How might investors seek safe and sustainable dividend stocks over the long term? In this clip from "Ask Us Anything" on Motley Fool Live, recorded on July 12, Motley Fool contributor Tyler Crowe discusses what investors should do before buying dividend-yielding stocks and why it's important that investors set their expectations beforehand.
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Tyler Crowe: I think a lot of it actually comes down to your dividend expectations over the long term too. Because like you said, what are you buying your safe dividend stock for, and how do you project that going forward? I'll give two small, I wouldn't call them, rules of thumb, that's not a great term to describe them, but just ways of setting your expectations when it comes to dividends. If you're looking for something that is a high-yield investment, and I'll define high-yield loosely here, basically anything over 4%. If anything like that, you're looking for more or less, probably, an income supplement. Maybe you're using for wealth accumulation through reinvested dividends like they were talking about. But for the most part, high yield, you're probably looking to supplement income. As a result, you're not looking for probably as much huge growth, but something that is better than inflation growth, better than 3-5%, 6% growth annually. That can be a reasonable expectation if you're looking at a safe dividend stock that probably has a lower yield. Maybe it's something that's growing faster. I think another example of this too is, if I am willing to invest in a stock for its dividend, where the yield is less than the yield I could get from an index fund like the S&P 500 index fund or a REIT index fund, which I think is somewhere north of 3% right now, I'm going to be looking for a higher payout growth, probably something in the 10-15% range because that's the trade-off I'm making. I'm going to take less now, but the projected growth of that dividend should be higher than what I can expect from my baseline. If you use that baseline of S&P 500 dividend or real estate index dividend for your, let's say, more income-oriented things, I think those give you a good way to manage your expectations for what a safe and sustainable dividend over the long term can be.
