When Dividend Investing Doesn't Pay Dividends

Posted by D4L | Saturday, November 19, 2011 | | 0 comments »

I recently watched a promotional video that outlined the reasons for owning dividend-paying stocks – tax-efficient income, lower volatility and you get paid to wait for markets to recover. I agreed with all the fund manager’s points, but he failed to mention that investors tend to get sloppy when it comes to income and dividends. The level of analysis and discipline that goes into buying tech or industrial stocks isn’t always evident when higher-yielding stocks (and structured products) are involved. Too many decisions are made for the wrong reasons. Here are a few of them.

Yield, Return of Capital, Diversification and Opportunity Cost. When it comes to income investing, yield and tax efficiency are important, but they have to take a back seat to diversification and valuation. Sometimes the best strategy is to accept a lower current yield and own a broader range of securities.

Source: Globe and Mail

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