Dividend stocks are all the rage now, for better or for worse, because bond yields have effectively dried up as the Federal Reserve kept interest rates at record lows. I’ve been of mixed feelings about this trend, because the chase for yield has led income investors away from the relative safety of bonds and into dividend stocks, which do carry more risk. Thus, as more and more money flows into dividend stocks, they start to get stretched as far as valuation is concerned. When it comes to stocks to buy, jumping in simply for the dividend isn’t a great idea.
That’s because, should the valuations of these dividend stocks contract back towards the mean, the loss will be in excess of the dividends paid out over several years. So I’m trying to find options that are a bit less vulnerable to that kind of price contraction, while also offering a 7% yield or higher to offset some of the existing risk: Sunoco LP (SUN), Starwood Property Trust, Inc. (STWD) and Ashford Hospitality Trust, Inc. (AHT).
Source: Kiplinger
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