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Low Yield Dividend Stocks – What does it mean?

yieldIn last few weeks, I have looked at dividend stocks (aristocrats and achievers) that have dividend yields of less than 2%. There is a school of thought among dividend crowd that low dividend yields will take more than 10, 12, or even 15 years to match income from high yielding CDs or money market accounts. Furthermore, when low yield dividend stocks are compared to high yield dividend stocks, considering conservative dividend growth rates, low yielding stocks will often lag by significant amount. I agree that, mathematically, there is no argument for low yielding dividend stock providing lower income. Purely based on numbers, it is always good to go for relatively higher yield dividends stocks. In general, the cut off used by dividends investors vary such as 2% absolute dividend yield, 3% absolute dividend yield, or dividend yield higher than market (i.e. S&P500 yield).

In general, I have always tried to compare dividend stocks yields to S&P500. But I have not had a minimum dividend yield floor value, below which I have not invested. Another aspect is, it is likely that the low dividend yield is perhaps due to the higher stock price which in turn could mean good quality stock. As an example, I have been holding on to LOW stock for a while now. I tend to look for quality of the dividends, risk to dividends, and core competency of the company. Let us take two examples.

I am still in my early thirties and have a long way to go before I stop investing. So if I think the company has some core competency, competitive advantage, low risk to dividends, and will survive beyond ten years, then I am open to invest in such low yield dividend stocks. I believe the slow steady earnings will provide capital gains and help me moderate out total returns.