Can a High-Yield Dividend Stock Still Be Safe?
Investing is all about trade-offs. Generally speaking, the more certainty there is in an investment, the lower the potential return you can expect from owning it. Within that framework, there is really no such thing as a truly safe investment, as those that are considered such still often lose ground after inflation and taxes are taken into account.
All that said, that trade-off often opens up opportunities for investors looking for income from stocks. For instance, when interest rates rise (as they have been recently), bonds become relatively more attractive sources of income. That tends to drive down the prices of dividend-paying stocks, offering more potential long-term reward for a given investment. As a result, while no investment is truly "safe," there are times when the potential reward from high-yield dividend stocks can justify the risk.
The first question you need to ask when considering a high-yield stock is "why?" Why does the stock trade with a high yield? The answer to that question can go a long way toward helping you understand whether the company might be a decent investment.
Source Fool.com
