Your approach is incorrect. I suspect that the reason you don't want to sell is that you want to preserve your core capital. In that case, seek the highest return you can get for the risk you are willing to endure. Whether that return comes in capital gains (which can only be realized by selling some of the stock) or in dividends doesn't change anything.
If a company pays a 1% dividend every quarter (to keep the calculations simple), each time the dividend is paid, the stock price will drop that much. If you could buy a stock that is about to pay a dividend or a stock that just paid a dividend, what is the difference in the amount you would pay? The amount of the dividend.
Let's do this in nice, round numbers. The stock is $100. It pays a dividend once a year (that makes the example simpler, but thee same thinking applies to more realistic schedules). The stock grows to $104 a share over a year. It pays a $3 dividend, and the price instantly drops to $101. That isn't better than a stock that climbed from $100 to $104 and didn't pay a dividend. In that latter case, you could just sell a small amount of the stock. You'll have fewer shares in the second example, but the total value of the stock remaining after you sell a small amount will be the same. Just to keep things very simple, let's say that you have 104 shares. Sell 3 shares. You started with 104 shares worth $100 each ($10,400), which became 104 shares worth $104 each. Then you sold 3 shares at $104 each, leaving you with 101 shares worth $104 each ($10,504). You will have exactly the same amount of stock in dollar value as you have if you took that $3 a share as dividends.
There's one big difference, though. Capital gains on a sale are taxed at a low capital gains rate. Dividends are taxed as ordinary income, which has a much higher rate.
Frank was generous writing that thorough an explanation of dividends vs. capital gains. 3% is also generous for a dependable large cap. Johnson & Johnson, Coca-cola, United Parcel Service pay almost that much dividend. 2.5% is probably closer to the average.
Walmart trades at about $80 a share and pays a dividend about 2%. But Walmart has a track record of raising their dividend yearly, so if you invested you $1 million you could expect a 2% dividend the first year and next year maybe more becuase Walmart increases their dividend each year. Proctor & Gamble also has a track record of increasing their dividend each year.
Let's say you had a diverse portfolio of assets that could essentially be expected not to appreciate in value too much, or if so, they would only keep up with inflation in value. But they produced a relatively high dividend yield.
***Side note: I'm assuming this would be kind of like very large-cap stocks, right? Although probably even large-cap stocks come with more risk.
What would be a reasonable percentage dividend yield to expect from this portfolio?
I ask this because I am trying to imagine how much annual income a person would receive if a person created a portfolio of say, $1M dollars, and never wanted to sell assets or liquidate portfolio capital for income. At the same time they were not looking for marked capital appreciation either, and wanted as much of their investment returns as possible to be in cash.
