# Dividend stock or trap? 3 checks for smart picks

> Expert reveals 3 metrics to avoid dividend traps and find income stocks.
- Title: Dividend stock or trap? 3 checks for smart picks · mint
- Summary: Expert reveals 3 metrics to avoid dividend traps and find income stocks. Pankaj Pandey of ICICI Securities says dividend yield alone is risky; investors…
- Keywords: dividend yield, earnings growth, valuation multiple, capital efficiency, cash flow, balance sheet strength, icici securities, pankaj pandey, dividend trap, stock pick, money, business
- Source: mint — https://livemint.com/market/stock-market-news/dividend-stock-or-dividend-trap-top-3-checks-that-could-make-or-break-your-stock-pick-expert-weighs-in-11791711723385.html
- Author: Sharmila Bhadoria
- Published: 2026-10-11T09:47:49+00:00
- Read time: 1 min
- Topics: dividend yield, earnings growth, valuation multiple, capital efficiency, cash flow, balance sheet strength, icici securities, pankaj pandey, dividend trap, stock pick, money, business
## Dividend yield risks
Dividend yield alone shouldn't be the sole basis for stock selection.

> High dividend is attractive; however, the durability of the dividend is what matters
## Expert's warning
Pankaj Pandey, Head of Retail Research-ICICI Securities, says high dividend yield isn't enough.

> High dividend yield in absolute terms should not be the sole criteria for stock selection
## Key metrics
Investors must check earnings growth, valuation multiples, and business strength.

> Expected shareholder return ≈ Dividend yield + Earnings growth ± Change in valuation multiple
## Business growth focus
Look for capital efficiency, cash flow, and balance sheet strength to ensure real gains.

> Evaluating overall business growth in terms of its capital efficiency, cash flow generation, runway for growth, balance sheet strength, and valuations would ensure real gains from investment
## Real-world example
Company A with 7% yield but no growth versus Company B with 3% yield but strong reinvestment potential.

> Suppose there is this Company A which offers a 7% dividend yield but has no growth and mediocre incremental returns. Now there is Company B which offers only a 3% yield but can reinvest its retained earnings at 18, 20% ROCE and compound earnings for the next decade
## Key takeaway

Pankaj Pandey of ICICI Securities says dividend yield alone is risky; investors should check earnings growth, valuation multiples, and business strength for better returns.