Dear Mr. Market:

With interest rates at rock bottom levels many investors have gravitated to dividend yielding stocks over the last several years. Money markets, certificates of deposit and bonds simply are not delivering the rates that investors are looking for or have come to expect. It has left investors looking for other options to generate the income that they are counting on but what are the long-term ramifications? Are investors chasing yields with the risk of digging themselves into a deeper hole? What should investors look for and how can they manage their portfolios effectively?

It doesn’t take much effort to find a laundry list of stocks with very attractive yields. In fact if you simply run a screener on Google it will return a list of nearly 100 stocks that offer a yield of 10% or more! With the stock market continuing its upward trend investors have been moving to these stocks chasing the yields with little attention being paid to the underlying stock and the associated risks.

Before we jump into specific companies and industries let’s make sure we are all on the same page and understand what dividends are. Continue reading →