Sorry guys I think I must have a fundamental misunderstanding...Can I quickly clarify?
Say if you have $1m in equities earning 5% yield ($50K)
Then GFC2 hits and now you only have $500K in equities. Would you still continue to earn ~$50K in dividends or would it be 5% of $500K, i.e. $25K
Post-GFC2, wouldn't you need about 10 years of 8% compounding growth to get you back up to $1m to earn back the 5% yield of $50K?
edit: my gut is telling me it would be somewhere inbetween the two. But the yield would over time revert back to 5% but your total asset base would still be less than $1m
No..that is not right. As mentioned by D.T. dividends are paid out of company's profits. If the profits don't go down there is no reason why the dividends should go down. Just because the share price goes down because of xyz external factors not related to the company in any way doesn't mean the company has stopped making money.
To give you couple of examples. Woolworths and BHP has been paying fully franked dividends and this is their history since 2006 (just prior to GFC)
Company: Woolworths
Year_____Fully Franked Per share dividend
2006_____59 cents
2007_____74 cents
2008_____92 cents
2009_____104 cents
2010_____115 cents
2011_____122 cents
2012_____126 cents
2013_____133 cents
2014_____137 cents
Company: BHP
BHP pays dividends in US dollars. Hence, it is important to look at the US cents dividends mentioned in the brackets. The Australian dividends doesn't seem to be progressive due to currency fluctuations. But the US dividend history is progressively going up nicely.
Year_____Fully Franked Per share dividend
2006_____48.7 cents (36 US cents)
2007_____57.1 cents (47 US cents)
2008_____75.5 cents (70 US cents)
2009_____109.7 cents (82 US cents)
2010_____98.9 cents (87 US cents)
2011_____96.5 cents (101 US cents)
2012_____110.1 cents (112 US cents)
2013_____118.5 cents (116 US cents)
2014_____131.8 cents (121 US cents)
In both cases their share prices were hammered in GFC. If you didn't bother to check the share price you would haven't noticed anything different in your dividends paycheck. Actually, that's not completely true. You would have noticed in case of Woolworths your dividend income increase about 132% over past 8 years and in case of BHP 236% increase.
GFC what GFC? The same is the case with stocks around the world aka US in particular. The US stock market peaked around 13000 prior of GFC and today is it around 17400.
IMHO, there is no other investments similar to owing equities via index fund that is more passive and whose returns are very respectable over the long term.
Cheers,
Oracle.