The Incredible Shrinking Dividend

Hi All,

As you guys probably know, the stock market has been taking a major beating. Corporate earnings are weak and therefore dividend payouts are under pressure. Well, along with a lot of other people, we’ve certainly taken a hit.

Here is a quick comparison of our dividend stock holdings before and after last years drop. In a nutshell, our monthly pretax payout dropped from $848.94 to $151.62 between June of 2008 and today. There were three primary reasons for the decline.

First, we sold some stocks, about $14,000, partly to cover James’s overspending and to invest $10,000 in a Friend’s software businesses.

Second, A major source of this drop was a bad investment in Advantage Energy Trust (AAV) – we lost nearly $24,000 on it. AAV’s dividends went from $356 per month to $0. Its been our worst investment ever.

Third, the rest of the decline was partly due to the dividends of pretty much everything else being cut.

Here is the before (from last June). As you can see – a total monthly payout $848.94.

As of yesterday, we are getting about $151.62.

In terms of the takeaway here, we made a major mistake in not diversifying. The objective at the time was to stay focused to maximize our monthly income, obviously it hasn’t worked. Specifically we probably should have diversified both across types of stocks and types of assets. That is bought less energy trusts and more bonds.

Even though we’ve taken some losses on our stocks, things could be a lot worse. We are both employed and despite the economic downturn, the US is still a great place to be an investor or a saver. If we are intentional about building our long-term wealth, we should be fine in the coming decades.

Best,

James & Miel