One of the most concrete things about an investment is its dividend yield — the percentage you get when you divide its current yearly dividend payment by its price. It’s an indicator we pay especially close attention to when we select stocks to recommend in our Canadian Wealth Advisor newsletter.

But yield, high yield especially, can give you a false sense of security. Investors in high dividend stocks have a natural tendency to think that all investment income is nearly as safe and predictable as bank interest. In fact, investment income can dry up in a heartbeat. Companies are sometimes unable to honour their commitments, and they sometimes spring the bad news on you with no warning.

Rather than a sign of a bargain, high yield may be a danger sign. It may mean insiders are selling and pushing the price down. A falling price makes yield go up (because you use the latest dividend to calculate yield). When an investment does cut or halt its dividend, its yield collapses.

Still, if you stick with quality high dividend stocks, the income you earn can supply a significant percentage of your total return. That’s because dividend yields are higher today than they’ve been in years.

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Dividends will play a bigger role

A decade or two ago, dividends could contribute up to a third of an investor’s long-term investment returns, without even considering the effects of the dividend tax credit.

Earlier in this decade, dividend yields were generally too low to provide a third of investment returns. But now that stock prices have moved lower and dividend yields have risen to their current levels, it’s realistic to assume that they will once again contribute as much as a third of your total return. That’s a good thing for investors, since dividends are more dependable than capital gains as a source of investment income.

Of course, dividends may suffer if the recovery stalls. But either way, you can improve your investment safety by focusing on stocks with long histories of dividends, like the high dividend stocks we recommend in Canadian Wealth Advisor.