Could Dividend Stocks Destroy You?

Dividend stocks are all the rage among investors. Yet while their unique combination of potential future growth and attractive current income justifies investors' interest in them, they're not bulletproof -- and using risky investing strategies to try to take advantage of high dividend yields can come back to bite you.

Right now, dividend-seeking investors find themselves in a situation many have never faced before. Interest rates on bonds and other fixed-income investments are at historic lows. In fact, the disparity is so wide that I've started to see a new strategy thrown around. It's a variation on what's known as a carry trade, where you borrow money at low rates in order to buy investments that are paying a higher rate. In a nutshell, here's how it works: Go to your broker and take out a margin loan. Use the money to invest in high-yield dividend stocks. With some brokers offering margin loan rates below 2%, you can pocket some nice profits just based on the dividend income you receive every quarter.

Source: Motley Fool

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