General Electric: Dividend Cut?

General Electric’s (GE) shares fell to fresh 52-week lows last week as investors continue to be negative about the industrial company. While negative analyst commentary and concerns over General Electric’s dividend sustainability have more heavily weighed on investor sentiment lately, I think General Electric makes for an interesting contrarian ‘Buy’ today.

General Electric is not in an enviable position, and neither are shareholders that bought into the industrial company at a much higher valuation in the past. General Electric’s shares have slumped 27.3 percent year-to-date, falling to one new low after another. Last week, General Electric hit a new 52-week low @$ 22.83, extending a multi-week streak of losses.

See for yourself.

Source: StockCharts.com

A couple of factors have weighed on investor sentiment lately, including negative analyst commentary from JPMorgan that suggested General Electric might have to cut its dividend. According to a CNBC report, analysts at JPMorgan see a GE dividend cut as “increasingly likely”.

Not only did JPMorgan fuel the fire of doubt when it comes to General Electric’s dividend sustainability but the investment bank also lowered its price target for GE’s shares from $ 22 to $ 20, maintaining its firm ‘underweight’ rating on the stock. In addition, widely-followed media and investment personality Jim Cramer last week suggested that General Electric likely will cut guidance and may slash the dividend.

Given General Electric’s core industrial business weakness – keep in mind that GE’s industrial revenues slumped 12 percent and industrial/vertical EPS dropped 45 percent year on year in the second quarter on the back of a weak performance in oil & gas as well as transportation – a guidance revision is a distinct possibility, especially as it relates to GE’s industrial operating profit and margin guidance.

Source: General Electric

The real question, however, is whether General Electric will take the rather significant step and slash its dividend.

General Electric has cut its dividend in the past. The last time General Electric slashed its dividend payout was during the Great Recession when a lot of companies cut back on shareholder payments. In 2009, General Electric cut its quarterly cash dividend from $ 0.31/share to $ 0.10/share. However, GE’s dividend rate consistently edged up over the last eight years. General Electric’s long-term dividend history is impressive.

Source: General Electric

Will General Electric Have To Cut Its Dividend?

I don’t think General Electric will have to cut its dividend, although management could decide that it is better for the company to conserve cash and invest in General Electric’s industrial businesses directly. That said, here is why I think a dividend cut is relatively unlikely.

For one thing, General Electric has affirmed investors multiple times that the dividend is a ‘top priority’ for management. This statement suggests that management will remain committed to paying shareholders a steady dividend even though it costs the company a lot of cash. Remember that General Electric plans to return $ 8 billion in dividends to shareholders this year alone.

Further, I think General Electric will be able to maintain its dividend from a cash flow perspective.

General Electric has guided for $ 16-20 billion in free cash flow, including dispositions in 2017. A large part of this cash flow is contributed by GE Capital, which is expected to produce $ 6-7 billion in dividends for GE this year. In the first six months of 2017, GE Capital has already beefed up General Electric’s cash flow by $ 4 billion, making up for a significant portion of General Electric’s dividends to shareholders.

GE Capital dividends indeed play a crucial role in propping up General Electric’s cash flow. General Electric’s industrial free cash flow excluding deal taxes and pension expenses was actually negative $ 1.6 billion year to date, and total FCF only turned positive because of GE Capital’s dividend to the parent company. Shareholder dividends therefore depend largely on GE Capital’s cash flow, while GE’s industrial business on a standalone basis does not have the cash power right now to fund those payments.

Source: General Electric

I don’t think that General Electric will have to cut its dividend, though. General Electric has guided for $ 19-21 billion in capital returns this year of which only $ 8 billion are cash (and recurring). In other words, as long as GE can fall back on GE Capital for its dividend payments and the company cuts back on share buybacks, there is no immediate need to cut the dividend.

