Featured Investing Personal Finance

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…

Replies to this Post

  1. Adan W. says:

    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. says:

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

  3. Kami says:

    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 says:

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

Leave a Reply

Your email address will not be published. Required fields are marked *