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 (NYSE:ARR) 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 (NYSE:WMC), Resource Capital Corp (NYSE:XAN), and Windstream Holdings (NASDAQ:WIN) are not to be trusted.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.