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3 Dividend Stocks with Unsustainable Dividends

By Matthew Frankel, CFP® - Jul 12, 2014 at 6:00AM

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You need to be extra careful with high-dividend stocks. Here are some that might not be able to afford to keep up their high payouts.

Long-term investors love stocks with high dividends. And, just because a dividend is high doesn't necessarily mean it's risky or it can't be sustained over the long term.

For example, ARMOUR residential REIT ( ARR 0.40% ) pays a dividend of nearly 14% and there is no reason to believe the company won't be able to continue paying it. I'll discuss why this is the case shortly.

However, a higher dividend yield definitely warrants a little extra homework on your part before buying the stock. There are a few "red flags" to look for that can tell you whether a high dividend is unsustainable, so let's take a look at what you should be on the lookout for, and why the dividends of Western Asset Mortgage Capital Corp ( WMC -0.88% ), Resource Capital Corp ( ACR -2.09% ), and Windstream Holdings ( WINMQ ) are not to be trusted.

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.

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Stocks Mentioned

Windstream Holdings, Inc. Stock Quote
Windstream Holdings, Inc.
WINMQ
ARMOUR Residential REIT, Inc. Stock Quote
ARMOUR Residential REIT, Inc.
ARR
$10.00 (0.40%) $0.04
Western Asset Mortgage Capital Corporation Stock Quote
Western Asset Mortgage Capital Corporation
WMC
$2.25 (-0.88%) $0.02
ACRES Commercial Realty Corp Stock Quote
ACRES Commercial Realty Corp
ACR
$14.05 (-2.09%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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