Your Takeaway

General Electric could adjust its dividend payout. Yes, but I consider this not that likely considering past management statements that the dividend is a ‘top priority’ and considering that GE Capital produces a LOT of cash for General Electric. General Electric has an impressive long-term dividend history which signals its commitment to shareholders, and I doubt management wants to put off investors with another dividend cut. I think investors are a bit too fearful right now, which is exactly the right time to get greedy. Buy for long-term dividend income and capital appreciation.

If you like to read more of my articles, and like to be kept up to date with the companies I cover, I kindly ask you that you scroll to the top of this page and click ‘follow‘. I am largely investing in dividend paying stocks, but also venture out occasionally and cover special situations that offer appealing reward-to-risk ratios and have potential for significant capital appreciation. Above all, my immediate investment goal is to achieve financial independence.

Disclosure: I am/we are long GE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

A Legendary Dividend Growth Stock Trading At Fire Sale Prices

As a contrarian value dividend growth investor, I know the best time to buy a high-quality company is when Wall Street thinks it’s broken.

After careful research, I’ve come to the conclusion that this is how the market feels about Disney (DIS). However, as with most such situations, the market’s short-term focus is blinding it to the company’s likely bright dividend growth future.

That’s why I’ve recently added this legendary entertainment conglomerate to my real money EDDGE 3.0 portfolio, and think you should consider doing the same.

This Is Why Wall Street Is Worried

The key to contrarian value investing is to understand why the market is down on a stock, and to determine whether this is a growth thesis killing problem.

ChartDIS Total Return Price data by YCharts

In other words, “is this time really different”, or will a company that has managed to enrich investors with decades of market crushing total returns persevere and overcome its obstacles and continue its long-term success.

In the case of Disney’s recent 14% slide, there are two main negative factors driving the share price lower.

Source: Earnings Release

I’ll admit that Disney’s earnings performance to date is lackluster at best, with flat revenue and free cash flow (YTD), and declining EPS, despite buying back 3% of its shares in the past year.

Those poor results are largely being blamed on the media segment, specifically troubles at ESPN, which has seen steadily falling subscribers in recent years.

Source: Kenra Investors

In addition, ESPN has faced rising content costs, in order to maintain its dominant position in live sports (it has exclusive rights with the NFL and college football), which has been badly hurting that segment’s bottom line.

Disney has been able to offset this decline somewhat by raising its cable fees, but now Altice USA (ATUS), the nation’s fourth largest cable company (with 5 million subscribers), is challenging Disney’s pricing power.

Specifically, Disney is asking Altice for $ 100 per subscriber per year ($ 8.30 a month) for its total ESPN content, which is a 10% increase over the current average ESPN subscriber fee of $ 7.54.

Understandably the market is concerned that Altice won’t pony up the dough, given that ESPN’s popularity is flagging (potentially due to increased political content on the air which can alienate viewers), sports ratings are down, and ESPN itself is facing a challenging turnaround; having recently let go a significant amount of its on air talent.

And while Altice by itself represents a small contract dispute, Disney investors are worried that should it back down and discount its content that would serve as poor precedent in future negotiations with much larger cable companies.

This Is Why Wall Street Is Wrong

The market’s huge focus on ESPN is likely overblown given that it ultimately represents about 12.5% of Disney’s total revenue.

In addition, Disney is making the right call by launching an ESPN streaming service in 2018, though only time (and pricing) will tell whether or not it will be able to stabilize the brand’s bottom line.

However, to truly understand Disney’s growth potential requires looking at its other segments, such as the wildly successful studio segment.

Of course, we need to keep in mind that some of Disney’s business segments, especially its studios, are highly cyclical due to the lumpy nature of the movie business.

For example, 2017’s large YTD decrease in studio revenue and earnings isn’t necessarily a sign that Disney has lost its mojo, but rather that 2016 was a triumph, where the company’s especially large number of films released dominated the global box office.


Source: Boxofficemojo

For example, in 2017, there have been far fewer films than last year.

