May 11, 2016

The Formula For a 5% Dividend Payout


Pity the poor endowment, retiree or trust-funder trying to live off the income from stocks. Appreciation over the past year has been approximately zilch. The dividend yield is 2%. If dividends are your income, a $1 million account would generate a pathetic $1,700 in monthly cash.

I have in hand a solution to this problem: a scientific justification for kicking up the drawdown from the portfolio from 2% to 5%. The case is built around the S&P 500 index, for which historical data is easy to come by. But when I get around to a buy recommendation, I’ll use a slightly different collection of equities. My preferred portfolio has 8,000 stocks in it.

For history we’ll go back 28 years, an interval that is not far from the plausible investment horizon of someone just now retiring. Also, it makes the arithmetic easy...

Source: Forbes