SPY ETF or High Yield Dividend Stock Portfolio - YouTube

Hey everyone welcome back to Drawbridge Finance the other day I got a very interesting question

asking a very specific question about dividend portfolios vs spy etf. And I want to do a

quick chart to analyze some of the data I pulled up from last year. as alway, my name

is Levi Woods, I'm not a financial advisor, I don't work in the financial industry, and

this is an opinion channel about money. My goal with this channel is to help people make

more money. We want to all get rich together. That is my goal. If you're new to the channel

please click the subscribe button down below because I think you will find a huge amount

of information on this channel that is unlike any other channel offering financial opinions.

Alright, let's get right into this, the question from Dave Robbie and he asked "Since you illustrated

in another video how to get 7+% yields with ETFs SPY and QQQ, why would I want to invest

in individual stocks even after researching them? Research statistics show that only a

very small percentage of people can successfully pick stocks. Would not it be better and easier

to just go with SPY and QQQ ETFs where there is no researching required? Just invest each

month to dollar cost average and let grow over a long time. Thanks." Dave this a very

good question because building a dividend portfolio does take a bit of time. That's

why I always recommend that people seek help from a professional financial advisor. If

you can find someone that will actually help you build a dividend portfolio then they will

help you do that. I have an advisor and I've been investing for 23 years. I rely on my

advisor to feed me information. Now, that said, we also know that the S&P 500 grows

at an average rate of 7.8% per year. And we this investment available to us through the

use of ETFs. Exchange traded funds literally track the S&P 500 minute by minute over the

course of the trading day. It means that we can spend a very small amount on commissions

and we can track right along with the S&P 500 while growing our portfolio over time.

On top of that, the ETF pays a small quarterly dividend. I personally am a high dividend

yield investor so I look for stocks that pay between 6-10% annually as an average. The

SPY eft dividend is less than 2%. We're going to get into that and I'll show you the details.

The big thing about why I personally choose dividend stocks over the SPY is because I

want to generate monthly income. It really depends on where you are in your investment

portfolio life. If I was just starting out and only had a couple of hundred dollars to

invest each month and I had a small account I would absolutely be buying the SPY and QQQ.

That would be a very smart investment because I know that the investments that I make are

diversified and they are going to grow over time. But I personally am not in that situation.

I am getting close to retirement. I am now 10 months away from being able to fully retire

because I know that my dividend income stream per month is going to equal my monthly expenses.

Without having any other source of income I can live off my dividends. So that's why

the income stream is so important. What I'm going to do is look at a little spreadsheet

I built that looks at the income stream from a SPY portfolio comparatively to the income

stream from a dividend portfolio that is one of my model portfolios available on my patreon.

This is the expected performance vs the actual performance of a dividend stock portfolio

vs the SPY etf. So we're going to do two quick snapshots. The first one is going to be starting

with the model portfolio that has a million dollar value as of Jan 1st, 2018. The second

portfolio is going to be bob's portfolio is just the SPY etf. The same million dollar

investment but we're going to look at only investing the SPY etf. We're going to project

out what expected dividend yield is and then we're going to pretend that we require this

money. Once someone is retired they actually need to live off the dividend payout or their

stock portfolio. Let's take a look at the chart. Alice owns stock in 10 companies that

all pay a high dividend. Most of these are Canadian (9 out of 10) what I've done is pulled

the opening price from Jan 1st 2018. If we wanted to buy A&W.UN on the TSX the open price

on that day would have been $33.69. What I want to do is build a portfolio that equals

around 1 million dollars. What I've done is equally divided between these 10 stocks, $100k

each. In order to get $100 of A&W Alice would have to buy 2968 shares for $33.89 to equal

$100k. You'll notice that SNH which is American, the stock price is $19.12 USD, she bought

3939 shares and we have a market value of $79,192 USD. With the exchange rate, as exchange

rates always factor into the transactions. The portfolio total is $1 Million Dollars.

Now Bob's portfolio is only going to be comprised of the SPY ETF. The value was $267.84 USD

and he bought 2957 shares giving him a total value of $1 million CAD. As a Dividend investor,

one of the most important things to me is the actual income stream. I want to make sure

that I am making enough of a monthly return. I'm going to estimate based on the past year

what I expect to make on the year going forward. Looking at the expected yield for A&W is $1.63/share

this is based on the 2017 figures. The estimated dividend yield, at the current price of $33.69

is 4.84% annually. Boston Pizza pays $1.38/share with annual return being 6.3% Now of course

we can't see into the future but we're using trailing data to project what we expect. All

of the green cells are stocks that are paying a dividend of 6-10%. I've said this many times.

That is my target range. What this also means is that we can predict a dollar value as well.

If we bought $100k worth of A&W on Jan 1st we would expect to receive an annual payout

of $4844 over the year. A&W pays monthly so Alice would receive 12 payments that total

$4844 and we can now see that each these pays out a total of $66,207 a year. For someone

that is retired that is fairly good income. If you have a million dollar portfolio, I

would expect that a lot of people would be able to live off of $66k a year if the mortgage

is paid off, your car is paid off, and you want to travel, eat out and live. $66k is

a relatively good income for a retiree. The dividend yield is 6.62% or around $5,517/

month. Now this is cash. We're not reinvesting these dividends. We're removing the cash from

the account and spending it. We can do this perpetually forever. One of my rules is "invest

for forever" If you're not familiar with my rules I will put a link up above. The SPY

ETF only pays a dividend of $4.80 or 1.79% because it is not in the 6-10% range it is

red on this chart. $1 million invested will pay approximately $17,921 a year. Now that

is based on the exchange rate at this time. As exchange rates differ they will effect

how much money we receive. The expected average monthly dividend yield is $1,493/ month. This

is average per month. I'll show you how this works as the dividend is paid quarterly. Just

make sure all things are fair, I have added another column is how much % wise the amount

is relative to the total portfolio. Planning and using that money in a dividend portfolio

is so simple. We're making $5000+ a month we we just withdraw the cash and spend it.

We're not buying or selling any shares. We're just using the dividend to live. Now the SPY

on the other hand, isn't generating enough income for most people to live. I hope that

when I retire and I have an income stream that is reasonable it's not going to be as

low as $17k a year. In this scenario I'm going to have to sell off some of the shares, month

by month to make up the difference. That's the comparison today. I'm going to compare

Bob and Alice as if they're going to live the same lifestyle. Bob is going to have to

make a transaction and sell off some of his SPY shares every month in order to make up

the shortfall. He's only making an average of $1,493 month off the dividend. I built

a sheet specifically for this just to look at what's going on. Now Bob's monthly income

is going to be $5517. That is based on Alice's income, as we are trying to match Bob to Alice

so we can compare apples to apples. We're going to do this all in Canadian $. In Jan

we have an SPY value of $267, the exchange is 1.26 and the value in CAD is $338/share.

Bob had 2957 shares in the account. Now the dividend on the SPY etf is paid quarterly

and didn't even pay a dividend in Jan so Bob has to sell shares in the very first month

to make that $5k. Bob has to sell 16 shares. The share value for Feb is $281 or $345 CAD

the number of shares in the account has decreased to 2,941 shares because bob sold 16 shares

in Jan. Bob sells another 16 shares in Feb to give him the $5k income. In the third month,

Bob gets the dividend of $4118 in March so he only has to sell 4 shares to make

the $5k income. I'm going to populate down

this chart. Dividends paid quarterly, selling off shares every single month in order to

keep the income and reducing the number of shares that he has.

He had to sell 141 shares over the course of the year which gave him the rest of the

income at $49,795. Total income for the year is $66k. The interesting thing about this

was the SPY actually had a fairly good year. Every single month the price increased and

he was selling for an increased value. As of Jan 1st of 2019 the share value had dropped

to $331. One of the risks that you take by using this SPY etf strategy is that you are

selling it off for that value of a particular day. Bob could have had an extremely bad year

and he could have been selling for a loss on each of these transactions. He was lucky

that he was selling for a profit. The major takeaway from this is at the beginning of

the year he had 2957 shares and at the end of the year he only have 2816. That's a reduction

of 5%. 5% of his initial investment was sold off. Now let's go back to the original chart.

We're going to fill out the Jan 1st, 2019 values. If we look at A&W we can see the price

went from $33.69 to $34.13 but the important thing is that we didn't make any transactions.

We were collecting dividend income, but not selling any shares. So we still own 2968 shares.

That's the same for the entire portfolio. What I want to show is what we actually collected.

We expected to make a 6.62% return but we actually collected 6.77% A bunch of the stocks

increased their dividend payout. We were expecting $1.63, we actually received $1.92. Boston

pizza we were expecting $1.38 it actually paid $1.38. Of these 10 stocks, 5 increased

their dividend and 4 paid what we expected. Only 1 decreased. 2018 was not a particularly

good investment year and our portfolio value decreased. But we didn't sell any shares the

value was down to $844k but we made no transactions whatsoever. If we're still in the building

timeframe of our portfolio we would have actually been buying stocks at a lesser value and this

would have decreased our dollar cost averages and would have been beneficial. Last year

was a great year to buy dividend paying stocks. Especially in Nov and Dec. Now in the middle

of Feb we've seen a price increase and there has been almost no loss. This video was year

to year so I wanted to show that the value can change over time. There is risk in this

type of investing. There is also risk in investing in the SPY ETF. They both have risk. Bottom

line, we expected to get $5517/month but we actually got $5641/ month so we had an extra

$120 to spend on a special dinner. Pretty great to have that extra income. What happened

with the spy etf? The $1 million dollars when down to $933k so we saw a slight decrease.

Not particularly advantageous. We expected a 1.79% return and we actually got 1.76% with

only a $1367/month dividend. We actually missed our target. The other thing that we have to

factor in is that we have to incorporate in our transaction fees. In Alice's portfolio

there was no transaction fees. Bob's portfolio had 12 transactions. Each month had a transaction

fee. If the account has low costs you're probably only paying $10 a transaction so it is pretty

nominal. It is additional cost that should be factored in. The percentages of

the portfolio weighting have also changed. This would indicate times where the dividend

yield is still strong. Maybe I want to add to these weaker positions. We can use this

column to show us which stocks to buy or sell. I hope this has been informative. I love making

these videos and would love for you to subscribe for more. Let's get rich together.