captainspoke wrote: ↑Mon Oct 05, 2020 5:47 am
In a different thread I confessed--as a retiree--to not having any bond allocation, and gave some percentages for my portfolio. There, I said that besides cash, I had about 18% in dividend stocks, and quite a lot more in equities. Also, someone pointed out (and I'm paraphrasing) that with a large enough cash allocation, that that was an 'okay' way to go about it.
The other day I came across this article, which seemed to ring some mental bells, perhaps adding another way that dividend stocks can be viewed within a portfolio. Reading thru it, I found myself agreeing with different things, having a thought or two like, 'yeah, that's kind of what I was thinking'. Here it is:
https://www.simplysafedividends.com/int ... retirement
In that other thread, I didn't offer the rationale that the dividend stocks were being substituted for bonds, but after reading this, I think there's something to that perspective. (perhaps some confirmation bias?

)
What do you think of the various points in the article?
I am kind of biased against bonds so I'm also subject to confirmation bias when reading that link. Interesting to be reminded that when it was written (early 2018?) the 10 year US Treasury still yielded almost 3%!
I think the point that dividend stock portfolios now often deliver more income than bonds is true in many but not all cases. They might have mentioned that stock dividends (although I agree they can be cut) also rise over time as a group. Let's take BND as a summary of US bond coupon rates because it covers not only government bonds but also corporates and compare the dividend yield to some broad stock index ETF's:
BND 2.4%
(Total US stock market) VTI 1.63%
(S&P 500) VOO 1.66%
(high dividend yield US stocks) VYM 3.53%
(Total world stocks) VT 1.95%
(Emerging markets) VWO 2.95%
(Ex-US World stocks) VEU 2.47%
(Ex-US world stocks) VXUS 2.4%
So BND still beats the US stock market for dividends but already loses to index funds which are solely ex-US and it badly loses to almost any high dividend yield stock fund. That comparison would look even worse if you used a safe government bond fund (even a longterm fund like VGLT is only 1.95%).
On the other hand stock dividend funds don't really protect against market volatility the way bonds do (a large cash buffer like you have can make that less of an issue if you don't mind the psychological hit of seeing the volatility) and I think it's a mistake to reach for dividend yield instead of considering the portfolio as a whole and taking capital gains as needed to maintain the sustainable withdrawal rate (instead of skewing the portfolio to what might be lower quality equities which happen to pay high dividends).