Risky Dividend-Paying Stocks to Avoid

Investors have had to endure a lot of turbulence and volatility this year, but it's been a very good year for those who invest in dividend-paying stocks. In the third quarter, dividend increases by U.S. companies amounted to $8.8 billion, according to S&P Dow Jones Indices. During the quarter, there were nearly 440 dividend increases, up more than 25% from the third quarter of 2011. Companies that aren't in the S&P 500 also are among those sharing the wealth. The percentage of non-S&P 500 common issues paying a dividend again increased, to 43.4% in the third quarter from 42.7% in the second quarter, 41.7% in the first quarter and 41.4% at the end of the fourth quarter of 2011.

Even with all the positive news for dividend-paying stocks, there are some that are best avoided. Here are a few to keep out of your portfolio: Two dividend stocks investors should avoid are Hewlett-Packard Co. (NYSE: HPQ) and Xerox Corp. (NYSE: XRX). Another yield trap is electronics retailer Best Buy Co. Inc. (NYSE: BBY), whose 5.6% yield makes it hard to ignore. Best Buy's payout has more than doubled since 2005 and the company raised the dividend this year. Another dividend-paying stock, real estate investment trust Annaly Capital Management Inc. (NYSE: NLY), has been a favorite of income investors in recent years and it's easy to see why: The shares currently yield almost 14%.

Source: Money Morning

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