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A 7% yield can look like a shortcut—until it isn’t. In this episode, Vero welcomes Russ Knopf (Dapper Dividends) to unpack how “accidentally high” yields happen, why they so often precede cuts, and the simple safety checks that keep your income on track. You’ll hear real examples, the role of free cash flow vs. EPS, and how to balance yield today with total return tomorrow.
 

What a dividend trap really is
When price falls faster than fundamentals, the yield “pops”—but that pop often signals trouble, not opportunity. Russ explains why the market demands a higher yield when risk is rising, and how to tell a temporarily high yield from an actual trap.

Why investors chase yield (and how to stop)
The urge to “not get rich slowly” is powerful—especially when others post quick wins. Reframe the game: zoom out, compare it to a simple index, and make patience your edge rather than your enemy.

Red flags Russ won’t ignore
Declining sales, shrinking EPS, falling free cash flow, rising debt, and token dividend hikes are a bad combo. If free cash flow payout approaches 100% (or exceeds it), the dividend is living on borrowed time.

Free cash flow vs. EPS for dividend safety
Earnings can be noisy and easy to dress up; free cash flow is the cash that funds dividends, buybacks, and debt service. Track the free cash flow payout ratio and its trend—then use EPS as a cross-check, not a crutch.

Debt checks that actually matter
Watch the direction of total debt and the interest coverage ratio (EBIT vs. interest expense). Single-digit coverage can be fine; flirting with 1–2× means any hiccup could force a cut.

Case studies: AT&T, PepsiCo, VF Corp
High yield didn’t offset weak trends at AT&T (T); PepsiCo (PEP) shows why a temporary 100%+ FCF payout needs context; VF Corp’s (VFC) “Dividend King…then cut” illustrates that streaks are written in pencil.

Yield-agnostic portfolio building
Don’t skip great businesses because the starting yield is 1–2%. Fast growers (think Visa/Zoetis types) can deliver higher income later. Retirees can blend sustainable 3–4% yields with growth to keep purchasing power.

ETFs as a learning ramp (or a set-and-forget)
Dividend-focused ETFs (e.g., SCHD/VIG/DGRO) can steady nerves and offer a syllabus: study their top holdings to find quality individual names. Know what you own and why you own it—ETF or stock.

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