Can a High-Yield Dividend Stock Still Be Safe?
You may have heard the phrase, "If it sounds too good to be true, it probably is." That thinking applies to dividend yields too. Often, once payouts hit 4% or higher, investors question if they're sustainable. When a stock reaches this range, investors would be wise to evaluate the payout in case a potential cut or falling stock price spells trouble on the horizon.
High-yield stocks can be safe, but investors need to do a bit of looking under the hood before coming to that conclusion.
High-yield stocks can come from any sector, but you're more likely to find them in a few industries: utilities, telecoms, and real estate investment trusts (REITs). Stocks in these three sectors have highly predictable cash flows. Consumers pay their utility and phone bills monthly, and REIT tenants have to pay or face eviction. Management can use these consistent income streams to pay out higher dividends than other companies.
Source Fool.com
