7 Dividend Myths That Are Just Plain Wrong

Before you can hope to reap the rewards of dividend investing, it's important to separate fact from fiction.

Matthew Frankel, CFP
Matthew Frankel, CFP
Aug 25, 2015 at 6:40AM
Investment Planning

High-quality dividend stocks can be one of the best ways to create long-term wealth and minimize risk in your portfolio. Unfortunately, many investors invest in dividend stocks incorrectly (or not at all) because of some popular misconceptions.

Many younger investors tend to avoid dividend stocks because they're "boring" and they think growth stocks offer the best chance of strong returns, even though many dividend stocks significantly outperform the market over the long run. "Boring" dividend stock Johnson & Johnson (NYSE:JNJ) produced nearly double the S&P 500's total return over the past 20 years. Other dividend investors simply buy the highest-paying stocks in certain industries, without looking at the bigger picture. And the list goes on...

AT&T (NYSE:T) pays a 5.5% dividend yield, which makes it a great choice for those who rely on investment income to live on. However, many dividend investors believe that fact alone makes it a better investment than the aforementioned Johnson & Johnson, whose 3% yield pales in comparison. In reality, Johnson & Johnson has consistently outperformed AT&T over the long run for several reasons that I delve into in the slideshow below. 

Without further ado, scroll through the following slideshow to learn about seven dividend myths that are just plain wrong.