I went down the dividend yield path for a few years investing in, and carefully watching, their performance.
I ended up dramatically rolling back my investments in higher dividend stocks because at the end of the day a company must generate earnings and grow those earnings in order for an investor to receive money in the form of dividends or stock price appreciation.
I found that high dividend stocks might deliver great dividends, but over time their stock prices offset some of those distributed earnings, or the stock price didn’t grow enough to make their performance attractive as compared to other investments in terms of total return.
However, I’m not saying there is no role for high dividend stocks in a portfolio. There is something to be said for locking in the returns from dividends, as opposed to having all your returns in price appreciation. As a result I do hold a few higher dividend ETF’s, VYM and VYMI.
I stay away from higher yield stuff because there are real questions about the total return potential over the long term. There is some pretty big downside risk with a lot of it.
Of course with the market valuations so high right now, having some money in higher dividend investments could end up being a somewhat savvy move.