I love dividend stocks. If dividends could be personified, I would marry them and sire children by them.
OK, that might have gotten a little weird. But in all seriousness, dividend stocks are an important part of any long-term portfolio, and they make up a major part of my investing strategy.
If you’re already retired, dividends provide a constant stream of realized income. That’s particularly important in a sideways or bear market, as it reduces your need to sell stocks at depressed prices to meet your withdrawal needs. But even if you’re years or decades away from retirement, dividend stocks should still be a major part of your financial plan. Companies that pay dividends tend to be healthier and more stable, and dividends paid can be reinvested in new shares.
But with bond yields still in the toilet, income-starved investors have resorted to chasing yield in dangerous dividend stocks. If you see a yield that seems too good to be true, chances are good that it is. An abnormally high yield can be the sign of a company in distress … and that dividend is often likely to be cut or eliminated altogether.
You also have to ask that fundamental question: What is a dividend?
A dividend is a distribution of profits to the shareholders. So when you see dividends that are consistently higher than profits, that’s a problem. It may be a sign that the company is recklessly borrowing to maintain its dividend. That’s a major no-no. In evaluating dividend stocks, you want to see consistent and growing profits that can safely support the dividends being promised. You don’t want to bet your retirement on an income stream that could evaporate tomorrow.
Today, we’re going to take a look at 10 dangerous dividend stocks. Some of these are OK to wait out if you already hold, but you should avoid if you don’t. Others should be dumped with haste.