More about Dividend Payers and Switching

I have determined optimal conditions for Slices A (no dividends) and B (lowest 30% among dividend payers). I based this on Year 30 Historical Surviving Withdrawal Rates. I have listed the rates at which the first, sixth and twelfth failure first occur.

Optimal Conditions

Value B
Capitalization weighting.
Slice B: Lowest yielding payers: bottom 30%.
2% TIPS.
2-17-18-80.
100%-75%-30%-25%-0%.

Single threshold alternative:
Threshold: 17.
75%-25%.
That is, 75% when P/E10 is less than 17 and 25% when P/E10 is greater than 17.

Common outcome:
One Failure: 4.7%.
6 failures: 4.8%.
12 failures: 5.0%.

Value A
Capitalization weighting.
Slice A: No dividends.
2% TIPS.
2-15-17-80.
100%-75%-40%-25%-0%.

One Failure: 4.4%.
6 failures: 5.3%.
12 failures: 5.6%.

Single threshold alternative:
Threshold: 15.
75%-25%. That is, 75% when P/E10 is less than 15 and 25% when P/E10 is greater than 15.

One Failure: 4.5%.
6 failures: 5.2%.
12 failures: 5.6%.

Equal B
Equal weighting.
Slice B: Lowest yielding payers: bottom 30%.
2% TIPS.
2-15-17-80.
100%-75%-40%-25%-0%.

One Failure: 5.7%.
6 failures: 6.0%.
12 failures: 6.2%.

Single threshold alternative:
Threshold: 15.
75%-25%. That is, 75% when P/E10 is less than 15 and 25% when P/E10 is greater than 15.

One Failure: 5.7%.
6 failures: 5.9%.
12 failures: 6.2%.

Equal A
Equal weighting.
Slice A: No dividends.
2% TIPS.
2-15-17-80.
100%-75%-40%-25%-0%.

One Failure: 4.6%.
6 failures: 6.3%.
12 failures: 6.7%.

Single threshold alternative:
Threshold: 15.
75%-25%. That is, 75% when P/E10 is less than 15 and 25% when P/E10 is greater than 15.

One Failure: 4.7%.
6 failures: 6.2%.
12 failures: 6.7%.

Conclusions

Some of the outcomes favored two thresholds, but single threshold alternatives were almost as good.

The earlier conclusion remains: when sliced according to dividend yields, a single threshold does well.

The optimal threshold moves lower when dividends are lower. It is P/E10=15 as opposed to P/E10=17.

Do not be overly concerned with how these results differ from previous investigations. We can expect the optimum to shift somewhat, looking forward. We are working with a broadly defined maximum. Small variations make little difference.

Have fun.

John Walter Russell
March 28, 2007