Dividend Investing

[ratkin]

If in early Sixties with an optimistic life expectancy, you would still want a few growth companies in the mix.
Going for the highest dividend yield now, might not be the best Ten/Twenty year plan.

[artemis]

What ratkin said. Also shares are usually liquid so if looking for income could add some growth shares that do not attract CGT for non traders. Sell some if extra income is needed. Bit more risky but heck we saw some blue chips fall sharply at times in 2020.

[SPC]

I've been self supporting in recent years entirely from dividend stocks so it's doable and I'm way short of 65. Early days were filled with mistakes like most seasoned investors by I've settled on Fisher's listed funds covering Nz Au and global stocks (diversification over 100 stocks) and some local REITs.
Quarterly (cash) distributions from all of these and pie status simplifies tax compliance. I top up when prices dip and grow the funds continuously.
All NZX listed, so all totally liquidable any day of the week if you want or all of your money back. Works for me, simpler than rentals..

[Sgt Pepper]

How important are dividend reinvestment plans when considering investing for relatively reliable dividend income streams?

[SPC]

Horses for courses. Some prefer to reinvest some or all of each div ocassion in new shares (so no cash for that distribution but new shares usually come at a minor discount) whereas others take the cash. I prefer cash and buy additional shares at times and prices of my choosing.
DRPs can easily be switched on and off by logging on to Computershare when ever you like.

[justakiwi]

I guess you have three options:

1/ reinvest all dividends as a way to add to your holding (usually) at a discounted SP
2/ take all your dividends as cash
3/ Do a mixture of both eg: elect to reinvest a portion of your dividend for each holding, and take the other portion in cash.

DRP is a good way to increase your holding, if that is what you want to do. What you elect to do before retirement may not be what you elect to do after you retire. It also depends on the size of your investment, what other sources of retirement income you will have, and what your chosen standard of living in retirement will be.

How important are dividend reinvestment plans when considering investing for relatively reliable dividend income streams?

[value_investor]

I've got a mix of companies from the nzx in my portfolio. I think if you're going to be dividend investing, you'll need to have the mindset that it will take years of compounding to get to where you want to be, and I'd a say its a minimum of ten.

You'll need to find solid dividend paying companies, that have a runway for future growth and hold them for years. There's a few categories of these on the NZX which are a good place to start:

- Gentailers being your MELs, MCYs, GNEs etc. These have consistently increased dividends over several years (although this might not continue into the future).

- Large property holdings being GMT, KPG, PCT etc. These have been good holders for exposure to the commercial property market. While dividends have been up and down in recent years, if you are holding these long term I think you'll be just fine.

- Retirement Stocks such as OCA, SUM and ARV. These are more emerging for me and where I see a lot of future growth coming from. While dividends aren't impressive as a percentage, I think there are real dividend and capital gains to be made here.

- Large conglomerates such as EBO and IFT are great companies to hold because the dividend is so solid. I think IFT are one of the best allocators of capital I have seen. Unfortunately, these companies don't go on sale very often but good to double or triple down.

- Banking industry is another one to consider, the likes of ANZ, WBC. I'm not a fan of these ones because they are in a very mature place in the market and their ability to grow from here is small. I do like HGH who are probably the only one offering a point of difference.

I avoid holding retail stocks completely but I know people have had success holding HLG. However holding WHS, GXH etc might have some upside in the future because they've been beat down so much. I just wouldn't sleep as well holding them!

I'd consider if you are just in the growth phase and you don't need the cash, to always reinvest if they offer a DRP. If you believe the company has the ability to use your money to make more money then I'd rather they have it than I would.

There is a NZ based ETF with Smartshares DIV. I'm not a fan of this because I don't believe they are in it for the long term and instead offer you the aggregate return of dividend stocks for the current time period. The dividend gain from holding it is therefore not compounded. While I like ETFs for the general market, I don't think a dividend ETF is the best way to go about it.

I like having a core of dividend paying stocks and like to add to it when stocks go on sale. Late last year to now for example, I've been building a position in KPG. You sometimes have to be patient because good dividend paying stocks exist BUT they aren't always worth the value at the price.

[DarkHorse]

International research shows companies with GROWING dividends tend to produce higher returns for lower risk and with less volatility; so ideally I'd be inclined invest in companies with moderate and consistently growing (rather than larger but static) dividends, use those for regular income for regular expenses, donations etc, then just sell some shares every few years for that one off splurge on a new car/world trip etc.

[SBQ]

I just liked the USA REITS as they were invested in crop farming as well as rental housing.They appealed to me more than commercial buildings.

The IRS tax with-holding would be the primary issue for not choosing REITS in the US. Dividends received in NZ or abroad still are taxed at RWT rates - furthermore FIF on the US REIT holdings for any paper capital gain. However would there be NZ REITS that are 'fully imputed' tax credit on the dividend payouts? This would be far more attractive.

I've never fully understood the NZ obsession for chasing dividends. I much always preferred the Buffet view for allocating income during retirement, which is to sell 'a portion' of the share holding when you need ; and not be triggered with a tax situation when the company issues a dividend. Left over after-tax dividends is a waste. If the wife wants a new car this coming year, or if I want to buy the boat, I simply just sell enough shares at that time to pay for these outgoings - and best of all, the capital gains would be tax free for NZ listed shares. However, once the company pays out all it's retained earnings as dividends, then the book value per share drops and fundamentally, the stock price on the open market will also reflect that by having little or no capital gain (ie. TWG.NZ dividend policy but flat share price for the past 20+ years - hell inflation has made it worse).

[fungus pudding]

International research shows companies with GROWING dividends tend to produce higher returns for lower risk and with less volatility; so ideally I'd be inclined invest in companies with moderate and consistently growing (rather than larger but static) dividends, use those for regular income for regular expenses, donations etc, then just sell some shares every few years for that one off splurge on a new car/world trip etc.

I am a fan for just stacking more income with every move. Never buying with the thought of selling - just adding more income. That should eliminate need to sell for a 'one off splurge', and if it doesn't at least the income is there to service a splurge loan. Make 'who am I going to leave all this to?' your biggest concern.
I don't claim to be an expert. In fact I'm quite the opposite. I know nothing at all about the sharemarket, but I have managed to build an income far in excess of my annual requirements without the requirement of 'work'. (Apologies to the sensitive - please forgive that four letter word.)