A dividend strategy: income instead of growth

The dividend approach is organised around current cash flow: securities are picked for their ability to pay regularly.

What makes it attractive

Regular payments are psychologically easier to live with: the portfolio delivers something even in a falling market. That lowers the chance of a panic sale, which is the main destroyer of results.

Trap one: a high yield as a signal

Dividend yield rises both when the payout is raised and when the price falls. The second case is the more common one — The dividend trap: why a record yield is a bad signal.

Trap two: the durability of the payout

What matters is not the past yield but the ability to keep paying. Look at where the payout comes from, at leverage, and at the covenants in the dividend policy — Dividend policy: how to read it and what to believe in it, Leverage: how much debt is too much.

Trap three: taxes

A dividend is taxed at payment and almost nothing reduces that base — Tax on dividends: why less arrives than was declared. A buyback of the same size is more efficient after tax — Buybacks: the quieter alternative to a dividend.

Trap four: concentration

High dividends in the Russian market are concentrated in a few sectors. A dividend portfolio easily turns into a bet on commodities — Sectors of the Russian market: what it is made of.

Who it suits

Someone who needs current income. For someone accumulating, buybacks and reinvestment are usually more efficient.