Are Dividend Stocks Too Good to Be True?

Owners of dividend-paying stocks face their own share of risks. There’s always market risk; stock prices can fluctuate wildly. There’s plenty of evidence to suggest that high-quality dividend-paying stocks face a lower level of price volatility, and that the dividend may help put a price floor in place. It is unlikely that a high-quality name yielding 4 percent will see its price cut in half, at least for very long, assuming the fundamentals are intact, and that there’s not trouble brewing specific to that company or industry.

One of the greatest risks to those seeking yield through dividend-paying stocks is the possibility that the dividend is either reduced or eliminated. That is typically a signal that all is not well with the company, but there are often warning signs that investors should be aware of. Ultimately, dividend cuts or eliminations are rarely a surprise when announced.

Source: CNBC

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