Investing for income yield on the stock market is an essential part of an investment strategy, with the inescapable arithmetic caveat that share dividend yields rise as prices fall. The inverse of this relationship is that investors who thought they had “bought” a yield can watch helplessly as a share price fall negates all of this return, and more. And yield-oriented investors have certainly seen the impact of this in recent times, in the “big five” yield stocks of the Australian market, namely ANZ Bank, Commonwealth Bank, National Australia Bank, Westpac and Telstra.
Long-term share investors can reasonably expect a “total return” from their shareholdings, comprising both capital gain and dividend return, that more than compensates for the risk of periods of price weakness and/or dividend pruning (even cessation, but certainly not for long). The best situation is to have both components moving nicely in your favour – but that is not always available on the stock market.
The dividend side of the return depends on the strength of the earnings of the companies in your portfolio, and in uncertain economic environments, this cannot be guaranteed – which is the big question mark over stock market dividend investing.