3 High-Yield Dividend Investing Tips That Could Earn (and Save) You Thousands
Income investors turn to dividend stocks because of the combination of current payouts and long-term growth that they provide. High-yield dividend stocks are particularly enticing because of the higher dividend payments that they make, but they also involve greater risk that can threaten not just future streams of dividends but also the investment capital that shareholders use to buy those stocks. Investors have to consider both the risk and the reward of high-yield dividend stocks before finding themselves in over their heads. In particular, the following three tips can help you find the best high-yield dividend stocks while avoiding potential dividend traps.
One essential aspect of dividend investing is to understand that dividend yields can become high for two very different reasons. Ideally, growth in the amount that a company pays to its shareholders each quarter is what results in a steadily rising dividend yield for investor. Unfortunately, what can also push the yield higher is a falling share price that results from troubled businesses facing major challenges.
Many dividend investors make the mistake of focusing on turnaround candidates, thinking that they unify favorable aspects of both dividend investing and value investing. All too often, companies facing financial trouble end up cutting their dividends, resulting in share price declines and delivering a double hit to shareholders. Dividend investors should instead look more closely at the healthy businesses with track records of strong performance, because they're more likely to be able to keep raising their payouts and treating their shareholders well in the years to come.
Source: Fool.com
