May 30, 2016

Wait! Don't Sell These 3 'Dividend Traps' Just Yet

Nothing scares income investors like a dividend trap, but here are three that you can probably hold on to for a while.



Dividend traps are high-yield stocks that boast unsustainably high dividend payouts. On paper, they look like attractive income investments, but in reality, the high likelihood of a dividend cut would be catastrophic for share prices. A recent article pointed out three popular dividend traps and recommended selling them.

But not so fast. When it comes to investing, timing is everything. And most investors would probably agree that it's a good idea to hang on to an overpriced stock as long as that hefty price tag keeps going higher until you sell it.

Just like income investors shouldn't look solely at dividend yield, it's a huge mistake to ignore what's happening on the tape. After all, there are plenty of examples of "dividend traps" from a few years ago that have gone onto post substantial rallies in the intervening years.

Here's why you should wait to sell three popular dividend traps…


Source: TheStreet