Dividend Investing Blinds You

We hate to break it to you but there is nothing special about dividends. Actually, they can blind you. We’ve addressed this problem before, but not like this.

Save your spot for the Dividend Income for Life Webinar to select the best quality stocks to create a sustainable income at retirement.

You’ll Learn

The idea for this episode started with the question, “Is it possible to live off dividends only?” Then, we realized we couldn’t answer that without explaining the problem with dividend investing. But first, what does it mean to live off dividends only? What kind of portfolio would that imply? There is also the 4% rule for retirement withdrawals. What is it exactly, and what kind of limitations does it bring?
This leads many investors to seek 5-6-7-8% yield dividend stocks. However, there’s a problem with that. It starts by understanding why a company pays a high yield.
In other words, there is a direct link between a stock’s price and its yield. The higher the price, the lower the yield, and the lower the price, the higher the yield. Mike explains the offer-and-demand principle for dividend stocks.
If a stock’s price is low and its dividend yield is high, the demand for this stock is also low. What qualities would such a company have then?
Therefore, investors need to wonder if that’s what they want to rely on for income. Some would argue that the price of a stock is not guaranteed and can go down anytime. What are Mike’s thoughts about this?
Should we hit a market correction or recession, many think focusing on returns can put someone’s retirement income at risk. Do you agree, and why?
What would be the ideal scenario, then? Is it a decent yield and growth mix, or should we not mind the yield at all and sell shares? There are actually multiple answers.
Which stock examples would illustrate Mike’s view?
In the end, what’s the problem with dividend investing, and is it possible to live solely on dividends?