The Smartest Approach to Dividend Investing

The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.

Dividends are an important part of stock returns. But investors should look for companies that can generate excellent total returns. Total return is the combination of dividend yield plus dividend growth plus share repurchases. Stocks with high yields can be attractive, but do carry risk. Two that come to mind are American Capital Mortgage Investment and Chimera Investment. Both have yields over 13%, but an environment where interest rate spreads are tight can be tough on mortgage REITS. Instead, John and David prefer companies like Waste Management and Altria. A total return approach focuses on income, capital appreciation, and management taking care of shareholders. John and David own ExxonMobil because of its total return potential. It's a more complete strategy than yield alone, and can help you earn better returns.

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David Meier has no positions in the stocks mentioned above. John Reeves has no positions in the stocks mentioned above. The Motley Fool owns shares of Waste Management and ExxonMobil. Motley Fool newsletter services recommend Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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