High Yield Stocks Are Inferior

There is another reason why investors are too focused on higher dividend stocks. Many investors have the misconception that they should be living on interest and dividends or the like. They view interest and dividends as what-they-can-spend. In terms of your retirement portfolio, living on interest and dividends is an inferior approach. Your spending should be designed so you will not run out money of before you die. The best spend amount is based upon your principal, your likely future capital gains or losses, your likely future dividends and interest, the number of years until the oldest you may become, etc.

Do not follow the crowd. Follow the facts. The facts indicate your chances are better with non-dividend stocks, lower dividend stocks, or stocks in general. This is especially true if the tax rate for qualified dividends is revised so it exceeds the tax rate for long-term capital gains, as it did before 2003. Qualified dividends are scheduled to be taxed at regular income tax rates again in 2013, whereas long-term capital gains would still receive favorable tax treatment. If qualified dividend tax rates end up being higher than long-term capital gains tax rates again, higher dividend stocks are going to be worth less than they are now in comparison to other stocks.

Source: Seeking Alpha

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