Almost everyone loves a company that pays high dividends. Who doesn't like receiving a check every quarter for simply owning a stock--especially if that stock is paying you back 4%, 5%, or even 10% of its share price in annual income each year?
In a world where 10-year treasuries are yielding 3%-4%, it seems hard to go wrong when buying a stock that's yielding significantly above the going rates on fixed-income assets. Unfortunately, the market rarely offers a free lunch.
While high-yield stocks may have a lot of near-term attractiveness, those same high-yields can often signal significant danger ahead. In some cases, it might mean that the company's dividend will stop growing or won't grow as fast as it used to. Worse yet, the company could cut its dividend, reduce the income you receive from owning the stock and drive down the value of the shares that you own.
5%-plus yields might seem like an easy opportunity to boost the investment income you receive, but high-yield stocks can just as often be a trap waiting to snare unsuspecting investors. It's not always easy to tell the difference though.
We have made a list of 20 high-yield dividend stocks that are paying an unsustainably large percentage of their earnings in the form of a dividend. These companies are all paying out more than 100% of their earnings per share in the form of a dividend, a sign that the advertised high-yield probably won't last.
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