No investment is a sure thing.  Many believe dividend investing cuts down on the number of mistakes investors make but, in the end, the stock that you choose is going to have to live up to the promise you saw when you bought it and that’s far from guaranteed.  Realizing that you’re going to make mistakes and only entering into trades that exceed your minimum expectations for profit or income is a good way to create a margin of safety so that when mistakes are made they’re not as impactful.

For example, if you require a return of 4% from your portfolio to maintain your current level of income and the total value of your investments then choosing stocks with dividend yields of 4% leaves you no room for error.  If that stock’s dividend falls even a few cents then it no longer has a place in your portfolio and you’ll have to sell it potentially taking a capital loss as well.  Even a few bad trades can substantially impact your income and the value of the portfolio you’re relying on to continue to provide that income over the long term.

A better strategy would be to allow a margin of safety in your investment choices so a capital loss or a reduction in dividend payments won’t have a substantial impact to your investments.  Instead of looking for dividend yields that meet your minimum possible requirements, look for yields a percentage or two higher.  That way, if you’re wrong, you have a lot of room to fall before that mistake significantly affects your overall portfolio.

Of course investments with that higher level of return will be more difficult to find and potentially more expensive than those at your minimum but they’re also tend to be higher quality investments as well.  Combine your margin of safety with the probabilistically better stocks you’ll be trading in and that’s a good combination with which to withstand a few bad decisions you might make along the way.