The Big Myth Surrounding High-Yield Dividend Stocks
One of the golden rules of dividend investing that you'll often hear repeated is: "Do not chase a high dividend yield." I talked about it at length in this video here, and while this advice holds true in many cases, it doesn't necessarily mean we should dismiss high-yield dividend stocks altogether. In fact, when approached with prudence, these stocks can play a valuable role in our portfolios.
Having said that, some stocks like AGNC have given high-yield dividend stocks a bad reputation. They have a history of reducing their dividends over time and have significantly underperformed the market, which makes them deserving of their certified "Yield Trap" designation.
Source: Seeking Alpha
However, it would be unfair to generalize based on a few negative examples. There are indeed some high-yield dividend stocks that have demonstrated remarkable performance and outperformed the market on a total return basis. Two notable examples are MAIN and ARCC, which have consistently delivered solid total returns while providing attractive dividends.
On that note, when evaluating high-yield dividend stocks, it's crucial to focus on total return instead of just share price return. Dividends make up a significant portion of the returns generated by these stocks, and by considering both dividend income and capital appreciation, we get a more accurate representation of their performance.
Source: Seeking Alpha
DIVIDEND INVESTING DEMOCRATIZED
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Remember, the key is to approach high-yield dividend stocks with caution and remain diligent in your research. Really, the same rules apply for any potential investment, irregardless of the dividend yield.
Sustainable dividends should be a priority, so focus on stocks with a consistent track record of dividend payments and a solid business model. In my opinion, the stock I just bought some more shares of here checks these boxes, and is definitely a high-yielder worth considering.
What is the highest yielding stock in your portfolio? Write to me here and let me know.
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