Retiring on Dividends …. watch the NAV
Why the NAV Matters
When investing in dividend-paying ETFs, it’s easy to get swept up by the allure of high yields, especially when we see promising numbers like 20% Trailing Twelve Months (TTM) returns. But, as with any investment strategy, focusing solely on the income component can blindside us from the bigger picture. One critical factor many dividend investors overlook is the Net Asset Value (NAV). Neglecting the NAV can turn a profitable investment into a regrettable one.
The Double-Edged Sword of TTM
The TTM yield is a metric most of us are familiar with. It’s the percentage return on investment based on dividends paid over the last twelve months. And, while this can paint a rosy picture, it doesn’t tell the full story as past performance does not guarantee future performance. High dividend payouts don’t necessarily translate to a sustainable investment.
In fact, chasing high yields alone can sometimes expose investors to greater risks. Dividend payments will fluctuate and, in some cases, some ETFs will pay out more than they can sustain long-term. Thus, while you may receive a hefty payout today, the asset’s overall health could be deteriorating. This is…
