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The allure of high dividends is understandable. Many investors utilize these as primary screening tools to generate income. For example, when faced with a choice, a higher yield can sometimes sway an investor’s decision, as was the case with AT&T compared with Verizon. In theory, a higher starting payment yields greater compounding potential over time; however, looking at yield alone can lead to substantial pitfalls.
Key Indicators of a Yield Trap
While there’s no foolproof formula for identifying a yield trap, the hosts outlined five primary indicators that, if present, should raise a red flag for investors: