Is it possible to be blinded by dividends income and investment returns? Oh yes, and this is a common pitfall of being a smart investor. You may focus primarily, or even exclusively, on the dividend yield of a stock, but total income yield looks at the bigger picture. Here’s how to focus on total income and overall investment health instead of being blinded by dividend returns.
A Dividend Aristocrat isn’t a rich snob from the days before the French Revolution. The 2017 S&P 500 Dividend Aristocrats list is 50 companies that have increased dividends (not just remained the same) for 25 years straight. Keep in mind, just because they are on this list now doesn’t mean in the future they will be forced to reduce their dividend.
The dividend discount model is one of the most traditional and conservative methods for valuing an individual stock. A dividend discount model, also known as the Gordon Growth Model, assumes that a stock is equal to the present value of all its future dividend payments.
One of my favorite gameshows from the 80’s was “Press Your Luck”. The popular phrase from that show was “big bucks and no whammies”! Unfortunately, investors looking for yield in 2012 and 2013 are only going to get whammies. It’s a very difficult time to invest looking for yield, and I actually call it a double whammy. We are going to get hit on two fronts, both will affect your investment returns.