Fatal Mistakes Of Value Investors

Value stocks have long been regarded as safer investments than growth stocks. They tend to sport lower valuations and are often dogged by low expectations. So any stumbles can be taken in stride. But investors need to do their homework before pouncing on a value stock too quickly. A little digging may reveal more insights that take the shine off of any value play.

An uncertain dividend yield. Dividend stocks are often seen as value stocks. Their high yields provide an attractive source of income even if their shares have limited capital appreciation potential. But many investors mistakenly buy stocks with unusually high dividend yields. And extremely high yields -- in excess of 10%, for example -- can be a sign that the dividend will need to be cut. At the depths of the economic crisis, media firm Gannett (NYSE: GCI) offered a $1.42 annual dividend, even as its stock moved below $7, implying a dividend yield in excess of 20%. Management soon had to cut the dividend by 90%, and dividend chasers that didn't see it coming were burned. So it's important to see how operations are faring. If business has just turned south, a seemingly attractive dividend may be at risk.

Source: Street Authority

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