Can dividend strategies be functional anyway?
The answer is yes, but not from the reasons assumed by the dividend collectors.
Many dividend collectors have properties that make long-term investment possible:Typically , they are disciplined savers.
- • They buy stocks to keep them longer-term “buy-and-hold”.
- • Their portfolio contains a high proportion of shares.
Dividend strategies with ETF dividend
All investors anddividends collectorswho do not wish to implement a dividend strategy with individual shares can of course resort to fund solutions.
In doing so, we rather advise to index funds (ETFs), as they actively beat the actively managed products in terms of performance.
It is important, however, that ETFs also carry out a detailed audit on dividends, in particular on the number of individual titles, in order to ensure a reasonable risk diversification.
In addition, adjustments can be made more frequently due to dividend payments. This occurred three times in 2015. In March 2015, for example, the Linde share was taken up shortly before it began its dive, and it was thrown out again in September 2015. During this time, the stock showed a performance of – 23,4%.
An investment in dividend stocks around the world is, logically, the highest level of risk diversification. Unfortunately, there is hardly a selection of dividends ETF worldwide.
Using the search engine available on the justetf.com website, only 6 ETFs could be found for 5 dividend indices (as of March 2017), of which only 4 ETFs were found.
The financial services provider Morningstar published an analysis in 2015 that showed that, over the last three years, dividend ETFs across all categories have lagged behind the market capitalization-weighted indexes.
Particularly striking are the large differences in the results. Some dividend products performed exceptionally well while others were extremely bad.
The result shows that, in the end, each selection of stocks leads, in certain respects, to a portfolio that is better in some years and worse in some than the corresponding benchmark.
Another disadvantage is the fact that ETFs react slowly to foreseeable corporate crises, since there is no manager who removes the stock from the fund as a precaution. Dividend ETFs invest in a dividend until they are no longer.
Conclusion on dividend yield
Dividends are particularly popular with their simplicity. Everyone can understand it. They certainly have many advantages, which should not be denied them. Therefore, if you want to use dividends to finance daily life, you can build a stable, passive income stream.
Even if the nice and regular cash flow on the account statements at the dividend collector can provide for joy, and the search for promising dividend titbits promises fun and excitement, both of them only represent a good feeling that does not withstand reality.
Dividends have a useful psychological effect as they are regular „treats“for long-term strategies. One should, however, in no case be deceived by this short-term positive experience about the objective disadvantages.
To hit the market with a dividend strategy is quite unlikely and if at all possible only if you as a dividend collector take an increased risk. All too often, the dividend collector pays the distributed dividend by computationally from his own pocket.
If you do not want to leave the way, the most successful choice is to obtain an attractive overall return with the lowest possible risk, a globally diversified passively managed ETF portfolio..
Perhaps a better alternative than dividend strategies may be the investment in undervalued stocks though fundamental analysis.
Author Barbara De Maizière (Vevey, Schweiz)