In explaining why dividend stocks can be so valuable in retirement, Brennan Decima, owner of Decima Wealth Consulting in St. Petersburg, Florida, referenced the famous Warren Buffett quote, “If you don’t find a way to make money while you sleep, you’ll work until you die.”
However, Decima said a common investor mistake is assuming a high dividend equals a good investment.
“That’s not always the case,” he said. “Higher yields can often mean higher risk,” he said. “Instead of chasing yield, focus on companies with solid balance sheets, consistent earnings, and sustainable growth. In retirement, peace of mind comes from having income that can be counted on.”
Dividends aren’t everything
Looking at dividends alone doesn’t paint the entire picture. A prime example is NVIDIA, which offered the second-smallest dividend yield percentage of the past 12 months. Meanwhile, it also became the first company ever to reach a $4 billion market cap earlier this month.
Dividends are just one spoke in the total-return wheel, said Joshua Mangoubi, founder and wealth manager at Considerate Capital in Chicago. Long-run wealth is driven by earnings growth, valuation change and payouts together, he said.
“While regular cash checks feel reassuring — especially for retirees — an outsized yield can signal limited reinvestment opportunities or even distress, and the stock price drops by the dividend amount anyway,” he said.
Dividends are not guaranteed and can be cut, so it is good to look for companies that have steadily been increasing their dividends over time, said David B. Rosenstrock, director of financial planning and investments at Wharton Wealth Planning in New York City.
“That is a good measure of the health and sustainability of the dividend payment,” he said.
Dividend stocks remain fully exposed to market downturns and often cluster in rate-sensitive sectors — utilities, financials and telecom — that have lagged as rates rose, said Dean Lyulkin, co-CEO of Cardiff Financial in San Diego.
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“By contrast, companies that offer small or non-existent yields offer the greatest return opportunities looking ahead to the rest of 2025,” he said.
Dividends can play a role in generating income, and they can be part of a smart investment strategy, said Michelle Hobart, founder of Fairfield Coastal Financial in Fairfield, Connecticut. But, she said, it is important to remember they’re not magic.
“Higher yield means higher risk, and the key is to understand what your overall risk tolerance is for this part of your portfolio,” she said.
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Dividend stocks are still stocks, and business prospects can and do change significantly, said Asher Rogovy, chief investment officer of Magnifina in New York City.
“Some companies must cut their dividend in response to economic weakness,” he said. “Also, since dividend payers are stable businesses, they won’t grow as quickly as others.”
How to choose the right stock, regardless of dividend
The process to determine if a stock is a good investment does not differ much if the company pays a dividend or does not, said Don Nesbitt, senior portfolio manager at F/m Investments in Washington, D.C. Often, investors may be attracted to a stock just because of the high yield, he said.
“This isn’t a guarantee that the dividend is going to be there forever,” he said. “Our process also takes a look at a company’s cash flow profile to make sure that the company is covering its dividend with room to invest in future profitable projects, as well as room to possibly grow the dividend. Our fundamental analysis examines the growth and consistency of cash flows. This puts in a quality check on our process that should help in times of market turbulence.”
Determining whether a dividend-paying stock is a good investment comes down to the sustainability of that dividend, said Rob Swanke, senior investment research analyst at Commonwealth Financial Network in Boston. Companies need to be reinvesting a sufficient amount in the business in order to support the continued growth of the business in addition to paying the dividend, he said.
“A company can’t sacrifice the growth of the business just to support a dividend,” he said.
Other traditional factors, such as earnings and cash flow growth as well as balance sheet strength, including sufficient liquidity to continue to pay the dividend, would also be important factors, said Swanke.
“Considering a stock’s valuation, both relative to the market and history could also play a role,” he said.
Scroll down the slideshow below for the 10 stocks with the lowest yield dividends in the U.S. in the 12 months from July 1, 2024 to June 30, 2025. All data is from Morningstar Direct.
