All Financial Wisdom

Don’t Fall for the High Dividend Trap!

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I came across a list of ten high dividend stocks.  After looking at them, I feel like it is a scam, or at least a poor investment choice.

So yes, they do have high dividend yields.  However, it isn't because their dividend increasing, it is because their price is falling.

A stock's dividend yield is calculated by dividing the annual dividends per share by the share price.  You see a lot of dividend yields being around 1%.  A company might increase its dividends to decrease its growing cash reserves, increase investor interest, or perhaps to share a sudden windfall of cash.  It is usually a sign of an old growth company transitioning to a value company, since the company does not need the cash for other investment opportunities and feels like the investors would be able to get a higher return elsewhere.

Knowing all of this, this list of dividend stocks are just disgusting.  Looking at Coca-Cola, society is transitioning away from sugary carbonated beverages and leaving Coke and Diet Coke on the shelf.  Goldman Sachs is scarred with the impacts of the past financial crises and lawsuits and settlements from that are still pending.  Wal-Mart and other retailers are slowly hurting from the cheaper prices and larger collections from online retailers.

These dividend stocks as a whole seem like they are all past their glory days and where you might gain some nice dividends, you will loose in your position.

References:

http://www.thestreet.com/story/12825278/1/warren-buffetts-top-10-dividend-stocks.html?puc=twitter&cm_ven=TWITTER&utm_source=dlvr.it&utm_medium=twitter

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