Lootman wrote:I "reckon" that if your portfolio yields 6% when the market yields 4% then you would need to have a clear sense of the extra risk that implies. How do you compute that risk? What factors do you take into account when you accept that alleged free lunch?]
It's not unreasonable to select a portfolio to give a dividend yield of 6% when the "market" is 4%. What has to be recognised is that the increased dividend yield is likely to be at the cost of capital appreciation, so not a free lunch unless high dividend stocks are out performers. The point being that if you require 6% on your asset value, tilting your stock selection to achieve this avoids the need to make periodic sales. You should still use total return to determine whether the stock selections were a success.
If you are a buy and hold investor interested in dividend income, price volatility shouldn't be a concern. Total return on the other hand should be. Thus dividend yield isn't the whole story. To what extent is the dividend just a return of capital?