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Sun. Oct. 26, 2008

Don’t Fall Into A Dividend Trap *

Prices are falling and yields are rising on dividend stocks. It’s a great time to be a dividend investor. That is assuming one of these wonderful stocks you just picked up doesn’t do the unspeakable – cut its dividend.

A recent Forbes article listed these four companies as a potential dividend traps:

  1. General Electric (GE) – 6.60% yield
  2. Morgan Stanley (MS) – 5.97% yield
  3. Macy’s (M) – 5.52% yield
  4. Nordstrom (JWN) – 3.79% yield

In addition, the article listed Bank of America (BAC), which has already cut its dividend. In the case of General Electric, the company has stated it will freeze its dividend through 2009. These are great times, but we have to be diligent and do our homework before investing.

Disclosure: Long GE. See a list of all my income holdings here.


7 Responses to “Don’t Fall Into A Dividend Trap *”

  1. Double says:

    I am all for investing in dividend stocks right now and do not want to fall into a dividend yield trap! Any number of suggestions where to go to find quality dividend stocks – example a site that will give you a screen of quality dividend stocks that have weathered the storm and are good buys?

  2. Nurseb911 says:

    I was listening to Jack Welch this morning on a NBC program (could have been CBS) and he had some interesting insights into this current crisis, about how things should be approached moving forward and on the topic of GE he only expressed concern with their financial arm. I think the dividend is safe, but you never know until its cut!

  3. Dividend Growth Investor says:

    Double,

    A good starting point would be

    http://www.dividendgrowthinvestor.com/2008/10/attractive-dividend-stocks-in-buy-zone.html

    Best Regards,

    Dividend Growth Investor

  4. Dividends4Life says:

    Double: Take a look at this post
    for some ideas of where to look for good dividend companies. You will need to do your homework. As you know valuations change quickly.

    Nurseb911: I miss Welch. I have read on several occasions that he was the last man that could handle a company GE’s size.

    Best Wishes,
    D4L

  5. Double says:

    D4L,

    Mergent website is now changed to Indxis.com. I checked out the post you recommended but it seems to give lots of info about S&P Aristocrats except the companies on the list. Is there an ETF that trades the S&P Aristocrats?

  6. Dividends4Life says:

    Double: Take a look at SDY.

    Best Wishes,
    D4L