Dividend Growth Investing Rule #6: Dividend Yield of 3% +/- 0.5%

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A high dividend yield is great, but that is not the only thing you should look at when selecting a stock to invest in. A dividend investor should focus on dividend income as well as ensuring the long term safety of their principle.

High dividend yields generally mean one of two things.

  1. The dividend is the primary return and investors should not anticipate appreciation of the underlying stock.
  2. The dividend is not sustainable and will eventually be cut, which the market has already priced into the stock.

This rule is to help ensure that I do not “chase the yield” and initiate high risk positions when my funds can be better allocated elsewhere.

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