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Risks Behind Dividend Stocks

Recently, historically dependable dividend-paying companies opting for rash dividend cuts, it has become very challenging for investors to find good dividend stocks. Many companies in order to conserve cash are slashing their dividend payouts. On top of that, the increased volatility associated with the market's decline has devalued investors' principal, which leaves them with less capital to invest.

The main disadvantages of dividend stocks are:

a) According to some investors, dividend stocks are not the best way of rewarding shareholders on their investments. Their reasoning is based on the logic that the dividend earnings are not only taxed immediately, they're also taxed twice.

b) Another drawback of dividend stocks is based on the reason that, if the company makes a per-share profit, it should pay its taxes and then either reinvest into the business. Using it to buy back outstanding shares, increases the investors' percentage share of company ownership. Either way, the value of the stockholders' shares will rise. But, at the individual level, this increase won't be taxed until the shares are sold.

c) Another of dividend stocks risks is that the company may fall and have to pull back its dividend. In this case, you not only lose your dividend payout, but also many dividend-loving investors, which will also cause the stock price to fall.

d) Lack of investment options is one more risk behind dividend stocks. Although the companies reward shareholder loyalty through dividends, but it can’t find other investment options, or projects to accelerate the company’s growth.

Keeping the above mentioned disadvantages of dividend stocks in mind, it is wise to do a thorough research in three areas a dividend payer: dividend history, balance sheet strength, and cash flow. Get into the right action to check out who has been bullish on dividend stocks.

Remember that dividend stocks are great way to help transform your portfolio and chase your financial dreams. It really depends upon your own financial goals, your personal investment strategy, and your own investment personality. In short, if dividend stocks work for you, then dividend stocks risks don’t exist for you.

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