Dividends can feel like "free money," but what is dividend yield, and what does it really tell you about a stock's health? Chasing the highest yield is one of the most common and dangerous traps for investors.
What is dividend yield and how does it affect valuation?
In this deep dive, we break down this simple but powerful number. You'll learn the straightforward formula for dividend yield and, more importantly, why a high yield is often a "yield trap"—a major red flag that the stock's price has collapsed and the dividend is at risk.
We explore how smart investors use yield in valuation models like the Dividend Discount Model (DDM) and why context is everything. We'll show you why you must look beyond the yield and analyze the payout ratio, earnings growth, and debt levels to understand if that dividend is truly sustainable. This episode will help you tell the difference between a reliable income stream and bait for a risky trade.
After listening, how will you analyze a company's dividend differently?
Key Takeaways
"That 8% yield... looks amazing on paper. But it's often a huge red flag... It's what we call a yield trap. The high number lures you in, but the underlying business is crumbling."
Timestamped Summary
Know someone who loves high-yield stocks? Share this episode with them to help them avoid the "yield trap."
If this episode helped you understand dividends better, please leave us a 5-star review on Apple Podcasts!
