Thoughts on High Dividend Yield Stocks. Or Maybe I Should Just Stick To a Fixed Deposit?

[Sorry if this topic seems a bit advanced and haywire in its presentation but I felt it’d be good to share with you.]

I was reading-up on and strategizing the other day about the possibility of including high dividend yield stocks as one component of my early retirement portfolio. The general line of thought in this strategy is to buy and hold high dividend yield stocks and then use the dividends paid out each year as one of your sources of passive income.

Post my initial reading, here are some of the thoughts spinning around in my head —

  • The dividend yield for a chosen stock over a 5-year window should consistently have been above the post-tax rate of return on an equivalent debt instrument (possible benchmarks — a one-year fixed deposit or a one-year recurring deposit at prevailing rates of interest). Else you might as well stay invested in the equivalent debt instrument.

  • I haven’t even heard the names of most of the current highest dividend yield stocks (an example list). On the other hand, the stocks that I am comfortable and familiar with don’t seem to payout a high enough dividend yield (when compared to the equivalent debt benchmarks).

  • Does one need to even bother about capital appreciation in such a portfolio?

  • If picking individual high dividend yield stocks into a portfolio, when’s the correct time to recalibrate/churn the portfolio (because you can’t predict dividend yields)?

  • Or should I chuck it all and simply be conservative in a good old fixed deposit?

I think I need to explore more. But have you ever attempted such a strategy before? How did it fare? I’d love to hear your thoughts. Even if you haven’t, I’d still like to hear about any research that you might have done on this topic.

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