Wall Street veteran Alex Green issues warning to Americans who invest exclusively in dividend-paying stocks — says they’re missing out on a big opportunity

How dividends work — and sometimes fall short

A dividend is a shareholder payout companies make, usually on a quarterly basis, based on their profits. Many investors like them because it can act as a steady source of income.

For example, sitting atop the “dividend kings” utilities sector you’ll find two businesses that have upped their dividend growth for 69 consecutive years: American States Water (NYSE:AWR) and Northwest Natural (NYSE:NWN). This is as ranked by Simply Safe Dividends whose tagline says it all: "We're boring and conservative."

Yet as Green’s too-careful client learned the hard way, boring and conservative can be humbling and costly. Consider the aforementioned Amazon, a high-flying company whose stock is doing better now than it has over the last two years. Since last year, the stock is up by more than 100%.

Out of 65 analysts surveyed by the Wall Street Journal, 54 call it a "buy." And it has never offered a dividend. Compare that to American States Water, whose stock has lowered over the same period.

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Piecing the puzzle together

Skepticism over dividend-centered investing is nothing new. But it’s not that dividend stocks are bad bets in and of themselves; rather, they can be part of a balanced portfolio that could include even more conservative investments such as bonds and riskier ones such as cryptocurrency.

Meanwhile, tech-sector companies that famously resisted dividends have gotten into the game. Apple (NASDAQ:AAPL) started paying out dividends in 2012, while Alphabet (NASDAQ:GOOGL) gave out its first-ever dividends in June 2024.

Just a few months prior, Meta (NASDAQ:META) announced its first dividend effective Feb. 22. In each case, the dividend marked a point where the companies had matured past their go-go stages and had plenty of money to sit on. All three today boast market caps measured in trillions of dollars.

Green urged investors to think of stocks not just in terms of dividends, which many treat as income, but total returns. If a stock skyrockets, its share price will far outpace even the biggest dividend; in the S&P 500, that's offered by Walgreens Boots Alliance (WBA).

“I have nothing against dividend investing,” he said. “A lot of smart people are dividend oriented and there are a lot of great dividend-paying stocks out there. But I just would warn people not to invest exclusively in dividend-paying stocks.”