Three Dividend Traps Many Investors Make

an benefit from it because it provides are regular, even stable income. For others, dividend investing works well as a passive income stream that can easily help supplement your other investments. Down the road it can become large enough to overcome your other incomes. Yet, the problem is that many investors make mistakes when making dividend investments. If you want to choose the right stocks that will give you that elusive high dividend yield, there are several things to take into consideration.

There are three things you can do to avoid common traps many investors fall from when dividend investing:

1: Sustainability

All good dividend yields must be sustainable. It can be difficult to know if this is possible, but one way to do this is to check the dividend payout ratio. The company has distributed these profits to the stockholders. You want to avoid those that are paying out percentages over 100 percent, as this means that they are paying out more than they are bringing in, in profits. This shows that the company will not be able to sustain long term (eventually, they will run out of money).

2: History

The dividend's history is another rich source of information for you. The company should have a consistent history of paying out dividends. What trends are you seeing there? For example, are the amounts paid out in the most recent period higher than those are prior? Here, you want to see if this will be an increase that sticks around or one that is simply unstable and therefore will fall to the same levels it was in the past.

3: Look Into Cheap Stock Carefully

Usually, low priced stock is cheap for a reason. Before you invest in that stock in the hopes of seeing large dividend payouts, take the time to consider why this may be happening. It could be that there is a negative market sentiment surrounding the stock or company. The company's business operations may be falling. As an investor, you need to know what is happening. Look for as much information as possible so you can make the right decisions.

There are online stock market analysis and research companies that do the hard job of market research and analysis and bring to you simple, clear, time saving and trustworthy data. These companies do rigorous research before advising you about the best stock picks. In other words, you will be provided with top stock picks and healthy returns all based on sound market research.

Investing in dividends is a fantastic way to create long-term income for yourself, but you have to avoid not having this information. Make good, profitable decisions based on the information you gather.