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The Tree Versus the Fruit

August 8th, 2017

If you own a portfolio of dividend paying stocks, you know, don’t you that….Every day a few million folks, on your behalf, get up, clean-up, and get themselves to work. They spend their day laboring to provide value: so that a customer buys their product, spending their money, thus providing revenue to the company. Resulting in paying everyone’s salary, plus expenses, rendering a profit and paying you the owner, the shareholder, a dividend. You know, that, right?

And, did you know that the world’s best companies increase their dividends just about every year? And, incredibly, by a greater amount than what most employees receive in wage increases, every year. So why, based on our experience, is the number one concern of folks retiring, the fear of outliving their money? We think it is because most savers have been taught to believe that the path to a successful retirement is to start retirement with enough money so that every year, they can draw down that nest egg and have enough at the very end to pay the mortician. If this is the premise, then worrying is justified. After all, what’s the right amount of money?  How long will I live, how much will I spend, what about taxes, healthcare, inflation and, Social Security; will it be there? Whew!

Adding to the fear and confusion is the Financial Services Industry’s coined financial-speak term “Sequence of Returns”: The implication is that you better time your retirement correctly or disaster may ensue. For example, if you catch an upmarket at retirement and your nest egg gets bigger, supposedly your retirement outcome is successful because you would not draw-down your nest-egg as quickly: However, if it does not work-out that way, then what? Do you go back to work? Scale down? Run out of money and fade into the ether, or move-in with the kids?
The next chart depicts the “Sequence of Returns” problem. Would you have retired in 2000 had you seen the financial crisis coming, did anyone anticipate the crisis of 2001 and 2008? Alternatively, having seen the downdraft of 2008 would you have retired in 2009 and caught the bull market that began back then? Alternatively, where the folks that retired in 1974 just lucky?


What do you do to retire successfully? How do you overcome the consequence of an unfavorable “Sequence of Returns”?

We believe that understanding your goals, expense budget, and retirement desires is critical. You would most likely agree that hoping for the best and planning for the worst makes sense: That means designing a plan based on realistic financial environments that take the worst and best equity market periods into consideration.

We also believe that at the core of any and every retirement portfolio our clients should own the stocks of companies that are known to pay and have a potential to INCREASE dividends consistently over time (Dividend Champions*). Understanding that no one can assure you that dividends will continue forever, a compounded annual growth rate (CAGR) of dividends of over 8.5% for the “Dividend Champions” since 1999 is quite remarkable. Especially in light of the starting point: The period beginning in 2000 and ending in 2009 was challenging for U.S. equity markets. Take a look at the chart below: it compares the dividend yield growth of the S&P 500 companies, “Dividend Champions” * in the context of inflation.


Based on the current dividend yield of 2.38%, the Dividend Champions, which may vary from year to year, equals $23,800 in dividend income per million invested. The implication is had you put that amount money to work back in 1999 you income today would be approximately $79,707. Not bad for a dividend stream during a difficult time for equities!

The orchard is yours: we help you determine which fruit to plant, we till, seed, weed, and prune the orchard and every season our goal is to harvest, box and send you the fruit. Visit us at Windsor Wealth and take a look at  our Family Wealth Management Process: https://windsorwealth.management/wealth-management/

Currently, our portfolios overweighted domestic and foreign equities. Carlos Dominguez – Portfolio Manager, DJWMG 


The preceding information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James.


The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in the material.  There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Investing involved risk and you may incur a profit or loss regardless of strategy selected.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary.  Past performance does not guarantee future results.


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