Let's assume a person embarked on a dividend-based withdrawal plan in 2007 or 2008 and bought enough shares of DVY to supply $20,000 in annual dividends in 2008. That person planned on dividends rising by 3% to $20,600 in 2009 to offset inflation. Instead, they received only $13,719 from DVY. They couldn't make up the difference with other dividend ETFs because, as the table clearly shows, most of the others were just as bad, if not worse.Our dividend investor is left with no choice but to sell some holdings to make up for the income shortfall. To add insult to injury, the dividend streams still have not returned to their prior levels, forcing the dividend investor to sell again in 2010 and 2011. Even if dividends remarkably return to 2008 levels in 2012, our dividend investor has sold off a portion of the portfolio plus experienced four years of inflation, and therefore portfolio level dividends will still be insufficient.
The Major Flaw of Dividend Income Plans
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