How to Invest in Dividend Stocks

Chasing the biggest yield is the classic mistake. Look for the payout that can keep growing.

Income · 7 min read

Yield is an output, not a target

A high yield often reflects a falling share price and a payout the market expects to be cut.

Prefer a moderate yield growing steadily to a large one standing still.

Compare dividends paid with free cash flow, not with reported earnings. A payout ratio above 80% of free cash flow leaves little room for error.

Look for a decade of uninterrupted or rising payments through at least one downturn.

Reinvested dividends account for a large share of long-run equity returns. Automate reinvestment while you are accumulating.

In retirement, switch to taking the cash rather than selling shares in weak markets.