Don't Blindly Buy Dividend Stocks

Posted by D4L | Thursday, April 19, 2012 | | 0 comments »

Investors should be wary of stampeding into dividend-paying stocks in search of high yields in today's low-interest-rate environment, warns Jason Zweig, a personal-finance columnist for the Wall Street Journal. He argues that the many investors who have already done so might not be paying enough attention to the risk of capital loss. When considering yields alone, some stocks do appear more attractive than bonds.

Dividend stocks, however, don't offer the same principal protection as investment-grade and government bonds. U.S. Treasurys, for example, are guaranteed to return the capital -- inflation is the only risk to investors -- if held to maturity. Investment-grade corporate bonds contain some risks to capital, but their loss probability has historically been much lower than that of stocks.

Source: International Business Times

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