All Dividend Stocks Are Not Equal

In the tough year 2011 has been for investors, one segment of the stock market has started to garner a lot of attention. Larger companies which pay dividends have been endorsed by many recently as the key to your investment future. There is some sound basis for this conclusion, a basis we have used for many years, not just due to recent popularity. When reviewing potential candidates for your portfolio it’s easy to be attracted to those companies which sport the highest yields, which are often 5 percent or more.

However, we have found two types of companies tend to reside in this group. The first are those which pay a high dividend yield because they are in a stagnant or mature industry and they have nothing better to do with their profits, such as to reinvest them in the business. This doesn’t have to be a bad thing, but may result in a portfolio which has a good cash flow from dividends now, but one which doesn’t grow much over time. The other type of company in the higher yielding group can be an outright problem.

Source: Bradenton.com

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