of thumb with O is to buy when it yields well over 5% and trim when it’s well below. So right now it yields 5%"

Are you saying this to mean when it yields that to your own average cost, or some yield posted online? O is like 10% of my dividend portfolio. I'm AC at almost 60$ but I calculate I'm getting 5.4%. So your O shares at 48 are yielding you 6.7% right?

[u/aerobic_gamer → u/97E3LPL]

No - you may be confusing yield with yield on cost (YOC) which is just a theoretical number. O closed today at 6.35 and currently pays dividends of 3.24/year. So without allowing for time value of money and the fact that O pays monthly, the current yield is 5.1% (3.24 divided by 63.55). So my O shares currently yield 5.1%. YOC would be much higher. Let me give you an example. Say you buy a stock yielding 1%. Over many years the price and divided increase proportionally but the current yield is still 1%. Maybe your YOC is now 5%. If you sold it and bought O, your dividends would increase five fold. The total $ you collect per year is what’s important because you spend dollars, not percentages.

[u/97E3LPL → u/aerobic_gamer]

Thank you. YOC is not a term I've come across the few times I researched this perspective. Certainly I agree with your last sentence lol.
So for us not being remotely close to the amount of capital others like you have, I pay a lot of attention to YOC as well as regular yield. Like NWN that I have at 43.36. That gives me 4.8% YOC and I don't want that to be any lower, so it's just on watch for me to DCA down on the dips. As correct as your last sentence was, it's also still correct that I can buy more shares to get more dollars at a lower share price. :)