3 High-Yield Dividend Investing Tips That Could Earn You Thousands
Income investors are often older and principal preservation is their biggest priority. In investing, avoiding traps are a key way to make money. A 40% loss on one stock can wipe out a lot of 10% gains on your others. Value investors often talk about "value traps," and that concept is relevant to income investors. Here are some tips that can help you spot red flags and avoid the landmines.
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If a stock's dividend yield is higher than its peers', it is often a danger sign that the dividend will get cut in the future. This generally happens when the business is struggling and the company doesn't have the earnings to cover it. We saw this in the spring of 2020 when Wells Fargo was yielding over 7% while its competitors were yielding around 3% to 4%. Wells eventually cut its dividend nearly in half. Whenever a high yield catches your eye, it pays to take a quick look at the company's competitors and see if the yield is way out of line. If it is, compare the annual dividend versus the earnings per share. If the dividend is higher than the earnings per share, it's a bad sign. This is a tip that might not earn you a lot, but a penny saved is a penny earned.
Source Fool.com
