These high-yield dividend stocks could be in trouble thanks to the coronavirus
With interest rates near zero, many investors are turning to
dividend stocks for income. And for some investors, the higher the yield, the
better.
But it’s important to remember that in the equity market,
just as in the bond market, higher yield usually means higher risk. The biggest
risk is a dividend cut, which usually provides the proverbial double whammy.
After all, not only does the payout get reduced, but capital
usually is lost as well. Investors in widely held names like General Electric
(NYSE:GE) and Anheuser-Busch InBev (NYSE:BUD), to name just two, have learned
that lesson in recent years.
It’s not just a reduced dividend that can cause problems.
Cash returned to shareholders can’t be used to invest behind the business or
pay down debt. For some firms, then, a focus on growing or even maintaining a
dividend can have a deleterious impact on growth.
The broad point is that an investor shouldn’t be choosing a
stock for its dividend alone. Nor should they see the payout as “free money.”
Dividend stocks have their use, but a high dividend on its own doesn’t make a
bull case. In fact, for some firms, the dividend can create risks of its own,
as is the case for these eight dividend stocks:
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