The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.
The number of companies cutting their dividends has been rising, according to a report from S&P. John and David recommend that investors avoid a common dividend pitfall.
High-yielding stocks can have high yields because investors see problems on the horizon. Companies like RadioShack, SuperValu, and JC Penney have slashed their dividends because they need cash. And mortgage REITs like Annaly Capital Management have seen their profits drop in a tough operating environment. As a result, their dividend payouts have come down, too. Rather than looking solely for companies with high dividend yields, John and David prefer to invest in companies with modest dividend yields with plenty of room to grow over time. That’s why they’ve invested in ExxonMobil. It has the right combination of yield and growth, which is where the best dividend investments live.
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David Meier has no positions in the stocks mentioned above. John Reeves has no positions in the stocks mentioned above. The Motley Fool owns shares of Annaly Capital Management, RadioShack, Supervalu, and ExxonMobil and is short RadioShack. 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.