Dividends4Life: 3 Hidden Risks of Dividend Stock Investing

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3 Hidden Risks of Dividend Stock Investing

Posted by D4L | Wednesday, July 09, 2014 | | 0 comments »

I recently joined Moe Ansari, host of the nationally syndicated radio show Market Wrap with Moe, to discuss some of the risks facing dividend stock investors. The three biggies I see are: Low Volatility Works Both Ways: Last year, the stock market went like gangbusters with 30% gains for the major indices. However, dividend stock funds such as Vanguard Dividend Appreciation ETF (VIG) or the T. Rowe Price Dividend Growth Fund (PRDGX) slightly underperformed.

Low Volatility Doesn’t Mean Low Risk: Even worse than broad-based dividend funds has been the performance of the Utilities SPDR (XLU), an ETF that focuses wholly on stocks in the utility sector and thus tends to be chock full of dividend stocks. A High Dividend Doesn’t Always Mean You’ll Get a High Return: There’s an old joke among investors who chase yield: The easiest way for a stock to see its dividend yield double is to watch its share price get cut in half overnight.

Source: InvestorPlace

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