A once-in-a-decade opportunity to buy dividend shares this cheap

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I think the diversity and value of good dividend shares could be better now than I’ve seen in the past 10 years.

I mean, we’re looking at mobile phone firm Vodafone with a forecast yield of 10.7%.

And analysts have investment manager M&G down for a 10% yield.

Even insurer Phoenix Group Holdings is on 9.6%.

Those are just some of the FTSE 100‘s biggest yields. Over on the FTSE 250, Diversified Energy Company is on an eye-watering yield of 15%.

ISA decade

In fact, talking of decades, Stocks and Shares ISAs have brought home an average total return of 9.6% per year for the past 10 years. They’re erratic, though, and lose money some years.

So that’s the secret, then, is it? Just fill our boots with the shares with the biggest forecast dividend yields?

Well, it’s tempting. But it could bring danger.

So let’s wind back a bit and think why dividends can be so important for long-term investors.

Beat inflation

The key thing, I think, is for dividends to at least keep up with inflation. So, with inflation so high right now, that’s a good reason to go for those biggest yields, right?

Well, I’d say no. It’s the long-term that matters. If inflation gets to 8%, 9%, or more, I’ll just accept that my investments won’t beat it that year.

But as long as I can come out ahead over the decades, that’s fine. I just don’t need to take the risk of chasing the biggest short-term yields.

High-yield risk

And there’s risk with some of today’s big dividends, for sure.

That huge Vodafone yield would be barely covered by forecast earnings. And the company carries huge debt.

A big dividend is good. But there’s no such thing as free money, and something has to give. In this case, the share price has slumped by more than 60% in the past five years. I don’t want that.

No, I want companies that can cover their dividends through earnings. And ones that aren’t up to their eyeballs in debt.

Cash cows

I’m thinking of firms like Taylor Wimpey. Yes, it’s having a tough year and the share price is down. But over the long term, it’s been a cash cow, easily covering its dividends by earnings.

The forecast yield is 8%, and that might be not happen this year. But I see a long-term winner.

I also have National Grid in mind. It’s another cash cow, with a monopoly on the service it provides.

There’s risk from the wind-down of gas usage. But a dividend yield of 5.7% is higher than it’s been in the past, and looks good to me.

Other favourites

British American Tobacco is on a 9% yield. And I find dividends from banks and insurers attractive right now too.

These are just a few examples, and there’s risk with them all. Dividends are far from guaranteed.

I reckon we need to choose the ones we buy carefully. But I really do think dividend investors are having one of their best times in years.

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