Five Common Myths and Misconceptions About Dividend Investing

Hi, it's Dre Griggs with Obsidian Wisdom. We've made it to the fifth and final video in our Dividend Investing Series, and today, we're tackling common myths and misconceptions about dividend investing.

Throughout this series, we've explored how to build a dividend portfolio, manage risks, and optimize your returns. But I know there are still some lingering myths that might be holding you back.

So, let's break them down and separate fact from fiction!

Myth #1: Are Dividends Guaranteed?

I wish I could say yes, but the reality is that dividends are never guaranteed.

Most things in life that come with a guarantee offer lower returns. Why? Because whoever carries the risk gets the reward.

Take doctors and lawyers, for example. Those who open their own practice assume the risk of running a business, but they also have the potential to make more money. Meanwhile, those working in hospitals or as public defenders have stable paychecks but far less earning potential.

It's the same with dividends. A company’s board of directors determines whether they will pay or cut dividends based on profitability. Some companies, like Procter & Gamble, have paid dividends consistently for decades. Others, like General Electric, have cut dividends during tough times.

So, while companies strive to maintain their dividend track record, they can (and will) cut them if needed. If a company starts struggling financially, the first thing to go is the dividend—because keeping the business alive takes priority.

What This Means for Investors

If you rely on dividends for income, focus on:

? Dividend Aristocrats (companies that have paid and increased dividends for 25+ years).

? Strong financials—companies with low payout ratios (less than 75%) are more likely to sustain dividends.

? Diversification—don’t depend on a single company’s dividend payments to fund your retirement.

Myth #2: Do You Need a Lot of Money to Start Dividend Investing?

No! Thanks to fractional shares, you can start investing in dividend stocks with as little as $10.

Back in the day, if a stock cost $100 per share, you had to buy the whole thing. But now, platforms like Robinhood, Fidelity, and Charles Schwab let you invest in fractional shares, meaning you can own a portion of a stock.

That said, I recommend taking a disciplined approach:

?? Set aside a fixed amount from each paycheck (e.g., $100/month).

?? Invest in dividend stocks or ETFs consistently over time.

?? Reinvest dividends to accelerate growth.

If you're just starting, focus on building the habit rather than chasing big wins. Over time, small contributions add up, and before you know it, you’ve built a solid dividend portfolio.

Myth #3: Are High Dividend Stocks Always Better?

No! In fact, chasing high yields can be a trap.

A high dividend yield (8%+) often signals a risky investment.

Understanding the Dividend Trap

Let’s compare Company A (12% dividend yield) and Company B (3% dividend yield):

At first glance, Company A looks like a better deal. After all, if you're relying on dividends for income, you'd prefer a higher payout. But here’s the problem:

• High yields often mean financial distress—the company might be paying more in dividends than it can afford.
• High-yield companies are more likely to cut dividends, which means your income could disappear overnight.
• A moderate yield (2-4%) with consistent growth is safer long-term.

What to Look for Instead

? Dividend Growth Stocks: Companies that increase their dividends each year.

? Payout Ratios Below 75%: This ensures the company has enough profits to reinvest and sustain dividends.

? Strong Financials: Prioritize companies with low debt and stable earnings.

Myth #4: Is Dividend Investing Only for Retirees?

Absolutely not! Dividend investing benefits both young investors and retirees, just in different ways.

Example #1: Jack (Age 25) Jack reinvests his dividends from blue-chip stocks. By the time he’s 50, his portfolio generates $30,000 per year in passive income—helping him retire early.

Example #2: Sarah (Age 65) Sarah, a retiree, lives off her dividends. Her investments supplement Social Security, and since her companies increase payouts yearly, her income keeps up with inflation.

Whether you’re young and building wealth or retired and looking for steady income, dividends can play a role in your strategy.

Myth #5: Can Dividend Investing Protect Against Market Volatility?

Dividend stocks can help manage volatility, but they don’t eliminate it.

During a market crash (like 2020 COVID-19), stock prices drop. However, strong dividend stocks (think McDonald’s, Coca-Cola, and Johnson & Johnson) keep paying dividends—even when share prices decline.

Why This Matters

• Dividends provide income even when stock prices fall.
• Blue-chip dividend stocks recover faster from downturns.
• Investors are less likely to panic-sell when they’re still receiving payouts.

However, your stock value still declines, just like everyone else's. The key is owning strong, resilient companies that can weather market storms.

The Big Picture: Wisdom Weaving

No single investment strategy is perfect. The best portfolios combine dividends, growth stocks, bonds, and pensions to balance risk and reward.

I call this wisdom weaving—designing a retirement strategy that:

? Protects your income (so you never run out of money).

? Grows your wealth (so inflation doesn’t erode your lifestyle).

? Brings you fulfillment (so you can enjoy retirement, stress-free).

By understanding these common myths about dividend investing, you’ll be better equipped to make smart financial decisions and build a stable retirement plan.

Final Thoughts & Next Steps

That wraps up our Dividend Investing Series!

Missed any episodes? Watch the full series [here].

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As always, I'm thankful for your time. If you enjoyed this, don’t forget to like, subscribe, and share so you continue receiving valuable insights to create your own Wealthy Retirement System.

Until next time—stay safe and enjoy life!

Dre Griggs

P.S. - Join Our Next Retirement Readiness Thursday Live!