‘Not much you can do about the yields’: Retirees are rethinking their long-held dividend strategies as stocks soar

The payouts themselves haven’t shrunk, but yield is dividends measured against price, and prices have climbed far faster than payouts. The index crossed 7,700 for the first time in early August and because it weighs companies by market value, it now leans heavily on megacap tech names that pay little or nothing.

Steven Yedlin, a 75-year-old retired doctor in East Grand Rapids, Mich., has watched this happen in his own accounts. He told the Wall Street Journal (WSJ) that he built his portfolio around dividend ETFs and by the time he stopped working, his taxable account was split evenly between dividend funds and S&P 500 index funds.

“Not much you can do about the yields,” Yedlin said.

What he could do was change where the money goes. He shut off automatic reinvestment and the payouts now land in high-yield money-market funds — or he gives them to his kids.

Why the checks feel smaller

If, for instance, you have $500,000 sitting in a broad index fund, at today’s yield, that accrues roughly $5,250 per year for you in dividends. Then park the same amount in 10-year Treasurys, which currently yield about 4.65%, and you’d collect about $23,250 — more than four times as much.

And stock dividends no longer beat safe alternatives like Treasurys or CDs once taxes are accounted for, the WSJ reported. That stings most if dividend income is what you’re living on in retirement.

To be fair, dividend investors have had a strong stretch. High-dividend stocks beat the market on a total-return basis over the past year, according to the WSJ.

Dividends can disappear overnight

Papa John’s and UWM Holdings proved this possibility within two days of each other last week, scrapping their payouts. A dividend will last only as long as the board wants it to.