N※N

Don't Chase Total Return: Prioritize Income for Wealth Building

  //stocks-investing.news-articles.net/content/202 .. eturn-prioritize-income-for-wealth-building.html
  Published in Stocks and Investing on Friday, January 2nd 2026 at 11:01 GMT by Forbes

Don’t Let “Total Return” Blind You: Why Focusing on Income is Key to Building Wealth (and Avoiding Missed Opportunities)

For income-focused investors – those seeking regular payouts rather than solely capital appreciation – a common trap lies in an overreliance on the concept of "total return." While total return (capital gains plus dividends/income) is important, Michael Foster, Forbes contributor and editor of Bullseye Stocks, argues that prioritizing it can lead to overlooking potentially superior income-generating investments. His recent article highlights how this seemingly innocuous metric can actually obscure the best yield opportunities, particularly in a market landscape increasingly shaped by interest rate fluctuations and evolving investment strategies.

The Total Return Illusion

Foster explains that many financial advisors and fund prospectuses tout “total return” as the ultimate measure of an investment’s performance. It's easy to understand why: it provides a single number representing overall growth. However, this focus can be misleading for income investors. It often leads them to chase investments with high total returns because they’ve experienced significant capital appreciation, without fully considering the underlying income stream. This is particularly problematic when those gains are driven by speculative factors and potentially unsustainable.

He illustrates this with an example: a stock might have a strong total return due to hype or short-term market trends, but its dividend yield – the actual income it provides relative to its price – might be relatively low or even non-existent. An investor focused solely on total return could easily miss out on investments offering significantly higher and more reliable income streams, simply because those investments haven't experienced the same level of capital appreciation.

The Power of Dividend Yield & Income Focus

Foster advocates for a shift in perspective: prioritize dividend yield and overall income generation first, then consider total return as a secondary benefit. He emphasizes that consistent, growing income is the bedrock of long-term wealth building, especially crucial in an environment where fixed income options (like bonds) are struggling to compete with inflation.

The article highlights his Bullseye Stocks investment strategy which specifically targets companies demonstrating strong dividend growth and stability. These aren't necessarily the "hottest" stocks – they often operate in less flashy sectors like utilities or consumer staples, known for their consistent earnings and commitment to returning capital to shareholders. He points out that these “boring” sectors can be surprisingly lucrative income sources over time.

Beyond Simple Dividend Yield: Key Considerations

While dividend yield is a crucial metric (calculated as annual dividends per share divided by the stock's price), Foster warns against solely chasing high yields without due diligence. A sky-high yield can be a red flag, potentially indicating that the market perceives the dividend to be unsustainable and at risk of being cut. He stresses several key factors:

• Payout Ratio: This measures the proportion of earnings paid out as dividends. A payout ratio above 100% is generally unsustainable.
• Dividend Growth History: Consistent increases in dividends over time demonstrate a company’s commitment to rewarding shareholders and its financial strength. Foster references his own "Hidden Dividend Gem" strategy, which specifically looks for companies with a history of dividend increases.
• Financial Health: Strong balance sheets, consistent earnings growth, and manageable debt levels are essential for supporting dividend payouts.
• Business Model: Understanding the company's business model and its competitive advantages is crucial to assessing the sustainability of its income stream.

Real Estate Investment Trusts (REITs) – A Prime Example

Foster specifically calls out Real Estate Investment Trusts (REITs) as a compelling income investment option often overlooked by those solely focused on total return. REITs are companies that own and operate income-producing real estate, and they are legally required to distribute a significant portion of their taxable income to shareholders in the form of dividends. This makes them inherently attractive for income investors. (For more information about REITs, see this Investopedia article: [ https://www.investopedia.com/terms/r/reit.asp ])

He argues that the market’s reaction to interest rate hikes has unfairly penalized many REITs, creating opportunities for income-focused investors to acquire them at attractive yields. While rising rates can impact real estate values and borrowing costs, well-managed REITs with strong portfolios can often weather these storms and continue to provide reliable income.

The Bottom Line: Reframe Your Investment Approach

Michael Foster's article serves as a valuable reminder for income investors to re-evaluate their investment strategies. Don’t be swayed by the allure of high total returns at the expense of consistent, sustainable income. By prioritizing dividend yield, analyzing payout ratios and financial health, and considering often-overlooked sectors like REITs, investors can uncover hidden opportunities to build a robust and reliable income stream – a foundation for long-term financial security. The key is to shift from chasing total return as the primary goal to using it as a secondary benefit after securing a solid income foundation.

I hope this article accurately summarizes the Forbes piece and provides valuable insights for readers!