What are the risks of Dividend-yielding stocks?
Yep, there just is no free lunch.  So called high dividend stocks are usually from companies that have stable cash flows but relatively little or moderate growth potential. Utility companies come to mind, let's take telecommunications as an example.  Such stocks, usually, indeed are considered more conservative. In a bull market, they won't make high jumps, and in a bear market they shouldn't experience deep falls. I mean, just because the stock market fell by 10%, you're not going to stop using your phone. The stock might suffer a bit but the divided is still yielding you the same. However, fundamental data can have a significant impact. Let's say a recession hits the country of the telco. People might not get the newest iPhone and lock in to an expensive contract anymore, they might use cheaper forms of communication, they might stop paying bills, go bankrupt etc. This will have a severe impact on the company's cash flow and thus hit the stock in a double whammy: One, the dividend is gone. Two, the price will fall even further.  There are basically two scenarios after that. Either the recession is temporary and your stock became a regular growth stock that at some point might bounce back and re-establish at the previous levels. Or the economy has contracted permanently but regained stability in which case you will again have a stock with a high dividend yield but based on a lower price. In conclusion: High dividend stocks make sense in a portfolio. But never consider their income to be safe. Reduce your risk by diversifying. Dividend Stocks like any stock carry risk and go both up and down.  It is important to choose a stock based on the company's potential and performance.  And, if they pay a dividend it does help. -RobF The risk in a divident paying stock can come from 2 sources. The business of the company, or the valuation of the stock at the time you buy.  The business of the company relates to how they are running things, the risks they are taking with the company, innovations in their pipeline, and their competitive landscape. You can find all sorts of examples of companies that paid nice dividends but didn't end so well... Eastman Kodak, Enron, Lehman brothers, all used to pay very nice dividends at some point...  On the other hand you have the valuation. The company is running great, but the market has unrealistic expectations about it. Think Amazon and Yahoo back in 2001... the price was way too high for the company's worth. As the price of a stock goes up, the return that you get from its future cash flows (dividends) goes down (and viceversa).  If you want to go deep into the subject, check out this course from Chicago U they spend a lot of time talking about dividends, future returns from stocks and the risk rewards of finding stocks by methods such as these. Having a good dividend yield doesn't guarantee that a stock is safe. In the future, the company may run into financial trouble, stop paying dividends, or even go bankrupt. For this reason, you should never buy a stock just because it has a high dividend yield. You also need some criteria to determine whether that stock is safe to buy. Personally, I consider a stock is reasonably safe if it meets the following criteria: "No stock is risk-free. Some of the biggest companies in the country, that seemed incredibly stable and secure, have suffered severe downturns or gone out of business. Twenty or thirty years ago Kodak ruled the camera film market. But they didn't react quickly enough when digital cameras came along and today they're a shadow of their former self. Forty years ago IBM owned like 90% of the computer market -- many people used ""IBM"" as another word for computer. Sears used to dominate the retail department store market. Etc." One strategy to consider is a well-diversified index fund of equities. These have historically averaged 7-8% real growth. So withdrawing 3% or 4% yearly under that growth should allow you to withdraw 30+ years with little risk of drawing down all your capital. As a bonus you're savings target would come down from $10 million to $2.5 million to a little under $3.5 million.
You might want to look up Dividend Yield Trap. Many stocks with high dividend yields got that way not because they decided to increase their dividend, but because their prices have dropped. Usually the company is not in good shape and will reduce their dividend, and you're stuck with a low-yield stock which has also decreased in price. With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply.  Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups.  But, no, not all the stocks will perform the way the index is predicted to.  (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased) "All else being equal, you should look for more volatile (riskier) stocks. Technically, it was all time value - the entire value of an ""out of the money"" option is time value.   What's confusing is that time value is affected by numerous variables, only one of which is time. The reason volatility is the one to look at is that all the rest are likely already intuitive to you, or are too minor an influence to worry about: Current risk-free interest rates and a stock's dividend payout during the life of the option affect the value of the call, but are usually minor infulences.   (Higher interest rates makes call values higher, and higher dividend yield makes call values lower.) Longer time to expiration will increase the value of the call, but you're pretty likely already focused on that. The strike price's proximity to the current price affects the call's value - agreeing to sell a stock 5% above current levels will pay more than agreeing to sell it 10% above current levels - but again, this is likely obvious to you. Volatility, or the percent by which the stock is likely to move up or down on a given day, is almost certainly the variable that's not already obvious. Stocks that jump all over the place have higher volatility than those that move more predictably.     The reason that options (calls and puts) cost more on higher volatility names is that options' payout is asymmetrical.  In the case of calls, the option holder gets all the upside, but none of the downside, other than what they paid for the opotion.     If one stock goes up or down $5 every day, and another goes up or down $20 every day and you could pay some fixed amount to get that stock's upside, but not have any exposure to its downside, other than that fixed amount, you'd pay more for the one that pays you $20 or $0 than you would for the one that pays you $5 or $0.    That's why higher volatility (meaning larger daily moves) makes optimum prices higher." "Dividend yields can also reflect important information about the company's status. For example, a company that has never lowered or stopped paying dividends is a ""strong"" company because it has the cash/earnings power to maintain its dividend regardless of the market. Ideally, a company should pay dividends for at least 10 years for an investor to consider the company as a ""consistent payer."" Furthermore, when a company pays dividend, it generally means that it has more cash than it can profitably reinvest in the business, so companies that pay dividends tend to be older but more stable. An important exception is REIT's and their ilk - to avoid taxation, these types of funds must distribute 90% of their earnings to their shareholders, so they pay very high dividends. Just look at stocks like NLY or CMO to get an idea. The issue here, however, is two fold: So a high dividend can be great [if it has been paid consistently] or risky [if the company is new or has a short payment history], and dividends can also tell us about what the company's status is.  Lastly, taxation on dividend income is higher than taxation on capital gains, but by reinvesting dividends you can avoid this tax and lower your potential capital gain amount, thus limiting taxes.  http://www.tweedy.com/resources/library_docs/papers/highdiv_research.pdf is an excellent paper on dividend yields and investing." Some people put money into Venture Capital Trusts for the yields they offer. The risks are different and they are considered higher risk than ordinary equities; you need to be a sophisticated investor or high net worth individual to consider them. https://www.wealthclub.co.uk/articles/investment-news/why-i-never-sold-vct/ I'm not recommending these for you, just pointing it out as another option as per the question. You can use a tool like WikiInvest the advantage being it can pull data from most brokerages and you don't have to enter them manually. I do not know how well it handles dividends though. It's tough to borrow fixed and invest risk free. That said, there are still some interesting investment opportunities. A 4% loan will cost you 3% or less after tax, and the DVY (Dow high yielders) is at 3.36% but at a 15% favored rate, you net 2.76% if my math is right. So for .5%, you get the fruits of the potential rise in dividends as well as any cap gains. Is this failsafe? No. But I believe that long term, say 10 years or more, the risk is minimal. "You may be thinking about this the wrong way. The yield (Return) on your investment is effectively the market price paid to the investor for the amount of risk assumed for participating. Looking at the last few years, many including myself would have given their left arm for a so-called ""meager return"" instead of the devastation visited on our portfolios.  In essence, higher return almost always (arguably always) comes at the cost of increased risk.  You just have to decide your risk profile and investment goals.  For example, which of the following scenarios would you prefer? Investment Option A  Treasuries, CD's Worst Case: 1% gain Best Case 5% gain   Investment option B  Equities/Commodities Worst Case: 25% loss Best Case: 40% gain"