Josh Peters, editor of Morningstar DividendInvestor, asks the question "Is dividend investing broken?" Large and small companies alike have cut their dividends this year, he says, but dispelling a couple myths may prove the strategy still has some merit.
Peters addresses two myths surrounding dividend investing. First, to the belief that high-yield stocks are less risky then others he says "Volatility in market prices does not necessarily translate into risk for committed, long-term shareholders, but volatility can tell us something about the risks perceived by the marketplace." This has led to more volatility among high-yield stocks.
The idea that large dividends will protect a stock from falling by attracting enough buyers to offset investors selling stock is also a myth, Peters says. "Dividends are not guaranteed--not by the company, the government, or anyone else. So if the dividend is at risk of being cut--or just perceived as being at risk--there's no floor under the stock price."