Yet even before Disney releases: Thor: Ragnarok, Star Wars: The Last Jedi, and Pixar’s Coco, it still boasts three of the top 10, and four of the top 20 movies of the year so far. In addition, on a per movie basis, Disney is actually doing better than last year.

And given the historical track record of how well Star Wars, Marvel, and Pixar films do internationally, it’s likely that Disney can expect around $ 2.5 to $ 3 billion combined from these remaining releases, and further domination of the global box office (six of the top 10 and seven of the top 20 releases this year). In fact, once these three likely major blockbusters come out, Disney’s 2017 average box office per film should rise to about $ 725 to $ 750 million, far higher than its record 2016 haul.

And the long-term view is similarly bright as Disney benefits not just from Star Wars and Marvel franchises but also Pixar, Disney Animation, and the continuing trend of live action remakes of its most popular animated classics (including this year’s most popular global movie Beauty and The Beast).

Add to this the fact that Disney’s cable networks are seeing strong international growth, and it’s obvious that, while the domestic market will always be important, Disney’s true growth prospects lie in its dominance overseas, especially in faster growing emerging markets such as India and China.

This also applies to its booming parks segment, which saw successful openings of Shanghai Disney Resort and and improved performance of Disneyland Paris, spurring impressive 17% earnings growth for the division.

According to Technavio, the amusement park industry is set to grow 11% CAGR through 2021, and Disney is well situated to gain a fair amount of this business thanks to continued expansion and revamping of its properties, including the recently opened Pandora World Of Avatar attraction at its Animal Kingdom, plus dozens of new attractions outlined by the D23 plan:

  • Star Wars: Galaxy’s Edge, part of Disneyland and Disney World Hollywood Studios, opening 2019 and featuring two feature rides, the Millennium Falcon, and Star Wars battle experience.
  • Guardians Of The Galaxy ride at California Adventure will be expanded into a full fledged Marvel Land.
  • Star Wars Luxury Resort: the company’s “most experiential concept ever,” a starship themed hotel where every window has a view of space.
  • Major upgrade of Epcot including: a highly upgraded Future World, a Guardians Of The Galaxy ride, and a Ratatouille attraction in the French pavilion, a Mission to Mars ride, and a space themed restaurant.
  • An intense roller coaster Tron ride next to Star Wars Hotel in Magic Kingdom, as well as a new theater and show in that park.
  • Toy Story Land in Hollywood Studios.
  • New Disney Riviera Resort near Epcot, part of the exclusive Disney Vacation Club.
  • Pixar Land at Disney World California Adventure.
  • New York Hotel in Disneyland Paris to be rebranded and refurbished as a Marvel based resort.

In other words, Disney, which operates seven of the top 12 and 12 of the top 25 most visited theme parks in the world, will continue to dominate this growing and highly lucrative industry.

And let’s not forget that while the consumer segment has been having a down year (due to tough comps), Disney is a legend at monetizing its brands through licensing and toys. This segment should continue to grow in the coming decades (about 6% a year according to analysts such as Morningstar’s Neil Macker); especially thanks to the company’s popularity in emerging markets.

Finally, while there is no guarantee of success, should the GOP tax reform plan pass, then Disney is likely to benefit immensely from the lowering of corporate tax rates to 20%.

That’s because the company’s TTM effective tax rate was 32.8%. Thus, should that rate drop to 20%, then Disney’s bottom line (EPS and FCF) would grow by an impressive 39%; something the stock is clearly not pricing in right now (forward PE would drop to 11.1).

Long-Term Dividend Profile Makes Disney An Income Investor’s Dream

Disney has an impressive record as a fast dividend grower.

Source: Simply Safe Dividends

Company Yield TTM FCF Payout Ratio 10-Year Projected Dividend Growth 10-Year Projected Annual Total Return
Disney 1.6% 27.6% 7.9% to 10% 9.5% to 11.6%
S&P 500 1.9% 39.5% 5.9% 9.1%

Sources: Gurufocus, Fast Graphs, Factset Research, Multipl.com, Moneychimp.com

However, I’m sure that many readers will take one look at Disney’s low yield and reject it as an income investment.

