My two pennies here would be to work your way slowly into this until you see how it works & what the short, medium & long term impacts of dividend investing are. As a few people have pointed out, there are a few common ways people get caught when hunting for dividends - most common are not understanding how, when & what is paid, the other is people hunting for dividend yield. I’d be wary of anybody who buys a company based on its % return unless it has a tremendous (10+ years) of paying that dividend. The so called ‘dividend’ or ‘value’ trap is an extremely expensive mistake & one that is not quickly corrected.
If this is something that interests you then I would take 1 of two approaches:
- Continue with your ETF strategy & ‘keep an eye on’ dividend stocks. By that I mean use Yahoo Finance or something similar to have a paper portfolio of the companies you like from a dividend perspective. Trust me when I say, you won’t miss out on anything here, in all likelihood you’ll learn a lot and you can start putting money into dividend stocks in a year or two once you understand the markets a little better (Apologies if I sound pedantic here, I don’t mean to be).
- If option 1 seems too passive and unadventurous for you then I suggest you simply limit the % of your portfolio you have in dividend stocks (say around 10-15%) and strictly enforce this limit for several years (eg 3-5 years). This timeframe will remove dividend anomalies and a large % of value traps and you’ll have a solid base that you can then move your ETF money into. That being said, no dividend stock is really truly tested until it gets hit with a recession.
Just in case this helps, the above input is based on 14 years of dividend investing. The mistake many people make with dividend investing is thinking too short term, you’ll see people say such things as:
- This stock pays quarterly so I like it more than this stock that pays semi-annual
- The yield on this stock can’t be ignored
- The stock and dividend are both growing I’m winning both ways
- Its a huge business so its dividend isn’t likely to drop
The trouble with all of these statements is that they very rarely stay true over a 5 year period. Dividend investors seeking extra income get hit extremely hard when a company takes a turn for the worst. We’ve been in a 10 year bull market and many companies have extremely comfortable dividend positions right now, if a true global recession hits you’ll see these positions disintegrate quickly simply because of the sheer amount of debt that most listed companies are carrying at the moment - trust me, I’ve been burned by this before.