As a yield strategist, I see a lot of investors obsess over dividend percentage or yield without really understanding where that yield is coming from.
A high yield doesn’t automatically mean a high return. In many cases, it actually signals trouble, such as:
• The stock price has fallen, making the yield look attractive only after the damage is done
• Cash flows are cyclical or unsustainable
• Dividends are being paid through debt rather than earnings
Yield should be evaluated only after looking at:
• Balance sheet strength
• Durability and consistency of cash flows
• Payout ratios across different economic cycles
• Management’s discipline in capital allocation
In many situations, a lower but sustainable yield combined with steady growth outperforms a flashy double-digit yield that gets cut in the next downturn.
Yield is a result, not a strategy.
Curious how others here assess dividend safety beyond just the headline yield.