Dividend Investing: 3 Common Mistakes That Ruin Returns

Dividend investing is based on the idea that by paying a dividend, a company has established itself as relatively stable financially, and that therefore it is worthy for investment consideration. However, dividend investing can be tricky, and it is easy to make mistakes. Making mistakes in dividend stocks can be very costly, as such mistakes often come from the standpoint of complacency. Here are three common mistakes to avoid.

1. Chasing yield - This is probably the biggest mistake that dividend investors make. Investors will often judge a company’s value or upside potential by its dividend yield, and they will reason that a stock with a high yield must be cheap. 2. Assuming that dividend yields will protect you from losses - Many investors assume that dividend-paying stocks have some sort of “floor” set by the dividend. 3. Reinvesting dividends - A popular strategy that dividend investors employ is to have their brokers automatically reinvest their dividends into the stocks of the companies that paid them.

Source: Wall St. Cheat Sheet

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