Dividends4Life: 3 Facts About High-Yield Dividend Stocks Every Investor Should Know

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Income investing should be one of those activities that allow an investor to sleep at night. A steady return of cash via dividends is a great way to pay for retirement, college education costs, or any other periodic payment. Dividend stocks and fixed income investments are great ways to generate these returns. It's important to pick the right companies that manage themselves well enough to maintain and/or (even better) improve their dividends each year. Here are three other tips to remember when navigating the investment seas of income stocks.

  1. If it looks too good to be true, it probably is - This is the No. 1 thing to keep in mind when looking at dividend stocks. Whenever you look at a dividend stock with a dividend yield percentage that is much higher than its peers, the market is telling you that there is some risk to that dividend.
  2. Payout ratios can help indicate which stocks are at risk - How can you tell if a dividend might be at risk? The easiest way is to look at the stock's payout ratio, which is the annual dividend per share divided by earnings per share.
  3. Keep a close eye on earnings trends - Past performance is not necessarily indicative of future performance. This is one of the key things to keep in mind when looking for dividend stocks.

Source: Motley Fool

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