A little while ago, I wrote an article on the key metrics for a dividend growth investor. This lengthy article was about each metric I personally use to manage my portfolio and create successful portfolio models at Dividend Stocks Rocks. Following on this article, many readers commented with their thoughts. A topic that was recurrent was that I focus more on the growth aspect of my portfolio (both portfolio value increases and dividend payment increase). On the other side, I am also more open to invest in a low dividend yield stock (read 1-2%) and tend to ignore companies paying around 5% dividend yield.

Most investors agree with my strategy as long as they consider I’m relatively young and that I have plenty of time to let my portfolio yield grow over a long period of time. Retirees often argued that low dividend yield companies weren’t paying enough to support their retirement income needs. However, I respectfully disagree with their strategy of picking high dividend yield to support their income. As I’ve clearly demonstrated in this article about low yield vs high yield, there is a huge risk of seeing your high dividend yield stocks collapse during a recession. But one of my reader got me digging even further. Ron replied that we could find solid companies with higher dividend yield. I will disclose the result of my research in a further article. For now, I wanted to look at another interesting factor for retirees: how much they get in their pockets. This is how I got to run a few hypothesis and work on calculations.

My hypothesis

Let’s assume you retire at the age of 65. On average, you will live another 20 years. For the sake of calculation, you have cumulated $1,000,000 for your retirement. In scenario #1, you will invest this money in a dividend growth portfolio paying 3% on average with a dividend growth of 6%. In scenario #2, you will invest the money in a high dividend yield portfolio with an average yield of 5% and a dividend growth of 0%. On the first year, the portfolio #1 generates $30,000 in income and portfolio #2 generates $50,000. Interesting enough, portfolio #1 will need 19 years to generate the same income as portfolio #2: