As portfolio values climb, dividend yields calculated as a percentage shrink

I like to say I can withdraw four percent annually from my retirement portfolio. Well, I could, in the past. Now? Maybe not. Why? The world's stock markets have soared in value. Stock prices are way up, some by more than thirty percent. But dividends have not increased lock step with the price of stock. While yields expressed in dollars have remained constant; percentage returns have tumbled.

I will withdraw only slightly more from my retirement portfolio come next January than I withdrew this year.  Stock values have climbed but the dividends as a percentage have stalled. This is not a big problem in the short term. I feel confident that there will be a correction, I will buy more stock and my dividend income will go up. As the stocks recover, I will make sure to keep about 10% in cash. Check the example:

• If holdings are worth $800,000 and dividends are $32,000, the dividend yield is four percent.
  
• If markets boom and the portfolio value climbs to $1,000,000, dividends may only grow to $33,500 and so the yield is only 3.35% .

If one is running their own retirement portfolio, they can keep an eye on the yields and make adjustments to the withdrawals when necessary. It is mainly a problem on paper.