I understand that, and in fact, I agree that if you are someone looking to live off dividends in retirement, and have 10 years or less before you plan to exit the labor force (or a retired now), then indeed Disney likely isn’t for you.

However, if you have 10+ years to let the company compound its payout, then it’s actually an excellent income investment. That’s especially true given the rock solid dividend safety (strong balance sheet and low payout ratio), and solid prospects for long-term double-digit dividend growth.

Years Projected Inflation Adjusted Yield On Invested Capital
5 2.35%
10 3.45%
15 5.10%
20 7.45%
25 11.0%
30 16.1%
35 23.65%
40 34.75%
45 51.1%
50 75.0%
55 110.25%
60 162.0%
65 238.05%
70 349.75%
75 514.0%

For example, assuming a conservative 10% long-term dividend growth rate (not unrealistic given that Disney’s 30-year dividend CAGR is 17.3%), and 2% inflation rate, then Disney shares bought today, if given enough time to compound, can become a fantastic retirement stock.

The key is to start as early as possible, meaning that if you are young and just starting out saving and investing (in your 20’s), then 40 to 50 years of dividend growth compounding can greatly help ensure your financial future.

And if you are planning to have children (as I am eventually), then I recommend you consider buying some Disney stock for them, because such a gift, with potentially 70 to 75 years of compounding time could wind up incredibly valuable. This is both as an income source or an asset that can be sold and the funds allocated elsewhere, such as higher-yielding stocks if they so choose.

One Of The Few Stocks Trading At Fire Sale Prices Right Now

ChartDIS Total Return Price data by YCharts

Thanks to its recent weakness (a 14% decline of its recent high), Disney has underperformed the market by about 11% in the past year. However, that just creates a potentially excellent buying opportunity.

Company Forward PE Historical PE Yield Historical Yield
Disney 15.4 17.2 1.6% 1.2%
Industry Median 22.9 NA 1.8% NA

Source: Gurufocus

After all, when we compare the company’s forward PE ratio to either that of its peers, or its own historical norm, we find Disney highly undervalued.

That’s only more so if we consider the most important valuation metric to dividend investors, the yield, and where it stands in comparison to its usual levels.

Source: Yield Chart

For example, while a 1.6% yield isn’t necessarily high in and of itself, the fact remains that over the past 22 years, Disney’s yield has only been higher about 7.5% of the time.

In my book, that makes this dividend growth stock highly appealing, especially given the company’s wide moat and “buy and hold forever” nature.

But of course, all such backwards looking valuation metrics have a major flaw, which is that all profits are derived from the future.

Which is why my favorite valuation metric for dividend growth stocks is a discounted free cash flow or DCF analysis.

TTM FCF/Share Projected 10-Year FCF/Share Growth Rate Fair Value Estimate Growth Baked Into Current Share Price Margin Of Safety
$ 5.40 6.9% (conservative case) $ 140.17 2.4% 30%
9.3% (likely case) $ 169.17 42%
11.2% (bullish case) $ 196.22 50%

Sources: Fast Graphs, Gurufocus, Morningstar

Basically, the idea is that a company’s fair or intrinsic value is the net present value of all future free cash flow.

I use a 9.0% discount rate because that is the opportunity cost of money. Specifically, the S&P 500’s (the best default alternative to any individual stock) historical 9.07% return, net of expense ratio for a low cost ETF, can realistically be expected to generate 9.0% total returns.

Such an analysis shows that even using conservative FCF/share growth estimates, Disney is incredibly undervalued, thanks to the market pricing in essentially flat FCF/share growth forever.

