{"id":10042,"date":"2021-12-17T03:46:07","date_gmt":"2021-12-17T03:46:07","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10042"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"pros-and-cons-of-dividend-only-investing","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/pros-and-cons-of-dividend-only-investing\/","title":{"rendered":"Pros and Cons of “Dividend-Only” Investing"},"content":{"rendered":"\n

Alisa C. from Montgomery, AL asks: <\/em>Hi Mitch, I\u2019m\nthinking about committing to a dividend-only approach for getting income from\nmy investment portfolio. If dividend stocks are good performers and they\nprovide cash flow, this seems like a good long-term approach. Appreciate your\nthoughts, thank you. <\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for sending your question. You are clearly in\nsearch of a way to generate solid long-term capital appreciation while\ngenerating income for retirement along the way, and I applaud you for thinking\nabout dividend stocks as a means to accomplish your goals. But my advice is to\ngive some more thought to your \u2018dividend-only\u2019 approach \u2013 it may be wise to try\nand diversify your income stream.<\/p>\n\n\n\n

Don\u2019t get me wrong \u2013 I think dividend-paying stocks are a\ngood way to generate cash in an investment portfolio, and as of Q3 2021 our\nZacks Dividend Strategy has a yield of 3.13%. But I also believe that just\nabout every investor would benefit from a diversified portfolio, which in the\nincome-generating realm means considering fixed-income, preferred stocks, and\neven some cash to make sure your income needs are met. <\/p>\n\n\n\n

Where Should You Invest Your Retirement?
<\/a> \u200b\u200b\u200b\u200b<\/strong>
Are you ready to see how a dividend strategy could fit into your retirement plan? While diversification is key, for a stable and predictable source of income in retirement, we recommend a portfolio also invested in stocks with a strong track record of dividends and dividend growth.<\/p>\n\n\n\n

To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide \u201cRetirement\u2019s Uphill Battle: Generating Income in a Low-Interest Rate Environment.\u201d<\/p>\n\n\n\n

If you have $500,000+ to invest, get our free Retirement\u2019s Uphill Battle: Generating Income in a Low-Interest Rate Environment<\/a><\/strong>1<\/sup> guide today.<\/p>\n\n\n\n

But I would also encourage you to think beyond investing in\ncertain asset classes just because they generate income. Many investors are\nreluctant to touch the principal in an investment portfolio during retirement,\nwhich is understandable. But that same thinking causes many to look only to\nincome-generating assets, like dividend-paying stocks and preferred stocks,\nwhen building a retirement portfolio. In reality, however, it is total\nreturn<\/em> that ultimately matters more than yield.<\/p>\n\n\n\n

If a broadly diversified portfolio of stocks returns 50% in\nfive years, and a \u2018dividend-only\u2019 portfolio returns 30% over the same period\nbut with a 4% annual yield, which portfolio is better? Investors forget that\nyou can \u2018create your own dividends\u2019 by strategically trimming shares of stock\nin a portfolio over time, making sure to keep your overall portfolio\ndiversified in the process. <\/p>\n\n\n\n

This strategy requires some active management, but shifting\nthe focus to total return could mean getting the best of both worlds \u2013 having\nparts of the portfolio actively generating income, while other allocations in\nthe portfolio are designed to drive long-term capital appreciation. This\nstrategy could mean having some of the portfolio allocated to a dividend\nstrategy like the one we manage here at Zacks Investment Management, a\npercentage allocated to fixed income, preferred stocks, and other categories\nlike small- and mid-cap stocks. The point is to have many parts of the\nportfolio working towards your long-term goals, with a diversified approach\nalso allowing you to potentially reduce risk (versus a dividend-only approach).<\/p>\n\n\n\n

To learn more about how to use dividend-paying stocks in your strategy, I recommend checking out our guide \u201c<\/a>Retirement\u2019s Uphill Battle: Generating Income in a Low-Interest Rate Environment.<\/a>\u201d<\/strong>2<\/sup><\/p>\n\n\n\n

If you have $500,000+ to invest,\nget our free guide by clicking on the link below.<\/p>\n","protected":false},"excerpt":{"rendered":"

While investing in dividend-paying stocks can be a productive way to generate income, it’s always important to diversify your portfolio<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-10042","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=10042"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10042\/revisions"}],"predecessor-version":[{"id":10239,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10042\/revisions\/10239"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=10042"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=10042"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=10042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}