I Wouldn't Dare Buy These 3 Popular Retirement-Wrecker Yield Traps

2026-06-01 07:05:00 ET

Income investors' greatest fear is the dividend cut. This is because it typically means two very negative things for the income investor:

1. Firstly, their important income stream will be reduced, typically by a significant amount. Given that the whole allure of dividend investing is that you don't have to worry about market volatility and can depend on a stable and ideally rising stream of passive income over time, a dividend cut puts that into reverse. For an income investor, therefore, a dividend cut is similar to what a market crash is to an index investor who plans to live off their portfolio value by liquidating positions over time.

2. Not only that, but to make matters worse, a dividend cut typically means a large drawdown in the price of a dividend stock, since most investors value it based on the income stream it throws off. When there's a dividend cut, the market often reprices it lower to bring the yield at least close to where it was previously.

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