One Common Mistake That Could Wreck a Portfolio

January 8, 2025

Hey Traders,

Let me ask you something:

Have you ever been tempted by a dividend stock with a sky-high yield? Maybe you thought, “Wow, this is paying out 12%, 15%, even 20% — I can’t lose!”

But then a few months or years down the line, that stock crashes, and you’re left holding the bag.

If this sounds familiar, you’re not alone. Chasing high dividend yields is a common mistake, and trust me, I’ve seen it happen a lot in my career.

Today, I want to talk about why focusing on a stock’s dividend yield alone can backfire and what you should really look for when choosing dividend stocks.

The Yield Trap: What It Is and Why It’s Dangerous

On paper, high yields sound great. Who doesn’t want a fat dividend check?

But here’s the problem: A high yield could signal trouble. It could mean the stock price has tanked (pushing the yield higher) or that the company is overextending itself to keep paying out dividends it can’t afford.

Let’s take Big Lots (BIGGQ) as an example. Just a few years ago, they were paying a solid dividend, and plenty of folks piled in for the payout. But where are they now? They’re on the verge of bankruptcy.

Or take AT&T (T) —once a favorite of income investors. For years, they paid a hefty dividend. But as they struggled with declining revenues and a pile of debt, they had to cut that dividend, leaving their investors high and dry.

The lesson here is simple: Focusing only on yield without considering the company’s financial health and growth prospects is a recipe for disaster.

The Balancing Act: Yield vs. Growth

So, how do you avoid the yield trap? It’s all about balance.

A great dividend stock doesn’t just pay you today — it grows over time. It’s like planting a tree. You want one that gives you fruit and keeps growing taller and stronger every year.

Here’s what I look for when I built my dividend portfolio:

Strong Fundamentals: Is the company profitable? Does it have manageable debt?
Consistent, Increasing Payouts: Has the company paid and increased its dividend over several years?
Growth Potential: Is the company in an industry with room to expand, or is it in decline?

When you find a stock that checks these boxes, you’re not just collecting dividends — you’re building a solid foundation for long-term wealth.

The Market Is Like a Casino… So Be the House

Here’s one more way to think about it: Picture the market like a casino. Most folks are the gamblers — they’re chasing the next big win, whether it’s a hot stock of the moment or a sky-high dividend.

But when we focus on quality dividend stocks, we’re the house.

The house doesn’t need to hit jackpots. It wins by playing smart and stacking the odds in its favor.

And that’s the beauty of smart dividend investing. You’re not relying on flashy, risky plays.

You’re building a portfolio of steady, reliable winners that can deliver consistent returns over time—without the wild swings that keep gamblers awake at night.

How to Take the First Step

If you’ve been chasing yield — or if you haven’t been looking at dividends at all — it’s time to rethink your strategy.

Start looking for stocks that balance yield and growth. Look at the company’s fundamentals. And most importantly, think like the house — small consistent growth over time.

But I get it, it’s not easy to know where to start — so I’ve got good news.

I just shared 3 of my top dividend stocks — and I break down my dividend strategy in detail — including the exact types of stocks I look for and how I build my portfolio to generate consistent income right here in this FREE video.