However, I find this a ludicrously pessimistic assumption given this growth rate is about 50% below the global economy’s growth rate, and Disney’s strong international opportunities mean it’s virtually certain to clear this very low performance bar.

In other words, Disney now offers one of the largest margins of safety for a Grade A (low risk) quality company that you’ll find in this overheated market.

Risks To Keep In Mind

While I am bullish on Disney in the long term, there are several short- to medium-term risks to keep in mind.

First, ESPN, which represents 25% of Disney’s FCF, is likely to continue struggling in the face of ongoing cord-cutting and declining sports ratings. Worse yet, sports programming costs are only going to make things worse for now as Disney recently had to renew its contracts with the MLB, NBA, and NFL by almost $ 2 billion a year.

Which means that ESPN, which the market is obsessing over right now, will continue to be a drag on the company’s growth, and could result in further share price weakness.

Now personally, I would love for further opportunities to add to my position at lower prices; however, if the price falls too low, then activist investors could step in and lobby for a selling or spinning off of ESPN; something media deal making legend John Malone has recommended.

The risk of such a sale could be especially high in mid-2019, since CEO Bob Iger is set to retire at the end of July of that year. His successor could feel pressure to “do something” and sell ESPN.

That in turn would slash FCF/share and could greatly impair Disney’s ability to grow its dividend at its historically high rates.

And speaking of Iger stepping down, we can’t forget the succession risk that will come with a new CEO, whoever that may be. Personally, I’m confident that Disney’s fourth extension of Iger’s contract to give them more time to prepare and groom a worthy successor means the company will continue on a similar trajectory once the man is gone.

Finally, we can’t forget that the entertainment world is constantly shifting, with changing consumer tastes and new disruptive technologies.

While Disney’s $ 2.6 billion purchase of 75% of BAMtech, ahead of its launching of its own streaming service in 2019 may end up generating a strong recurring revenue stream, UBS has estimated that Disney would need 32 million subscribers to break even at $ 9 per month.

In the meantime, the company will have to increase its capital spending to build its streaming service, and upon its launch, forgo $ 500 million it’s currently getting from licensing its content to other companies such as Netflix (NFLX).

Given the market’s short-term focus, any missteps in launching its streaming services could put further downward pressure on the stock in 2019, and further fuel calls for potentially knee-jerk reactions from the new CEO (unless Iger’s contract is extended for the firth time).

Bottom Line: Disney’s Unbeatable Brands Own The Future Of Entertainment And The Current Price Is Too Good To Pass Up

Don’t get me wrong, I’m not saying that Disney’s shares are certain to rise in the short term because markets can remain irrational for long periods of time.

However, if you are, like me, a value focused dividend growth investor, with a time horizon of 10+ years, then today Disney shares represent one of the most undervalued grade A opportunities you can find in this otherwise overheated market.

Which is why, when I saw Disney within 5% of its 52-week low recently, I took the opportunity to add it to my own portfolio, and recommend you consider doing the same.

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

Should Retirees Really Try To Live Off Of The Dividend Income?

Many retirees express the desire to “live off of the income”. They want to create a portfolio that provides enough income and income growth to fund retirement needs, without the need of selling shares. Obviously, if a retiree wanted to spend 4.5% of total portfolio value, they would need a total portfolio yield of 4.5%. They would also need some income growth if they want to adjust spending needs in line with inflation.

A dividend growth investor might be more than challenged to create a portfolio that generates a 4% plus yield. If we look at the US High Yield Dividend Growth indices, we see yields in the range of 3%. From the Schwab website, here are the yield details for the Schwab U.S. Dividend Equity Fund (SCHD).

And here is the yield offered for Vanguard’s higher-yield offering, from the Vanguard site, for the Vanguard High Yield Dividend Fund (VYM).

Of course, the two fund companies apply some quality screens in the attempt to find more sustainable income and income growth. As I have suggested in the past, it might be worthwhile for investors to check the indices to see if their companies have passed the dividend health screens. We can have a look or cross reference against professional analysis at no cost. As is often written, we, Indexers and Index skimmers, are freeloaders.

