There’s a contradiction in high-yield stocks that many investors choose to seek out.
On one hand, dividend stocks with a high yield seem like an inherently good thing. Generating 4%, 5% … heck, even 10% in annual income appears attractive, particularly in an environment where 10-year Treasuries are yielding under 2.2%. The higher the yield in a portfolio, the greater the income on the same base of assets.
The market rarely offers a free lunch, however.
The flip side of the near-term attractiveness of high-yield stocks is that in many cases, those same yields often signal danger ahead. In some cases, it might mean that dividend growth is slowing or stopping, or worse, that there’s fear of a dividend cut or suspension. It may be that the yield simply has an expiration date, as in the case oil trusts and other unique situations.
A 4%-plus yield can be an opportunity to boost investment income, but just as often, it can be a yield trap that snares unsuspecting investors.
It’s not always easy to tell the difference. Back in March, we here at InvestorPlace highlighted 7 high-yielders that looked safe. But even we missed a yield trap in Mattel, Inc. (NASDAQ:MAT), which cut its dividend just last week.
Here are 10 more high-yield stocks that look dangerous, and where investors may be risking far too much principal for the dividends offered.