Is Investing in Dividend-Yielding Stocks a Smart Strategy?


What’s better than a stock that soars after you’ve bought it? One that pays you dividends, too.

Back up. What are dividends, again?

Dividends are periodic payouts of earnings that some companies give to shareholders. Typically, doing so says to the world, “We’re doing great! Take our money! We’ve got plenty!”

As investors, we appreciate the steady payments. In return, the thinking goes, we’re more likely to hold onto our shares, which can help keep the company’s stock price up.

So everybody lives happily ever after?

Well, despite the comfort a little extra cash in our pockets provides, dividend-paying stocks are still stocks, which come with some risks.

“People hear ‘dividend,’ and they think ‘safety,’ but it’s just not true,” says Taylor Schulte, Certified Financial Planner and CEO of Define Financial in San Diego. “Dividend stocks can drop in price just as much non-dividend-paying stocks.”

Anything else I should know?

Some sectors, such as telecoms and utilities, are more likely to offer higher payouts, than others, so focusing solely on dividend payers can stifle diversification. Plus, applying just one strategy to your investing plan—in this case, just targeting dividend-paying stocks—is also limiting.

What’s more, some dividend payers could suffer as interest rates continue to rise, and debt becomes more expensive. According to a recent Standard & Poor’s report on dividend strategies: “The previous low-interest-rate environment paved the way for many of these businesses to load up on debt to expand their operations, while continuing to pay high dividends. As a result, many of these companies may come under pressure when rates rise.”

So, should I invest in dividend-paying stocks?

It’s not a bad idea. After all, cash in hand makes a lot of sense. Schulte just cautions against making that the center of your investing strategy.

Instead, consider making dividend investing one part of a bigger plan. And make sure that whatever stocks or funds you buy are a good fit for your portfolio overall, in terms of cost and overall diversification.

To that end, Schult recommends low-cost mutual funds or ETFs for simplicity and diversification. “Choosing to buy individual dividend-paying stocks instead offers a higher potential return, but you are assuming a lot more risk,” he says. “Unless you are an expert at trading stocks, a low-cost fund or ETF is likely the better solution.”

acorns+cnbcacorns cnbc

Join Acorns


About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2021 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.