What Dividend Yield Is Good?

What dividend yield is good? Attempting to pinpoint the ideal dividend yield for stocks. Dividend safety and dividend growth should be the main priorities. I am not a licensed investment advisor and this article is not investment advice.

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As a dividend investor, the dividend yield of a stock is an important measurement.

It tells you how much dividend income you can expect to earn, and it can also provide insight on if a stock is under valued or not.

Although it’s important metric, it’s wise to avoid focussing on the dividend yield too much. Sometimes a high dividend yield is a bad sign.

In this article, I aim to determine what is a good dividend yield.

Let’s dive in.

What Is A Dividend Yield?

In short, a dividend yield is a stock’s annual dividend payment divided by its share price.

The percentage after you divide the annual dividend payment by the stock price is the dividend yield.

Since the dividend yield is correlated to a stock’s price, it fluctuates. If a stock’s price per share lags for a year or two, and the company continues to pay the same dividend, the dividend yield will be higher.

At the same time, if a stock’s price outperforms, the dividend yield can appear to be low.

Is A 3% Dividend Yield Good?

Yes, a 3% dividend yield is a good yield. 

Frankly, there is no perfect answer on what the best yield is.

But a yield of between 2% to 4% is pretty good. 

Occasionally, there are stocks such as Altria Group and Enbridge that pay higher than 6% dividend yields. And there is nothing wrong with that. High yields are a great way to boost dividend income quickly. But stocks with higher dividend yields need to be approached with a level of caution.

It usually seems like companies in this range are stable and able to continue paying dividends for years to come.

Focus On Dividend Safety

What matters most is dividend safety.

I’ll admit it’s nice to get high dividend yields from Enbridge and Altria Group. I own high yielding dividend stocks too. But I limit the position sizes to manage risk.

For the rest of my portfolio, I focus on dividend safety. 

This means I prioritize stocks with low dividend pay out ratios and proven track records of growing earnings per share.

Simply put, you need to make sure the company has enough cash flow to pay its dividend. 

Im my humble opinion, it’s a way better strategy to focus on dividend safety than it is to chase high dividends. 

You don’t want to have to increase your portfolio turnover because stocks you are own cutting their dividend payments. 

Furthermore, you don’t want to only focus on dividends — total returns matter most.

If you focus on the best companies with decent dividend yields instead of chasing high yields, it’s likely that your total returns will be higher.

Related: Dividend Payout Ratio – Dividend Investors Should Seek Healthy Ratios Over High Ratios

Prioritize Dividend Growth

Another important factor is dividend growth.

In the long term, dividend growth could lead to higher dividend yields overall.

For example, a stock that grows its dividend by 10% per year will eventually pay more dividend income than a high yield stock that never raises its dividend. 

Furthermore, a stock with a history of raising its dividend is a good indicator of dividend safety. 

Prioritize stocks that are able to consistently grow earnings and raise dividends annually.

Final Thoughts

In summary, a good dividend yield is between 2% to 4%.

In truth, there’s no perfect answer.

What matters most is the dividend safety. 

Prioritize total return, low dividend payout ratios, and companies that are growing earnings per share.

Moreover, look out for companies that consistently raise dividends annually. 

In the long term, it could lead to outperformance and higher dividend yields compared to the original cost of the investment.

Similar Articles On Dividend Investing To Check Out

Dividend Payout Ratio – Dividend Investors Should Seek Healthy Ratios Over High Ratios

Dividend Investing Tips: 9 Must-Know Tips For Dividend Investors

I am not a licensed investment or tax adviser. All opinions are my own. This post may contain advertisements by Monumetric and Google Adsense. This post may also contains internal links, affiliate links to BizBudding, Amazon, Bluehost, and Questrade, links to trusted external sites, and links to RTC social media accounts.

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