Don't Fall For These High Yield Traps

Buying stocks with high dividend yields is an excellent way to invest. But it's not fool-proof. In fact, if you shop by yield and yield alone, you're playing a dangerous game. It's called picking up nickels in front of a steamroller. Admittedly, it may work for a while, but eventually I can assure you the steamroller will prevail. That's why in today's low-growth environment, it's critical to know which dividend stocks NOT to buy. Avoid the real duds and the dividends alone will be enough to bail you out of minor mistakes. Find yourself on the wrong side of the fence and your high-yield investment could end up being pretty costly.

Investors need to avoid dividend stocks where the source of income will dry up in a few years, and the dividend payout doesn't add up to the amount you're paying for the stock. You wouldn't think there would be any of those, but there are! Investors fall for them because of their high yields. Here are a few examples where one day the well will suddenly go dry leaving investors with empty cups: Great Northern Iron Ore Properties (NYSE: GNI), Whiting USA Trust (NYSE: WHX) and BP Prudhoe Bay Royalty Trust (NYSE:BPT).

Source: Money Morning

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