There has been a lot of talk lately in the news about dividend stocks. Along with that talk we hear a lot about stocks being at risk of having their dividends cut or completely eliminated. There are a few simple reasons why investors and traders often feel that a high dividend may not stick around long – and rightly so. Lets take a look at a few different reasons for their skepticism.
The dividend might get cut
A stock price usually falls for a reason. When a stock goes down 50% or so its usually because there are some real problems with that company. Many stocks that have very high yields are in this situation. They started off with a normal dividend yield but because the stock price fell so sharply without them changing their dividend the yield is HUGE. If the company is in trouble and needs the cash the dividend can be first to go as the company needs that capital to survive.
The stock might go up
This is not necessarily a bad thing of course. But if you bought a stock for just the yield then your dividend yield percentage goes down as the stock price goes up. That shouldn’t be a problem for you though because you probably won’t mind selling the stock for more that you paid for it… right?
Its important to do your research and figure out why the dividend is so high. If its a company where the stock price has been steady and the dividend has been increasing over time you are off to a good start. As always when you consider buying a stock you should do your homework and be sure they are in good shape on their balance sheet.