Although dividend stocks are generally less risky than non-dividend stocks, they do carry some risk and may not hold sufficient promise of rewards for some investors. To make a well-informed decision of whether dividend stocks are right for you, consider not just their pros, but their cons as well.
Whenever you sign on the dotted line with a broker, mutual fund manager, or other intermediary, he usually presents you with a long disclaimer that basically boils down to a single statement: “Past results are no guarantee of future performance.” In other words, yesterday’s winner can be tomorrow’s loser. Investing always carries some risk, and dividend stocks are no exception. A few dangers to be aware of:
In general, dividend-paying companies see less price appreciation than growth stocks.
Share prices can drop whether the stock pays dividends or not.
Companies can slash or eliminate their dividend payments at any time for any reason. As a shareholder, you’re at the end of the line when checks are cut.
Tax rates on dividends can rise, making dividend stocks a less attractive option — for the company to pay and for you to receive.
Not investing also carries risk. If you stuff your money in a mattress or bury it in a coffee can in the backyard, someone can steal it or mice, bugs, or inflation can eat away at it.
