4 Dividend Stocks to Avoid

A generous distribution is not always a good thing. We highlight potential pitfalls that can derail your pursuit of income.

What’s not to like about dividends? Income-seeking investors have flocked to them in recent years as interest rates have plunged. So have investors worried about an aging bull market and those seeking a buffer from volatility; they want to hunker down with dividend payers for the cushion they provide in downturns and for the way they seem to skirt the worst of the market’s mood swings.

Those are all valid reasons to shop at Yields R Us. But not all dividend stocks are alike. Many of the so-called bond proxies to which investors have turned for income, such as utilities, telecommunication companies, real estate investment trusts (REITs) and companies that make essential consumer goods, are now way overpriced. A lot of them will get whacked when interest rates move higher—in fact, many of them took a licking in the first half of 2015. And some have little to recommend them, apart from their dividends.

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.