Many investors incorrectly assume it's fine just to chase stocks with the highest dividends. But reaching for yield, as it's called, can be dangerous. Companies don't have to maintain lofty dividends. If a stock price is sinking and the dividend payment gets high relative to the stock price, that could be a warning that the company may cut the dividend to conserve cash.
The danger of counting on just two stocks for dividend income is not to be taken lightly. You get the risk of the ups and downs not only of the broad stock market, but exposure to currency and political risk in Europe — both Novartis and Diageo are European. In addition, you are exposing your portfolio to the unique risks of the drugmaking and spirits businesses. By owning just two stocks, you'll need to watch these companies pretty closely to protect your principal.
Source: USA Today
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