Never Chase Dividends
Focus on total return — not just the income an investment pays.
What This Means
A high dividend doesn’t necessarily make something a good investment.
Dividends are only one part of your return. What really matters is total return — the combination of investment growth and the income you receive along the way.
That’s why we don’t invest in something simply because it pays a big dividend. We look at the entire investment and ask one simple question:
How much money did the investment actually make?
For retirees who need income, that doesn’t necessarily mean you need to own dividend-paying stocks either. Income can also be created by strategically selling investments, which may provide more flexibility over your cash flow and taxes.
The goal isn’t to chase dividends. It’s to build a portfolio designed around your financial plan.
Common Questions
Are dividend stocks a good investment?
Dividend stocks can be good investments, but a high dividend alone doesn’t make an investment attractive. Investors should consider the company’s growth, earnings, valuation and overall potential for total return.
Do I need dividend stocks for retirement income?
Dividend-paying stocks can provide retirement income, but you don’t need them to live off your investment accounts. Retirement income can also be created by strategically selling investments from your portfolio. This allows you to focus on total return rather than investing simply for dividends.
Are dividends taxed differently than selling investments?
They can be. A taxable dividend is generally included in taxable income when it is received. When an appreciated investment is sold, only the gain above the investor’s cost basis is a capital gain. The specific tax treatment depends on the type of dividend, account and individual tax situation.
What is the difference between a dividend and dividend yield?
A dividend is the amount of money a company pays to shareholders. Dividend yield shows that dividend as a percentage of the investment’s current price. For example, if a $100 stock pays $4 per year in dividends, its dividend yield is 4%.
What is total return in investing?
Total return is the combination of how much an investment grows in value plus any income it pays, such as dividends. For example, if an investment increases 7% in value and pays a 3% dividend, the total return is approximately 10%.
Remember This:
Total return is what matters.
Keep Learning:
How Long Will It Take for Your Money to Double?: Learn how the Rule of 72 can help you estimate how long it may take for your money to double.
What To Own. When To Act: Learn how we use fundamentals to decide what to own and technicals to help decide when to act.