2 Things Investors Don’t Want in a Dividend Stock

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…

This article has 4 Comments

  1. Adan W.

    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.

  2. Zac B.

    I steer clear of dividend stock because of such things discussed. I’ve been happily trading growth stock for some time now.

  3. Kami

    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!

  4. Irving Mullock

    This is something i’ve practiced for years now as an investor.

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