How Safe Are Dividend Stocks?

We were sitting around the clubhouse after golf, drinking tea (it used to be beer but everything changes as you get older). The topic of conversation was Europe. The election of a Socialist president in France and the collapse of the Greek coalition had once again roiled world stock markets and everyone was worried. "I don't have a clue where to put my money," one of my friends said, to nods of agreement from the others. "Dividend-paying stocks," suggested a retired executive. "They're safe."

At that point, everyone looked at me in anticipation. I took a sip of tea and thought about it a moment. "Not necessarily," I said finally. "There are dividend stocks and dividend stocks. Some are much more risky than others." I went on to point out that during the crash of 2008-09, even dividend stocks that had been thought to be rock solid were battered. Canadian banks, none of which was ever in serious trouble, were classic examples. Royal Bank (RY) lost almost half its market value, dropping from over $51 a share in September 2008 to $27 in mid-February 2009. Bank of Montreal (BMO) fared even worse. In May 2007, it was trading at over $71; by February 2009 it was down to $24.66, a loss of about two-thirds of its value. It has never regained its 2007 high. And the banks were thought to be safe!

Source: Guru Focus

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