There is a lot of information on the web that covers how to select stocks, even dividend stocks. In this post I am going to take the negative angle and present what I feel to be three things that I, as a dividend investor, do not want to see in a dividend stock. In my view, if any of my own dividend stocks exhibit any of these traits then that is a red flag which I need to consider acting on.
1. A Very High Dividend Yield
This one is talked about a lot and it has everything to do with risk. Among other things, a dividend yield is a statement of that company’s individual stock risk. The higher the dividend yield, the higher the risk – typically. I say typically because it is not as simple as looking at a company with a 7% dividend yield and saying that it is more risky. Instead, the investor needs to evaluate that yield against the own company’s historical yield patters. If the company has paid a dividend in the range of 6 – 8% over the past 5 years than the 7% is not out of the norm. However, if the yield is normally 3% for that stock and it is now 7% then something is going on with that company and you better figure out what it is. Read More…
Not sure i agree with you. In some cases the change in yield might be due to a change in company direction from growth to blue chip. In any event research is your best friend.
I steer clear of dividend stock because of such things discussed. I’ve been happily trading growth stock for some time now.
Absolutely true. If in one year the yield is 3% and the next it spikes to 9% then it is a definite red flag. This happened with GGC a couple of years and i dumped it quick. They are now delisted off the Dow. Close call!
This is something i’ve practiced for years now as an investor.