Is That High-Yield Dividend Stock Safe? 3 Simple Questions to Ask.
You'll hear it again and again from seasoned long-term investors: Buy and hold dividend stocks, and reinvest the distributions to maximize your long-term returns through the power of compound growth. That's a tried-and-true formula for success, but eager investors may be tempted to juice their returns by attempting it with stocks that have unusually high dividend yields.
But problematic things can happen with some of these ultra-high-yield stocks. If a company's dividend is unsustainable, management might cut its payout or even eliminate its dividend entirely. If that happens, you could end up owning shares of a fast-falling stock representing a business in decline.
Therefore, it's worth the time and effort to check these metrics for possible trouble before diving headfirst into an enticing high-yield stock. If the red flags are flapping, you'd probably be better off opting for a stock with a less flashy but more sustainable yield.
Source Fool.com
