Pitney Bowes Inc. (PBI), NTELOS Holdings Corp. (NTLS) & More – Warning: Invest In ‘Dividend Blacklist’ Stocks At Your Own Risk

3. Industry health
Defensive industries such as electric utilities or packaged food makers tend to generate steady financial results in any economic climate. As a result, they can pay steadily growing dividends year after year. But many companies toil in highly cyclical industries — such as technology, construction, residential, or auto manufacturing — that can go from bust to boom and back to bust in less than a decade. And when the inevitable cyclical downturn arrives, sales fall, cash flows dry up, and the dividend must be cut if the company’s earnings can’t keep up.

4. ‘Too good too be true’ yields
In most instances, if you see a stock sporting a dividend yield in excess of 10%, you should steer clear. Why’s that? Because if a company was in a strong financial position and the investment community generally perceived future dividend payment streams to be safe, then they would rush to buy the stock. The resulting rising stock price would push the dividend yield lower. In effect, the market has natural forces that spot high-quality, high-yield stocks and then corrects the anomaly.

We already took note of Pitney Bowes Inc. (NYSE:PBI)’ double-digit yield, and explained why the good times couldn’t last, but other high-yielders are also lurking out there, waiting to lure in unwitting investors, only to punish them later.

A few examples may include NTELOS Holdings Corp. (NASDAQ:NTLS), Windstream Corporation (NASDAQ:WIN) and Prospect Capital Corporation (NASDAQ:PSEC), two of which have dividend yields in excess of 10%. These yields are too good to be true.

Trust me, I know it’s not fun to think about what it would be like to spend part of your nest egg on an income stock — only to see the dividend get cut and then have to deal with the ensuing panic.

That’s exactly why I use these rules in every issue of High-Yield PRO, to seperate the quality high-yield stocks from the ones that belong on my “Dividend Blacklist” — which shows readers the most troubled high-yielders on the market that should be avoided at all costs.

You owe it to yourself to examine your portfolio holdings for these warning signs before it’s too late. But it would be even wiser to keep these points in mind before you ever buy a stock that pays a dividend.

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This article was originally written by Elliott Gue and posted on StreetAuthority.