Transcript

00:00:00:02 – 00:00:27:09

Mike

This week we’re answering the question Are dividends a good source of income for retirement? I want to warn you in advance, Warren Buffett, he does not think so. He believes and he’s famous for saying he believes dividends are nothing more than investment dollars that have been returned to you. And your job is to reinvest those dividends, not use them for income.

00:00:27:10 – 00:00:49:18

Mike

Before I dove into that topic. If you have a question for us, just go below the video. There’s a link, you can click on it and type in your question. And who knows, maybe your question will be answered in one of our future episodes. Warren Buffett, for one, says no. I also do not think they’re a great source of income, and I’m going to show you why.

00:00:50:03 – 00:01:13:27

Mike

This is Citigroup, and here it is the year 2000. We can see that at the bottom. And you can see if I put on the dividend. Oh, look, they’re paying a dollar 20 a share back in February of 2000. And then we move forward a little bit in 2001. Now it’s a dollar 40 a share. Dividends are going up 2000 to back down to a dollar 60.

00:01:14:05 – 00:01:41:02

Mike

That’s not so good. 2003 up now going up to $2 a share. That looks kind of nice. Let’s look at 2004. Oh, my goodness. $4 a share. It’s like dividends are growing like crazy. This is awesome. We’re getting our dividends and they’re growing with inflation. And, you know, look how brilliant this is and how awesome it is. It’s 2005 for dollars and $0.40 a share.

00:01:41:03 – 00:02:14:10

Mike

Getting better yet. Let’s keep going. 2006. Wow. Four 90. I love the dividend. Train at this point. I’m retired. I own Citigroup. My dividends are getting bigger. Who cares what the stock does? As long as the dividends get bigger? I’m a winner. And here it is. 27, $5.40 like yours is awesome. Imagine in that you had $1,000,000 in Citigroup.

00:02:14:10 – 00:02:30:29

Mike

Here you’re getting $10,000 in dividends or something, which, by the way, is a crummy 1% but if my math is correct, and by the way, if it’s not, I’m doing this on the fly, so please forgive me. But anyway, $5 a share you did is have been going up. You’re happy. But then what happened? In 2008, the market starts crashing.

00:02:30:29 – 00:02:58:01

Mike

Just three months later, we’re down to $3 and then still $3, $3 in, oh, less about a year later, here we are a year later. A year ago, we were getting five 40 a share. A year later we’re getting a dollar 60 and then the next quarter your dividends go from $5.40 that you’re down to $0.10. And what happens after that?

00:02:59:02 – 00:03:24:29

Mike

No more dividends. No more dividends. Dividends are gone, right? In fact, dividends, they’re just history. We’re not doing dividends anymore. So you went from five 40 a share to nothing. Here’s the deal. Dividends living on dividends are counting on dividends for part of your retirement. Income. It works really well when the markets are going up, works great well, everything’s fine and rosy.

00:03:25:10 – 00:03:49:27

Mike

It works great. What happens when the markets go down? Not only do your dividends like look at this, the stock up here, stock up here was like, gosh, $400 a share. $500 a share up here. And then by the time the dividends go down to a penny, it’s down to like down like $60 a share. Something a not only did you lose all your dividends, the stock crashes on you and goes down to a really small amount.

00:03:50:07 – 00:04:10:11

Mike

So it’s like you can’t sell the stock to reinvest the money because it’s too late and your dividends are gone. I can’t tell you how many families I saw, not families we took care of, but families would come in in 2008 and share this story. I was living on my dividends I had big blue chip companies. I didn’t have one company.

00:04:10:11 – 00:04:37:13

Mike

I had a whole portfolio of these things, big blue chip companies paying dividends. The market collapsed. They all went down in value. My dividends went away or went down to a small number. It’s like, Paul. Paul is my story. I’ll never forget him. He said. He’s like, I’ve got 600,000. And he was getting $36,000 of dividends. And he said, Hey, I just want you to check this double check that I’m doing the right stuff.

00:04:37:22 – 00:04:56:06

Mike

Well, Paul had nothing but about ten blue chip companies. He picked them because they’re just all paying a lot of dividends, and he knew who they were and I said, Hey, I don’t like what you’re doing. What you’re doing is you’re very concentrated in these positions. If the market goes against you, you could both see you. Dividends go away really fast.

00:04:56:06 – 00:05:16:01

Mike

And your stock could go down in value really fast. You could be stuck because he needed that 36,000. But his comment to me was, Yeah, I don’t, I don’t think you’re right because you know, every one of these companies, the dividends have been rising for years. I’m comfortable. I’m just going to keep doing what I’m doing. By the end of 08, I get a call from Paul and he says, Hey, remember me?

00:05:16:02 – 00:05:39:26

Mike

I’m like, Yeah, I remember you. He says, Well, here’s the thing. I’m kind of grasping at straws. I don’t think you can help me, but I don’t know, said my 600,000 of stock. It’s down to 100,000. This was 08 because blue chip companies paying dividends got crushed. It’s down to $100,000. His 36,000 dividends 600 bucks, right. That’s what it was, down to $600 for the whole year.

00:05:40:05 – 00:06:05:00

Mike

He’s like, What can I do? I said, you don’t have an option. You got to go back to work. You cannot count on dividends as stable and secure income because they aren’t, they are not stable and secure. When the market’s down, you get into trouble. So that’s our message. Don’t depend on dividends for retirement. Bad idea. It’s okay to reinvest them if you’re growing, but not for retirement income. That’s our message this week. I hope you found it helpful.