Tipping Point: Why you should not always invest in highest dividend payers

Why do high dividend yield stocks appeal to investors?

These stocks appeal, especially to risk-averse investors. They are accustomed to fixed-income instruments that pay a regular coupon. They get the same experience in the form of dividend payouts in these stocks. In falling markets, many investors gravitate to these stocks. The dividend payouts act as a floor that restricts the fall in the prices of these stocks.

What should investors watch out for?

The mistake investors make when investing in such stocks is to select those that have paid the highest dividend in the recent past. The highest dividend payers are often not able to sustain those high dividend payouts. Instead, investors should look for stocks that have a track record for being steady dividend payers.