How should investors assess dividend-yielding stocks? In this clip from "Ask Us Anything" on Motley Fool Live, recorded on July 12, Motley Fool contributors Tyler Crowe and Lou Whiteman discuss a general rule of thumb to follow and potential red flags to look out for when it comes to dividend stocks.
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Tyler Crowe: "Is it true that the higher dividend payout, the rockier the company, in other words, a red flag dividend?" For the most part, yes. Again, depending on the sector, I would say, for a good rule of thumb, probably anything over four, you want to start really paying attention. Maybe some things we were just talking about. Verizon's (VZ 0.77%) at 5.1%. You can still find good opportunities above that. You start trending into the 6, 7, 8 range. You really need to do your homework. It's either, something that looks great or something that could be in trouble. I have a few investments right now that are well over that. They're master limited partnerships, basically, in things like oil and gas pipelines. But that's the nature of the business there, sclerotic growth, it's like, 1-2% gains annually. But if you're getting a 7-9% yield, that's not the worst thing in the world. Again, it's contextual, but if you were to put a general rule behind it, I would say do a little extra pull mark after 4%.
Lou Whiteman: Yeah. I think it's hard to get one-size-fits-all, but we talked about this before, definitely over 4% or 5%, you at least want to find out what's going on there that raises more questions than it answers for me, so it isn't a one-size-fits-all.