The Cost of Capital Appreciation

The Morningstar Dividend Investor newsletter Builder portfolio includes 7 stocks with dividend yields under 3.0%. The overall portfolio has a yield of 3.1%. If we were to eliminate all of the lower yielding stocks, the median yield would rise to 3.9%.

I examined a substitute portfolio. It had an initial dividend yield of 3.9%. I kept everything else unchanged.

I applied the Income Stream Allocator. I found that only the withdrawal amount changes. The best allocation remains the same: 15% Stock A (Builder portfolio) and 85% Investment B (Harvest portfolio).

The minimum withdrawal rate with the new portfolio is 5.64% of the initial balance (plus inflation). It starts at 5.77%. It hits bottom at 5.64% in Years 11 and 12. It rises above 6.0% in Year 27. It rises above 7.0% in Year 39.

The comparable minimum withdrawal rate of the original portfolio was 5.54%.

Conclusion