I have heard that chasing yield is bad, but I would like to understand more fully what are the arguments.
A lot of the most highly recommended dividend stocks yield only 3-4%. I see some of these US shipping companies yielding 15-20%, and GE, BMO and others have all touched double digit yields. They look pretty tempting, but after hearing the don't chase yield comments, I hesitate and am compelled to think it through, but I cannot see the weakness.
Why should we not pursue companies like these assuming they pass a fundamental analysis of their financial health, they are paying out less than they earn, and they are not funding dividends with debt or common stock issuance?
Is it because dividend investors do not like to time the market and would rather make smaller regular purchases than large lump sum investments that they avoid high yielding stocks with high volatility? Is it because the high yield almost always signifies problems with the stock (its yield must be high for a reason?).
Could someone please let me know the common dangers of yield chasing?
A lot of the most highly recommended dividend stocks yield only 3-4%. I see some of these US shipping companies yielding 15-20%, and GE, BMO and others have all touched double digit yields. They look pretty tempting, but after hearing the don't chase yield comments, I hesitate and am compelled to think it through, but I cannot see the weakness.
Why should we not pursue companies like these assuming they pass a fundamental analysis of their financial health, they are paying out less than they earn, and they are not funding dividends with debt or common stock issuance?
Is it because dividend investors do not like to time the market and would rather make smaller regular purchases than large lump sum investments that they avoid high yielding stocks with high volatility? Is it because the high yield almost always signifies problems with the stock (its yield must be high for a reason?).
Could someone please let me know the common dangers of yield chasing?