This Dividend-Stock Mistake Can Ruin Your Retirement

Be careful before you pick just any dividend stock for your portfolio.

Jun 7, 2014 at 7:25AM

Dividend stocks are an essential part of retiring with financial security. But many retirees make a very simple and avoidable mistake with their dividend stocks: they choose the highest-yielding stocks available rather than thinking about longer-term prospects for their portfolios.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the problems that high-yield dividend stocks can create. He notes that high yields are often unsustainable, with imminent dividend cuts hurting your investments both by cutting your income and suffering share-price declines. Dan gives the example of the Select SPDR Utilities ETF (NYSEMKT:XLU), which has done well this year but could be vulnerable from higher interest rates in the future. Yet Dan also points out that some high-yielding stocks can be promising, discussing the stable cash flow and long-term prospects for telecom giant AT&T (NYSE:T) and cigarette maven Altria Group (NYSE:MO). Dan concludes that you have to look at stocks with consistent track records of rising dividends in order to make the most of your investment income potential.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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