AVOID THE #1 DIVIDEND INVESTING MISTAKE | Summary and Q&A

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March 30, 2020
by
Ryan Scribner
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AVOID THE #1 DIVIDEND INVESTING MISTAKE

TL;DR

Dividend investors often make the mistake of solely looking at the dividend yield without considering the safety of the dividend, leading to potential losses when companies cut or suspend their dividends.

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Key Insights

  • 😃 Many big companies have cut or suspended dividends due to financial hardship caused by the economic crisis.
  • 🥳 Dividend safety can be determined by comparing a company's earnings per share to its dividend payments through the payout ratio.
  • 🥺 Solely looking at the dividend yield without considering dividend safety can lead to losses, known as the dividend yield trap.
  • 💇 Industries such as airlines, hotels, retail, and oil and energy stocks are particularly at risk for dividend cuts.
  • 😥 The dividend aristocrat list, which includes companies that have paid and grown dividends for 25 years or more, can be a good starting point for safe dividend investments.
  • 👨‍🔬 Simply Safe Dividends is a recommended resource for researching dividend stocks.

Transcript

  • So in this video today, we're going to be talking about dividend investing. And in particular we're going to identify the number one biggest mistake that dividend investors make at a time like this and how you can potentially avoid making this mistake yourself. So in the last couple of weeks we have seen some massive companies out there cutting o... Read More

Questions & Answers

Q: Why have many companies been forced to cut or suspend their dividends?

The economic crisis has resulted in financial hardship for many companies, leading them to take drastic actions such as cutting or suspending dividends to conserve cash.

Q: How can investors determine the safety of a dividend stock?

Investors can look at the payout ratio, which compares a company's dividend payments to its earnings per share. A high payout ratio above 100% suggests an unsustainable dividend.

Q: What are some industries that are at risk for dividend cuts?

Industries such as airlines, hotels, cruise lines, casinos, restaurants, oil and energy stocks, retail, shipping and freight, industrials, manufacturing, and auto makers are likely to be hit the hardest and have dividend safety at risk.

Q: What should investors do if they own a stock that has cut or suspended its dividend?

Investors should evaluate the company's overall situation and decide if they still want to be a part owner. If they disagree with the company's direction, it may be advisable to cut losses and move the investment elsewhere.

Summary & Key Takeaways

  • Many big companies, such as Ford, Boeing, Macy's, and Nordstrom, have been forced to cut or suspend their dividends due to financial hardship caused by the economic crisis.

  • Dividend safety is at risk, and investors need to be cautious to avoid making the number one dividend investing mistake.

  • The safety of a dividend stock can be determined by looking at the company's earnings per share versus the dividends they are paying. A high payout ratio above 100% indicates an unsustainable dividend.

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