Here’s the risk of chasing high yields

Article Excerpt

The yield of a stock is the percentage you get when you divide the current yearly dividend payment by the share price of the stock. The yield of an ETF is the dividend per ETF unit, which is based on the dividends paid by each of the companies it holds. Yield is an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters. It’s also an indicator we look at closely when we evaluate ETFs. It pays to treat high yields as a danger sign But yield—especially a high dividend yield—can give you a false sense of security. Investors have a natural tendency to think that all investment income is almost as safe and predictable as bank interest. But the fact is that investment income can dry up in a heartbeat. Companies are sometimes unable to keep paying a longstanding dividend, and they sometimes spring the bad news on you with no warning. ETFs holding stocks in those…

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