You hear this so often that it’s now an investment cliché: There’s safety in dividends. If share prices nosedive, dividends will cushion Mr. Market’s blows. The truth is that dividends often aren’t safe. They can even be dangerous, because they can give investors a false sense of security.
The most dramatic recent example is income trusts. Investors raced to those big-dividend-paying firms in the early 2000s. But there were noises for years that Ottawa would eliminate the tax advantages of the trust structure, and it did just that on Oct. 31, 2006. The prices of some trusts plunged by 20% or more, and many trusts had to slash their dividends.
Source: Globe and Mail
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- Managing Risk With Dividend Stocks
- 9 Stocks With a Sustainable Dividend
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