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.
- The dividend is the primary return and investors should not anticipate appreciation of the underlying stock.
- 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.