Any advice on picking dividend stocks?

General
1

I have a Roth IRA, but I’m thinking of using my individual account to experiment a bit. I’ve had bad luck before, but I want to try again.

I’m looking for options with high dividends. I’m considering BITO because some coworkers recommend it. It’s a little pricier than I’d like, but I’m still thinking of buying a few shares. Any other suggestions?

2

Are you sure you want to pay more taxes? High dividends in a taxable account mean you’re asking to pay more to the IRS.

Dividends aren’t free money. In tax-sheltered accounts, they don’t matter much. In taxable ones, they just mean more taxes sooner.

3

@Jael
What about if I put them in an IRA?

4

Winter said:
@Jael
What about if I put them in an IRA?

In an IRA, dividends are not taxed while they grow, which is better than in a regular account. But I still wouldn’t pick stocks or funds just for dividends. Total return is more important.

5

Winter said:
@Jael
What about if I put them in an IRA?

No taxes inside an IRA, but if you withdraw anything beyond your contributions from a Roth IRA, you could face penalties and taxes. Be careful about dipping into the earnings.

6

Why are you focused on high dividends? If you compare an ETF like VOO (S&P 500) to a high-dividend fund like JEPI, reinvesting the dividends, VOO still performs better.

Here’s a comparison of BITO vs. VOO: Testfolio link. You’d make significantly more money with VOO.

7

@Cade
I don’t know much about the market, but the idea of getting money regularly just for holding a stock sounds good. If I could get enough dividends to cover part of my rent, that would help.

But VOO is $500, and BITO is $25. That price gap is huge.

8

@Winter
Here’s a helpful link: Portfolio Visualizer.

Dividends aren’t free money. They also don’t help grow your portfolio’s value. If your goal is long-term growth, focus on total return.

9

@Winter
Here’s something to keep in mind: when dividends are paid, the stock’s value drops by that amount.

Looking at the numbers, $10,000 in VOO in 2021 would now be $13,954, while BITO would be $11,899. That includes reinvesting dividends. You’d make much more sticking with VOO and selling shares as needed. Dividends seem nice, but they often leave you with less overall.

10

@Cade
The stock dropping by the dividend amount is just an accounting adjustment for open orders. Prices still depend on buyers and sellers.

But I agree: focus on total return instead of chasing dividends.

11

@Cade
I just like the idea of getting money I could use for bills.

12

Winter said:
@Cade
I just like the idea of getting money I could use for bills.

If you need the money soon, the stock market might not be the best place. Even dividend funds can drop in value during a downturn, and companies often cut dividends in tough times. Be cautious.

13

@Cade
I’m treating it as money I can afford to lose, but I’ve thought about just copying what my Roth IRA buys.

14

Winter said:
@Cade
I just like the idea of getting money I could use for bills.

If you need the money for monthly bills, it’s probably not the right time to invest. Build up your savings and emergency fund first.

15

Don’t get sucked into the dividend hype. They’re not magical. Dividends can be part of a portfolio, but don’t make them the centerpiece.

16

Ash said:
Don’t get sucked into the dividend hype. They’re not magical. Dividends can be part of a portfolio, but don’t make them the centerpiece.

Thanks.

17

Winter said:

Ash said:
Don’t get sucked into the dividend hype. They’re not magical. Dividends can be part of a portfolio, but don’t make them the centerpiece.

Thanks.

Dividends aren’t the most important factor. Other things like a company’s size, profitability, and reinvestment strategies matter more. Long-term growth comes from total return, not just dividends.

18

Dividends sound great, but don’t forget the bigger picture!

19

Years ago, dividends were a great strategy for income. Not anymore. Selling stocks is easier now, and a focus on total returns is better.

I use automatic monthly withdrawals from Vanguard, which sends funds to my checking account. It’s simple and works well for paying bills.

Here are a few resources:

20

Why focus on dividends? Decades ago, they were important, but now growth-focused investments tend to perform better.

During a market crash, high-dividend funds don’t provide as much stability as you might think. Total return strategies are often more effective for long-term goals.