Dividend Yield is NOT the Most Important Metric Here

Kar Yong
3 min readApr 26, 2022

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This today’s post, I want to share with you why when you’re building your Dividend Portfolio, it’s so important to consider this one metric, instead of focusing too much on the current dividend yield.

Often I see investors put too much emphasis on the dividend yield when they are deciding on which stocks to include in their portfolio, and whether to buy or sell a stock in their portfolio.

Dividend yield fluctuates according to the current market price. If the stock price goes up, while the dividends remain the same, the dividend yield can be down. But that doesn’t mean the stock is not worthy to be in your dividend portfolio.

On the other hand, a currently high dividend yield may not necessarily be a good dividend stock. Because the yield can be high simply because the current stock price has fallen significantly.

While we do look at dividend yield as one of the metrics in analyzing whether it is a company we want to add to our portfolio, we don’t only focus on this.

The main objective of building a dividend portfolio is that we can create enough income cash flow from dividends themselves, that we’ll never have to touch your initial capital or principal.

And a very important element to achieve that is to invest in companies that pay out dividends, and more importantly, companies that raise their dividends every year.

Let me show you what I mean -

Company A pays a dividend of 6% yield but does not grow the dividend.

Company B pays a dividend of 4% yield but grows 8% per year.

On the surface, company A seems to be a better dividend stock since it’s paying out a higher dividend. But here’s where the math and power of compounding kick in.

If you invested $10,000 in company A, you’ll be receiving a fixed $600. Rather straightforward forward right.

On the other hand, if you invested in company B, you’ll be making just $400 at the beginning. But because the dividend keeps growing, by year 10, you’ll be collecting $799, and by year 15, it’ll be at $1,174. And it just keeps growing. Remember this is still the same $10,000 investment that you only did once back then.

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