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Watch Out for These Dividend Traps

Dividend-paying stocks have risen to highs not seen in quite some time relative to non-dividend-payers. In fact, the discount that dividend-paying stocks have typically received in the market has virtually disappeared as investors increasingly embrace the investing application of the adage "a bird in the hand is better than two in the bush." However, investors need to understand the story behind a dividend when making investment decisions, particularly when dividend yields rise into double-digit territory. In the following video, Brenton goes through some statistics on a few of the most popular telecom dividend payers and the unfortunate returns that can come from jumping into dividend stocks simply for their attractive yields.

If you're looking for dividend oriented ideas, read the Fool's brand-new special report: "The 3 Dow Stocks Dividend Investors Need." In it, you'll learn about a few Dow components sporting attractive yields that are safe for the long haul, unlike a couple of companies mentioned in the video. It's absolutely free, so just click here and get your copy today.

Brenton Flynn owns shares of AT&T. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 10, 2012, at 11:18 PM, drseusphd wrote:

    non dividend stocks drop like rocks whats the difference?

  • Report this Comment On July 11, 2012, at 7:10 AM, XMFNoonan wrote:

    Hi drseusphd,

    My point was to remind investors to pay attention to the fundamentals of a business before diving in just for a nice dividend yield. All too often I hear investors reference a stock's yield without regard for business trends and the sustainability of that payout. Frontier and Windstream are just two examples in the telecom sector, but the same story can be told outside of telecom.



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