Why Dividend Strategies Don't Live Up to the Hype and what you Should do Instead

Quite a few investors believe that a strategy focussed on high dividend paying stocks makes sense, for example, to generate a passive income or because it focuses on proven profitable companies.

Dr. Chris Mulder

Dr. Chris is a former Senior Economist and Manager at the IMF and The World Bank. He is a Hypofriend Co-founder.

Published on May 29, 2024 Published on May 29, 2024 . Updated a month ago

Dr. Chris is a former Senior Economist and Manager at the IMF and The World Bank. He is a Hypofriend Co-founder.

Unfortunately, this is one of those costly fallacies in the investment world, perpetuated by amateur advisors who ignore the finance literature and fail to apply rigorous analysis. In this article, we will first dissect why people choose this strategy and why those arguments do not work and then suggest alternative approaches.

Dividends are not a good proxy for sustainable income
A high dividend is not a good indicator of the soundness of companies
It does not improve the stability of your portfolio
We suggest these alternatives:
Sensible withdrawal rules
Adding bonds

Dr. Chris Mulder

Dr. Chris is a former Senior Economist and Manager at the IMF and The World Bank. He is a Hypofriend Co-founder.

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