But beware the siren call of high-yielding stocks. A high single-digit or low double-digit yield may look attractive at first glance, but yields that fat are rarely sustainable. Consider what a dividend yield is - the current annual dividend divided by the current stock price. A quarterly dividend check will provide little comfort if you invest in a stock that ends up plummeting.
Moreover, that dividend check is no guarantee. Companies are not required to make dividend payments like they are debt payments. If times get tough and money gets tight, checks to the bank and to bondholders will get sent out before your dividend check. It's not uncommon for high-yielding stocks to slash or suspend dividends indefinitely. One only needs to look at investors who picked up shares of General Motors or any of the "stable" bank stocks in 2008 because of their alluring yields to realize that juicy dividends often don't last.
Source: Zacks
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Posted by D4L | Tuesday, January 18, 2011 | ArticleLinks | 1 comments »________________________________________________________________
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Learned it the hard way with a stock that had a dividend of only 5%. I did not mind the stock kept plummeting as I comforted myself I still had the dividend. Not for long as they cut the distributions; cut like in zero, nada, zilch, nothing.
No wonder people invest in bonds. At least unless the company goes bankrupt they will pay it.
In hindsight I should have done the same.