2024-07-17 07:00:00 ET
Summary
- Chasing high dividend yields can be risky without proper understanding.
- High dividend yields can indicate underlying fundamental problems in a company.
- Not all high dividend yields are "sucker yields," some may present real profit opportunities.
Chasing high dividend yields is stupid.
Unless you know what you’re doing.
That’s not an arrogant statement. It’s a factual one, since very high dividend yields are usually a sign of underlying fundamental problems in a company.
Usually. But not always.
There are times when a high dividend yield is a real profit opportunity, not a sucker yield. But to understand when it’s the former, you have to first understand what the latter is.
I wrote about this very topic last month in “ Who Else Is Avoiding These 3 High-Yielding REITs ?” It started out like this:
“Let me be perfectly clear…
“I’m not chasing yield.
As much as I like [real estate investment trusts (REITs), business development companies (BDCs)],” and other high-yielding stocks, I will not put my hard-earned capital to work, only to lose it on a so-called ‘sucker-yield.’”
For the record, the definition of this unwelcome phenomenon, as defined in my REITs for Dummies , is:
“An unnaturally high dividend yield attached to a company’s stock because that company has a flawed or vulnerable business model. Companies that feature sucker yields tend to have unpredictable and unreliable earnings histories filled with unsafe dividend payouts. When a company is paying a dividend beyond its earning power, it is essentially eroding capital.”
Read the full article on Seeking Alpha
For further details see:
Let's Go Chase Yield