Financial-Budget

The Too-Good-To-Be-True Dividend

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Brett Carson

We’ve all heard the saying, “if it’s too good to be true, it probably is.” That’s how I feel about high yielding investments in this ultra-low rate environment. Just recently, my father asked me to look into a stock that was trading at nearly a 19% dividend yield that he heard about from a friend. Considering that a US 10-year Treasury currently yields less than 2%, I understood the attraction but knew that it was likely a high-risk investment that may cut its dividend soon. In fact, not only was it an oil and gas driller with volatile earnings, but it also carried an enormous amount of debt. It wasn’t a question of “if” it was going to cut this dividend but rather “how much.” That’s only part of the risk. Likely, the largest downside comes from what happens to the stock’s price after the dividend gets slashed.

In short, be wary of high yielding investments. Master Limited Partnerships have soared in popularity over recent years due to Central Bank’s “zero interest rate policy.” However, many cannot sustain current dividends without having to sell additional stock or raise debt, which will eventually result in dividend cuts when access to the capital markets becomes difficult.

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Paying for Health Care in Retirement

By Ryan Yamada, Senior Wealth Planner    When putting away for retirement, we often dream about all the things we’ll be able to do with that money – traveling, going out to eat, maybe trying new hobbies. 

Senate Addresses Taxes, Deficit, Inflation, Health Care in Proposed Bill

By Jamie Hopkins, Managing Director, Wealth Services  Sonu Varghese, Director, Investment Platforms; and Ryan Detrick, Chief Market Strategist, contributed to this report.    Senate Democrats have reached a general agreement on a bill to address climate change, taxes, health care, inflation …

Quarterly Market Outlook: What Lies Ahead for the Third Quarter of 2022?

By Scott Kubie, Senior Investment Strategist    The first half of the year proved challenging for even the most hardened of investors. High inflation. Continual losses in the S&P 500. Bear market. Fed rate hikes. It all added up to the third most volatile market in 25 years.  

Culture From the Top Down: Executive Compensation Plans Explained

By Craig Lemoine, Director of Consumer Investment Research At their most basic level, executive compensation plans are designed to attract, retain and motivate top talent and leadership. But truly successful plans are designed to be much more than providing a high salary to a key employee – …
1 2 3 88 89 90
Financial-Budget

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation