I am never happy with these analyses, but I think I have enough to make some observations.
I have a chunk of money in taxable accounts. The goal of this is for ordinary income for monthly expenses. Basically, instead of paying cash for $100k cars and such, I borrowed and am investing the cash instead and that income makes the payments. (So it isn't subject to TSLA investing or anything.) I have about $150k in LC, and about $140k in a balanced portfolio of widow/orphan stocks and high yielding bond funds. Here are my holdings:
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With % of the 140k and the approximate div yield when I picked them, about 2 years ago. These are about as boring as I can go, but among dividend people this is edgy, with the NLY and AT&T heaviness for instance.
So this portfolio has 3 advantages over LC:
1) If held for >12 months (which it has been) the dividends are taxed at 15%, instead of ordinary income. (28% for my bracket)
2) The shares themselves could appreciate, with the market.
3) Liquidity and normality.
LC has these advantages over a dividend portfolio:
1) Higher yield, even with the tax advantage.
2) Steady, steady, steady. A stock market correction would not affect LC.
3) Continuous income stream instead of chunky quarterly or monthly dividends.
Here is a chart of an analysis I did of yields:
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Note this is not a simulation. This is my actual results. I have a longer track record on the LC, but these are the actual observed annualized yield. The way to interpret this chart is that for the dates along the bottom, I was getting that annualized yield. LC is drifting up because I am taking higher yielding (riskier) notes. The Dividend portfolio settled out at about 3.5%.
This chart shows the effect of the tax advantage. The tax hit for the LC is worse than the dividend portfolio, but is so much higher that it still ends up well ahead. Taking tax into account, LC still yields twice what this decent dividend portfolio could do.
For Income, LC is crushing it.
But wait you say, the stocks might appreciate, and indeed they did. Over the time period shown there (Since about Oct 2013) the DJ has gone up 22%. So the overall yield of the Div stocks was much better overall than LC, in an unrealized sense. But to say that it provided more income I would have to be selling off some shares along the way which I didn't. My goal was always to regard the stocks as income producers and ignore their market value and hold them essentially forever.
However, this feature is also a bug of course. The market is due for a big correction and those gains will drop eventually. So I am ignoring the affect of capital appreciation or loss.
So I think this is a good first order analysis. There are two niggling things that are really hard to analyse, in the second order:
1) Stocks have a inflation tracking feature. While I can say that I want to ignore capital appreciation, I think it is fair to observe that over say decades the balance will be no worse than inflation adjusted. The LC notes will have recirculated on a 5 year rolling basis, but am I not investing in todays valuable dollars for returned capital years from now? One could argue that I should deduct a portion of the growth to compensate for inflation.
2) Stocks' dividends themselves grow. The yield chart above, over a very long period of time, would show the dividend yields growing and eventually crossing the fixed LC yield. This would take decades however. This is the capital appreciation manifesting, since as the value of companies increase, the market will tend to keep the div yield constant which means increasing dividends on a dollar basis. The affect of that is painfully slow however and may not occur for decades.
I haven't figured out how to do this analysis.
In the end, I am liking the slow steady dependability of the LC income. A Dividend portfolio has some long term features that you could argue make it better over a lifetime, but LC is paying handsomely now.
