I have come across many young investors who invest in high dividend yield stocks. This is not appropriate for young investors due to three reasons:

First, as large part of company’s cash is distributed back to shareholders, little amount is left for the company to reinvest in existing and new projects. This means it has low earnings growth.  What the investors is investing are low growth stocks. Many growth stocks pay little or no dividends. Moreover, investors should always consider the total return – which is the sum of capital gain and dividends collected. It is incorrect to focus on dividends while totally ignore the capital gains. For young investors, time is their friend. By focusing in low growth stocks, they fail to make use of the power of compounding.

Second, some people ...