Seagate, Las Vegas Sands, and BP currently boast eye-popping dividend yields. But investors could be in for a rude awakening.
For investors, few things are more attractive than a large dividend payment. Stocks that yield 2%, 3%, or even 4% can provide a steady stream of income and reliable, consistent performance.
But it is possible to have too much of a good thing. Stocks boasting excessively high dividend yields (5% or more) should be viewed skeptically, as the prospects of the underlying businesses might be dubious. After all, if it was as easy as buying a stock and collecting 7% a year, almost everyone would do it. If they did, the share price of the stock would rise, and the yield would fall, eventually reaching a level commensurate with other stocks on the market.
A high dividend yield, then, can paradoxically serve as a powerful warning sign. The market isn't always right -- indeed, it's frequently wrong -- and these stocks can make solid investments if their businesses continue to perform. But investors should certainly tread carefully.
Seagate (NASDAQ:STX), Las Vegas Sands (NYSE:LVS) and BP (NYSE:BP) are three such stocks with high dividend yields and uncertain futures…
Source: The Motley Fool