Are dividend stocks the new Beanie Babies? On the surface, you'd assume that stocks paying out cash have little in common with children's plush toys, but some of my colleagues would disagree. They'd call dividend investing a fad, just like the Beanie Babies of yesteryear.

Could that possibly be true? While investor interest in dividends is surely piqued, blue-chip companies like Procter & Gamble, Intel, and Microsoft continue boosting dividends at outsized levels, and come with pretty cheap price tags to boot.

So no, I don't think dividend investing is a fad. The real fad is a tightly clustered group of stocks hovering near the top of the dividend yield list. As evidence, look at this list of the highest-yielding stocks in the market today:


Dividend Yield

American Capital Agency (Nasdaq: AGNC) 19.1%
Chimera Investment (NYSE: CIM) 17.7%
Annaly Capital Management (NYSE: NLY) 15.1%
Hatteras Financial (NYSE: HTS) 14.3%

Source: Capital IQ, a division of Standard & Poor's. Sorted by companies with more than $1 billion in market cap, traded on U.S. exchanges.

Or, if you wanted to limit your investing horizon to the popular S&P 500 index, here's a selection of the four highest-yielding stocks:


Dividend Yield

Frontier Communications (NYSE: FTR) 8.2%
Windstream (Nasdaq: WIN) 7.7%
Diamond Offshore 6.8%
CenturyLink 6.8%


Notice something with each of these tables? In the top table, all the highest-yielding stocks are centered on real estate investment trusts. In the bottom table, all the highest-yielding stocks aside from Diamond Offshore are landline-focused telecoms.

This kind of high-yielding concentration around one industry is hardly unique. If we turn the clock back five years to look at the high yielders in 2005, a similar picture emerges.


Dividend Yield

Frontline (NYSE: FRO) 14.5%
Genco Shipping 13.9%
Diana Shipping 13.3%

Source: Capital IQ, a division of Standard & Poor's.

Once again, we see the highest yielding stocks all concentrated in one industry! This time it's shipping, but the pattern of concentration remains the same. What's important to note is that while these shipping companies once paid eye-popping dividends, only one of them still pays a dividend today. While Frontline has managed to maintain (now far lessened) payouts to shareholders, both Diana and Genco's dividends were washed out to sea during the recession.

If you were chasing the best yields back in 2005, your dividends are now dead.

That's because unique events often conspire to create situations where one beaten-down industry offers yields that blow away those found anywhere else. Take the telecoms seen above; they're all focused on the declining landline market. That provides these companies with stable cash flows to pay out dividends today, but also gives them little growth. If these companies see faster customer defections than expected in coming years, investors can expect not only a slumping share price, but a sagging dividend payout as well.

As Foolish colleague Matt Koppenheffer said in his recent article on dividends-as-a-fad, "High yields aren't always good yields."

So should you avoid all high-yielding stocks? I don't think so. For example, I've advocated the merits of Annaly Capital before. It has several solid attributes, so long as investors are aware of the risk involved, and continue to monitor trends that could endanger its dividend.

Fools should generally keep a component of dividend stocks that can weather not only industry-specific calamities, but also further shocks to the broader economy. The list of Intel, Procter & Gamble, and Microsoft above is a good start, but it's just a start. To see a broader list of companies paying out strong dividends, click here to get The Motley Fool's five-page free report, 13 High-Yielding Stocks to Buy Today.

Eye popping dividends might be tempting today, but they're rarely built for the long-term. If you're looking for some stability from dividends, learn from the fallen high-yielders of the past. Make sure to diversify and keep a stable of companies with lower payouts -- and plenty of wiggle room.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.