This is the latest in a series of video interviews in which Pat McKeough will give his advice on a variety of topics. Some will deal with his overall investment philosophy, others on specific investment strategies and still others will be comments on events that are affecting the markets and the economy. This week, Pat responds to a question about living off the income from dividend stocks during retirement. The way to do it, he tells viewers, is not to buy and hold dividend stocks indefinitely, but to buy, hold and watch carefully.

Q: Pat, here’s an interesting question. As I get closer to retirement, do you think I’ll be able to live off my dividends? How should I go about it?

Pat McKeough: I think dividends play a very important role in retirement, but not quite the way people think of it. A history of 10 or 15 years, or five years of dividends, is kind of a pedigree for a stock. It tells you the stock has been looking after its investors for a good period of time.

And that record of dividend payments is something you can’t fake. So it’s a very good idea in retirement to confine your buying to stocks that do have a dividend record, not just a current dividend.

But if you’re investing the way a stock market investor should, there’ll be some years when you need to sell things, whether it’s a stock that’s being bought in a takeover, or whether it’s come to be too big a part of your portfolio. Then that’s something you’re going to want to sell part of or all of.

And when that happens, capital gains are every bit as spendable as dividends. So people like to think, can I make a passive income portfolio; that I’ll just set it up once and forget about it. And I think it’s a mistake to do that. Some people think that buy-and-hold means buy and forget about it, but it really should be buy, hold and watch carefully.

And when you do that with stocks that pay dividends, you have fewer unpleasant surprises and a better, more stable source of retirement income.

The first step to building real wealth is to follow safety-conscious money strategies. That’s what you get with Canadian Wealth Advisor, Pat McKeough’s newsletter for conservative investors. Canadian Wealth Advisor consistently recommends investments that prove you don’t have to take outsized risks to get outsized returns—well-established dividend stocks, ETFs and REITs.

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