Dividends have always been, and always will be a vital component to a successful long-term investing strategy. The lure of high dividends can sometimes pull investors into stocks that they would otherwise not consider adding to their portfolio, so you have to always look beyond just the high yields before pulling the trigger.
A big dividend is attractive because of the income the distributions add to a portfolio, but if the underlying security loses more in share price than the dividends bring in, then investors would have been wiser to put their money to work in a security with a low yield and greater upside potential.
There are no crystal balls when it comes to investing, and any stock could rise or fall in any market condition, but you always need to dig deeper into a company’s underlying business before buying its stock for the dividend yield.
With interest rates slowly rising, investors will eventually rotate money out of dividend paying stocks and back into traditional fixed-income assets, but dividends with hefty yields will be partially shielded from the money transfer if and when it actually occurs.
Let’s take a look at five stocks with dividend yields greater than 4%, and try to determine whether each is a strong buy candidate at this time.