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When choosing stocks for income potential, the first number many investors look to, and for good reason, is the current yield of said security.
After all, picking a company with a juicy yield can certainly have a meaningful impact in the short term, and any dividend growth on top of such a yield would theoretically improve an income investor's income profile over time substantially when comparing such equities to lower yielding stocks.
That being said, choosing to invest in companies on dividend yield alone is a big mistake many investors make for a couple of reasons.
First, and most importantly for investors, choosing companies with dividend yields which are too high as a result of equity dips may be an indication that the current dividend yield is too high and said company may cut such a dividend to preserve cash.
Secondly, for long term investors with a long-term investing time horizon, picking stocks based on dividend growth rather than yield alone could prove to be more beneficial, as yields increase over time at a faster rate.
In the case ofMTY Food Group Inc.(TSX:MTY), the company has announced a dividend increase of 10%, following similar increases in the past, indicating to investors that the current yield on the company's share price of 1.12% may not be as insignificant as many may think.
Of course, considering growth potential with respect to the underlying equity in a company in addition to yield is an important consideration for every investor, but focusing more on dividend growth over time and less on current yield is a practice which could serve many investors well over a long period of time.
Invest wisely, my friends.
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