Generous dividends can help you build wealth in the long run. At the same time, overly generous dividend yields may be a sign of deeply rooted financial struggles.
The Dogs of the Dow investing strategy relies on the business quality requirements of the Dow Jones Industrial Average. If one of the 30 mighty Dow stocks is down on its luck, sending share prices lower and the effective dividend yield higher, that’s surely a temporary issue. Buy while the dividend is high and wait for the Dow component to get over that speed bump.
But what if you apply the same philosophy to a much broader universe of stocks? There are 1,730 stocks on the Nasdaq stock exchange with a market cap of $200 million or more. Are the top-yielding dividend policies in this large group green flags on fantastic buying opportunities — or red flags marking companies in deep trouble?
This post originally appeared at The Motley Fool.