Don Schreiber, Jr.
Don Schreiber has a revolutionary idea that is essentially an old story—dividend investing—which brings a continuous income stream to those who need it most—retirees or those soon facing retirement
From the May 2006 Issue of Investment Advisor Magazine
Schreiber's clients at WBI Investments in Little Silver, New Jersey, of which he is president and CEO, require a steady income that offsets inflation but preserves capital. Thus, Schreiber and his firm invest in value stocks that pay healthy dividends.
Why? Dividend payouts generally outpace inflation. Together with the price appreciation of the stocks themselves, one can manage through the tough times, Schreiber argues.
About 40% of stock market returns over the last 100 years have come from dividends, according to Ibbotson Associates. Dividend investing was popular during the 1940s, 1950s, and 1960s, but was eclipsed during the market surges of the 1980s and 1990s, when investors became enamored of sometimes staggering capital appreciation. "People forgot about [dividends] when they were focusing on price appreciation and growth," says the Warren Buffett admirer, who has written two books, one on building a value-laden financial services business and the other on dividend investing. "The dividend is back." It's back with a bang: dividends' taxes were cut drastically from ordinary income tax rates with the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003. Dividends now enjoy a federal tax qualifying rate of a maximum of 15% and as low as 5%, depending on an investor's tax bracket.
It is a self-fulfilling, perpetual motion strategy, Schreiber claims. The greater the push for good dividends, the more companies will offer bigger dividends. As more people invest in the dividend-paying stock, the more the market price will climb.
"One of the truly fantastic things that is happening is that investors are starting to focus on the income they can get from dividend-paying stocks, and S&P companies are trying to make their stocks more attractive to investors with high dividends," he says. "Companies have been increasing their dividends at a fast rate." Even Microsoft and Intel now pay dividends "and they swore they would never do that," he continues. "I think that will continue for these income–hungry investors." He adds: "We think this is a simple, time-proven strategy—bonds and stocks—[that] really weathers almost any market storm."
Lifestyle, Not Savings
With the crush of people entering retirement, and the general warning that they aren't saving nearly enough, Schreiber doesn't want his clients to be caught short. Indeed, the Employee Benefit Research Institute's (EBRI) annual retirement confidence survey, released April 4, showed many Americans have accumulated only modest retirement savings; underestimate the share of their preretirement income they are likely to need; and have no estimate of how much they will need once they retire.
Schreiber concurs: "Baby boomers are not focused on saving but on garnering a great lifestyle—their portfolios aren't large enough to keep their pre-retirement lifestyles."
A central element of the WBI process is maintaining a low-risk profile so the portfolio's capital doesn't go up in smoke. Even through "the second worst bear market in history—from 2000 to 2002," WBI made money, Schreiber says.
In the financial planning business for 25 years, in 2001 Schreiber adjusted the main thrust of his business toward third-party money management, including helping advisors with their clients' retirement income management. He has been using the same dividend strategy with his advisor clients as he does with his private clients.
