Avoid Downside Stocks with Large Dividend Yields

Investors looking for big dividend yields should always check out a stock's price chart before buying. Often a big dividend yield results from the stock price being on the downside. As the price goes down the dividend yield (annual dividend divided by the stock price) goes up. The dollar amount of the dividend has not increased. Therefore, a relative low price is an artificial way of raising the dividend yield. Because buying on the downside can lead to further losses as the price continues to decline, you should not buy a depressed stock just to capture a high dividend yield.

Check that the dividend is safe. Often a company on the downside is in some sort of trouble and may be forced to cut or eliminate its dividend. Also check the payout ratio, which is the ratio of the dividend to earnings. A ratio above 90% may signal trouble ahead for the dividend. Should the dividend get cut or eliminated, the stock usually declines. This is one more reason to avoid buying on the downside.

Here are five downside stocks, each with unique problems, that have high dividend yields.

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