The Best In High-Dividend Stocks

Let’s call it the six-per-cent solution. For investors seeking steady returns in a low-interest-rate world, locking in a stock yield of six per cent or more can seem pretty sweet. It’s several times what a typical bank GIC (Guaranteed Investment Certificate) pays, and nearly three times the yield on 10-year U.S. Treasury bonds. Bottom line: if you buy a stock for yield, you’d better be sure you can stomach a bit of volatility.

Another key consideration: before you buy a stock for yield, you’d better make sure the dividend is sustainable. If not — and if a company’s earnings are actually shrinking — investors could be in for a double-barrelled beating. One, the stock price is likely to fall. And two, the dividend could be cut or even eliminated in future, triggering further declines. Suddenly, the juicy yield that once looked so enticing is gone, and the share price has sunk. Voila, investors have been sucked into a classic value trap.

Source: Edmonton Journal

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