Here are the top 10 holdings from SCHD:

And here are the top 10 holdings from VYM:

You can go down the list of top holdings into the top 20 and top 30, and you’ll see that the funds have considerable overlap. I doubt that there will or be little difference between the two fund offerings over time. Courtesy of portfoliovisualizer.com, here’s the comparison of VYM as Portfolio 1 vs. SCHD as Portfolio 2. The time period is the inception date of SCHD from November of 2011 to end of August 2016. We see a slight edge of VYM due to some slightly lesser volatility and drawdown. The Sortino ratio (risk adjusted returns are slightly higher). Of course, past performance does not guarantee future returns. Past dividend payments and dividend growth are not guaranteed to repeat.

We see though that the historical income is slightly higher for VYM over SCHD. The following chart represents the income with dividend reinvestment – accumulation stage:

The starting yield for VYM in 2012 was 3.57%. The starting yield in 2012 for SCHD was 3.13%, according to portfolio visualizer. The next chart shows the income without dividend reinvestment – the decumulation or retirement funding stage:

There would have been no need for a retiree to stretch for yield to get the portfolio to an initial 4% or 4% plus yield. The Portfolio grew into the 4% yield quite quickly. That is the magic of dividend growth when things are working to your favour. In 2014, VYM was already delivering a 4.2% yield on cost. SCHD was at 4% yield on cost. In 2016, both funds are approaching 5%. That retiree is getting some incredible raises. That retiree can spend more or collect a cash pile if the income is surpassing spending needs. Heck, they can take the surplus and reinvest the income into those higher-yielding dividend payers.

If, in 2012, that retiree wanted to spend at 4% of portfolio value, he or she would have only needed a very modest cash pile or bond component. As an example on a $ 1,000,000 portfolio with a $ 40,000 spending need (4% spend rate), that retiree would only have needed just over $ 4,000 of cash or bond sales. A $ 10,000 cash pile would have been more than enough to cover the $ 4,000 dividend income shortfall in 2012 and $ 1,100 shortfall in 2013.

Now I am not suggesting for a moment that a retiree enter retirement with only a 1% cash or bond component. From my observations, most retirees appear to hold a very considerable cash and bond component. The above scenario is during a more than favourable start date for a retiree. There has been no major market correction or recession, and there has been considerable stability in the dividend payers that have consistently increased their dividends over time. Retirees have to prepare for the times of stress when the portfolio value and portfolio income might face incredible challenges.

Here’s VYM from January of 2007 through to the end of 2016. We are displaying the income without dividend reinvestment.

The initial yield in 2007 was not quite as generous as present, at 2.7%. It fell to 2.1% in 2010. We did not have dividend growth; we had dividend distress and falling income. It did then recover and increase to 4.1% in 2015. In the above scenario, a retiree would have had to fund up to $ 19,000 in 2010 from non dividend sources. The cumulative cash shortfall from 2007 to end of 2014 is $ 97,700. Now keep in mind, that the market meltdown of 2008-2009 was a major market correction with the S&P 500 falling by 52% according to portfolio visualizer. We may or may not get another market correction of severe proportions. All said, we should prepare for worst case scenarios.

Also, it’s possible that an investor in 2007 might have constructed their portfolio had they avoided the hardest hit companies that were largely housed in the financial sector. That investor might have experienced consistent dividend growth through the recession and we would see more of the income growth scenario displayed in the first income chart for VYM and SCHD for the 2012 to 2016 period. On retirees searching for stability, here’s my recent article The Lowest Volatility Sectors For Retirees.

My readers will know that I appreciate the historical success of adding some bonds and more specifically longer-dated treasuries (TLT) to help in those periods of stress. Here’s how TLT performed in the recession from January of 2008 through the end of 2010.

We see the desired inverse relationship between the stocks and bonds, with the bonds offering price appreciation capital gains opportunity. That retiree could have sold TLT units to plug the income shortfall. Keep in mind that past inverse relationship does not guarantee a future inverse relationship.

And once again, if a retiree has created a portfolio that is delivering dividend growth year over year, the unit harvesting or share harvesting needs decrease every year as the dividend can potentially grow to eventually cover all spending needs. We will use Kimberly-Clark (KMB) as a portfolio proxy. The company is well, a staple within the Consumers Staple (XLP) sector.

Here’s KMB benchmarked against VYM for income for the period of 2007 through to the end of 2011, a five-year period, based on a starting portfolio value of $ 1,000,000. KMB is Portfolio 1. VYM is Portfolio 2.

KMB started the period with a yield of 3.1% and grew that yield to 4.1% in 2011. Even if a retiree held no bonds or cash, this is what the share harvesting scenario would have looked like. For this model, the retiree will be harvesting 4% of portfolio total value. For this example, we will not adjust for inflation. As a backdrop, here’s the dividend history as per the F.A.S.T. Graphs site. For the funding scenario from 2007 to end of 2010, I will use the dividends as per F.A.S.T. Graphs and for share price harvesting. I have used the historical share prices as per Nasdaq. The portfolio begins with a hypothetical $ 1,000,000 and hence 15,338 shares.

Year Dividends Share Harvesting $ Shares sold Share count
Initial 15338
2007 $ 32516 $ 7484 (66) 113 15225
2008 $ 35322 $ 4678 (67) 70 15155
2009 $ 36372 $ 3628 (50) 73 15082
2010 $ 39816 $ 184 (61) 3 15079
2011 $ 42221 0 0 15079

As we can see, the share harvesting did not damage income. In fact, the actual dividend income increased each year even with the share count reduction, courtesy of that dividend growth of course. The number in parenthesis in the shares sold column represents the share price for that share harvesting. Shares were sold in the week preceding the beginning of the next calendar year.

Modest share harvesting does not have to decrease portfolio income. With that realization a retiree would not have to necessarily skip over the Kimberly-Clarks of the world just because the company or basket of companies does not meet current income needs. That retiree might be able to add companies of higher quality and stability but with lesser current yields.

Perhaps there is an unwarranted fear of share harvesting? If a retiree can potentially build a higher-quality portfolio by allowing for lesser yields, that share harvesting need would potentially decrease retirement funding risks, not increase risks.

Seeking Alpha author Eric Landis started a series on creating a 4% plus current income portfolio in today’s environment. You’ll find the first article in that series in Yes, You Can Still Build A 4% Yielding Portfolio In Today’s Environment. You can follow that series and see that the portfolio has already experienced dividend disruptions and portfolio dividend growth has stalled out of the gate. And today’s environment might be qualified as a rip-roaring bull market.

I welcome your comments. Thanks for reading. And always please know and invest within your risk tolerance level. Always know and understand all tax implications and consequences.

Happy investing.

Dale

Disclosure: I am/we are long BCE, TU, TRP, ENB, BNS, TD, RY, AAPL, BLK, BRK.B, JNJ, PEP, CL, MMM, MDT, ABT, LOW, NKE, CVS, WBA, UTX, QCOM, TXN, MSFT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dale Roberts is an Investment Funds Advisor at Tangerine Investment Funds Limited a subsidiary of Tangerine Bank, wholly owned by Scotia Bank; he is not licensed to provide professional advice on stocks. The opinions expressed herein are Dale Roberts’ personal opinions relating to his experience as an investor and are not those of Tangerine Bank or its subsidiaries and/or affiliates. This article is for information purposes only and does not constitute investment advice or an offer or the solicitation of an offer to buy or sell any securities. Past performance is not a guarantee and may not be repeated. Investment strategies are not suitable for everyone and you should always conduct your own research or speak to a financial advisor.

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