Dividends4Life: You Can Lose Money With High Dividend Stocks

You Can Lose Money With High Dividend Stocks

Posted by D4L | Sunday, February 13, 2011 | | 0 comments »

Many people automatically assume that investing in dividend stocks is a guaranteed way of making money, particularly if you invest in those with high payouts of between 5% and 10%, for example. However this is not really true at all.If you are investing for say 10 or 20 years, then you could argue that the timing of your buys is not necessarily that important. That’s because by earning say 5% every year from your dividend stocks, these payments will more than compensate for any flat or slightly negative share price movement. This is particularly true if you reinvest the proceeds each year.

However if you don’t intend to hold on to these stocks for as long as this, then you need to place more importance on when you actually buy because it can make a huge difference. Assuming that a company is likely to continue paying decent dividends each year, you should ideally invest in these companies when the share price is temporarily oversold. Another way you can lose money is if you look for income-generating stocks from amongst the small and mid-cap companies. While some of these companies offer some very attractive yields, they are a lot riskier because their futures are a lot less secure than many of the large-cap stocks. If they run into difficulties, they could easily reduce the dividend or scrap it altogether.

Source: Counting Pips

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