Focusing on the fundamentals of a company to avoid the cut is critical. If you wait for the announcement, it’s too late. You’ve already lost total return.
I was recently in a meeting, and I was asked if I would consider higher yielding stocks. I turned to the analyst and asked, “Do you really want me trading dollars for dimes?” Because that’s what people do when they make this mistake. Generating reliable income and investing in stocks that can continue to grow are more important to me than the dividend yield ratio.
Bottom Line
Dividend yield doesn’t tell you much, and it certainly doesn’t provide any clues into a company’s fundamentals. Yet, many investors continue to focus only on dividend yield and lose sight on the bigger picture: the total return opportunity. Stop overreaching and look for more consistent returns over time.
Scott Davis is senior portfolio manager and head of income strategies Columbia Threadneedle Investments.