The Lemon Fool

1995, Hayford Peirce, a science-fiction and mystery writer by avocation, sat down in a Tahitian café. He was 53 years old.

Peirce pulled out a legal pad and pen, and wrote down his list of stock investments. He had two groups: There were about a dozen high-yield but slow-growing stocks such as utilities and high-yield bonds.

The second group of stocks, seven in all, overlapped a little with the first. But these companies were comparatively high-growth, with a long history of increasing their dividends every year. All of them were well-known blue chips: Coca-Cola, General Electric, Johnson & Johnson, Kellogg,Merck, Pfizer, and Philip Morris. Philip Morris was Peirce's largest holding by far.

He predicted his high-growth portfolio would pay him about $14,000 in dividends in 1995 (the actual payout ended up being $14,267.50). That would turn out to be 13.8% of his total income for the year, the rest coming from his low-growth "widows and orphans" stocks. "Let's see what would happen if we just increased this dividend payout by 10% every year for 30 years," he recalls saying to himself. Thus began his 30-year plan.

Full post:

https://www.fool.com/investing/2017/11/ ... 1&mrr=1.00

Superb thanks for the weekend reading woodtrain.

Very much in Hayford's style of thinking I'm aiming to grow my overall HYP income annually against a pre-determined target.

And interesting to see he today has 13 securities.

If you look at his actual portfolio you will see that he made extensive use of Master Limited Partnerships (MLPs). These are not ordinary shares at all, but rather complicated vehicles where you are a limited liability partner in a business. These can be attractive as they have high yields, and certain tax benefits. But I question the conclusion that the article tries to make here because there are two important factors not mentioned:

1) MLP's cause considerable complications for doing one's tax return. Their distributions consists of several different types of payout, each of which have to be accounted for separately. That in turn requires the receipt of a K-! statement, which can arrive very late. Moreover I am not sure they would be allowed in a UK tax-favoured account like an ISA or SIPP (willing to be proven wrong).

2) As above, those distributions aren't dividends although they include that as a component. They also include capital distributions, depreciation and other cashflows, some of which reduce principal. So using those distribution figures as "dividends" is a little misleading.

I'm not saying that the underlying premise is false, but I think an article that focuses on ordinary shares rather than complex hybrid instruments like these would be more convincing.

Lootman,

Yes it is true that MLPs have additional implications for filing taxes and may not work for UK investors, they are widely held by individual investors in the US.

MLPs tend to yield 5-6% these days so with a combination of REITs, Utils and other high yielders it is probably doable to get something close. Also Hayfor specifically calls out pipelines as one of his mistakes

"Do it just the way I did it back then, but stay away from Kinder Morgan,"

Per the article, his largest holding by far is Philip Morris

I am not sure that it is as difficult as it sounds. £33,000 average over 30 years will get you £990,000. It is the aggregate of dividends we are talking about after all. Plenty people will have done that, you just need to start with a big enough pot, pick the right shares to begin with, stick with them and have a long enough life span. I appreciate that you need a good 'kick' for the final ten years or so but even so..

Dod

Actually, given that Pierce started 1995 with around $2M in capital, his overall performance seems to be solid rather than remarkable. We are not told his current capital, but the income from his total portfolio can be inferred. We are told that $86611 is 62.2% of it, so it is presumably $139246 (sorry for the absurd over-precision of this figure, but the fool article somewhat invites this!).

We are not told when in 1995 Pierce did his calculation, but presumably it was at the start of the year - otherwise, the $14000 would not have been a prediction.

So suppose he had instead invested his entire capital in the S&P 500: that index has risen from around 465 at the start of 1995 to the current 2600, so his capital today would be around $11.2M. With the current S&P yield of around 1.9%, his income this year would be around $210K.

So even if the high growth portion of his portfolio has outperformed, his overall performance in terms of income growth appears to have somewhat under-performed the market.

forlesen wrote:Actually, given that Pierce started 1995 with around $2M in capital,

Ummm ...

"And my income [from all sources] had reached about $165,000 by 2015, which was far more than I really need."

If he'd just locked in to 1995 annuity rates he could've made a lot more income than that.

Hard not to be rich if you start with $2million.

Personally I could not get past the ridiculous TMF title, he was not a "Dividend Millionaire". He may have been a millionaire before he started, he may have received income of $1m over a very long period much of which he spent, but he was not a man who was a millionaire from dividends. Same old ludicrous TMF articles!

Terry.

And TMF doesn't seem to know the difference between principle and principal.

DrBunsenHoneydew wrote:And TMF doesn't seem to know the difference between principle and principal.

Maybe TMF USA are being homophonic.

“his overall performance seems to be solid rather than remarkable”

Forlesen - maybe solid is ok? the most remarkable thing is making a plan and sticking to it for 22 years. Old news and not remarkable for the people on this board, but maybe some others can learn from it