It's been a scary year for dividend investors.
Even with the recent rally, dividend yields are sky-high.
According to Capital IQ, there are 1,113 stocks on our major
exchanges with yields of 5% or more. But many of these are
dividend traps, enticing us with the promise of fat
quarterly payouts, only to cut them down the road.
As a stark reminder, we can look to
General Electric . Once hailed as the safest
of the safe, GE has in short succession received government
help, cut its dividend to save cash and (hopefully) retain
its AAA debt rating, and then lost that AAA status
anyway.
More examples abound, from
Harley-Davidson (NYSE: HOG) to
Nokia (NYSE: NOK) to
PNC (NYSE: PNC) and the rest of the big
banks.
The "5% of nothing" club
Traditionally, a 5% dividend yield has been
eye-popping enough to elicit fears of a dividend cut. Now, it
feels commonplace. When you see a blue chip like
Kraft creeping up on a 5% yield, anything
short of double digits starts to feel safe. And we start
getting a little greedy.
But that greed can turn right back into fear if the great
double-whammy curse of high-yielding stocks kicks in. After
all, we buy dividend stocks because they provide a large,
steady stream of income
andhave the promise of stock price appreciation. But
then:
Whammy!)
To preserve precious capital, said company cuts or
altogether eliminates its dividend,
destroying dreams in the process. (
Double-whammy!)
As a result, I view
anydividend yield as a "too good to be true"
situation until I've fully vetted the company. It's a good
default stance on any stock you're considering buying. Let's
take a quick look at some companies with 5%-plus
dividends:
Company
Dividend Yield
Payout Ratio
Philippine Long Distance
Telecom (NYSE: PHI)
7.7%
110%
Southern Copper (NYSE: PCU)
5.8%
171%
Telefonica SA (NYSE: TEF)
6.1%
64%
Regal Entertainment Group (NYSE:
RGC)
6.1%
179%
Horizon Lines
7.6% Continued... |