When it comes to dividend stocks, what is commonly called a “payout” would sometimes be more accurately called a “payoff.” Many picks have little to offer investors in the way of growth, so their high yields are really just ways of making up what is lacking.
Exhibit A: Sleepy telecom stocks like AT&T (T), which offers a juicy 5.3% yield to make up for what’s expected to be single-digit annual earnings growth for the next five years.
Of course, while some stocks’ dividends help spackle over a few flaws, others are making up for some potentially serious disasters waiting to happen.
One way to find such companies is to look for high-yielding stocks that investors are still pretty bearish on. Heavy short selling in many cases isn’t necessarily a kiss of death, but a red flag that merits further consideration — and in some cases, might indicate that investors feel these big yields are in danger.
Let’s take a closer look at four heavily shorted dividend stocks that investors are probably better off avoiding: