Why Blue-Chip Dividend Stocks Aren’t As Safe As You Think

A man pulled a gun on me last week.

I was in the Ipanema neighborhood of Rio de Janeiro. Ipanema is one of the wealthiest areas of Rio. You get iconic views of the Brazilian shore line and white sand beaches.

I was two blocks from Ipanema Beach when a man on a bike pulled in front of me.  At first, I thought he was going to sell me something. Then I saw him starting to pull a gun out of his backpack. Fight or flight kicked in, and I started running. In hindsight, this probably was not a good idea. But thankfully, I made it home safely.

Keeping an Eye Out for Warning Signs

I knew Rio was dangerous before visiting.  All my Brazilian friends told me not to visit because it’s so dangerous. I figured if I stay in iconic Ipanema, I would be safe. But staying in Ipanema turned out to give me a false sense of security.

People do the same thing with investing. They convince themselves that their money is safe in a company’s stock because they took the precautions. They did their research. Everyone owns it.

But just like staying in iconic Ipanema turned out to give me a false sense of security, buying iconic “tried-and-true” stocks can yield the same result.

Take a look at Kraft Heinz (KHC).

The iconic brand lost 30% of its value in one day.

(Click on image to enlarge)

That’s despite having one of the world’s most recognizable brands, a seemingly stable business, and the backing of Warren Buffett.

Kraft Heinz had many issues. But one of the reasons the stock tanked was because management cut the company’s dividend. And that’s a death sentence for any investment.

Bigger Can Be Better (If You Know Where to Look)

High dividend-paying stocks like Kraft Heinz (KHC) can often leave investors with regret. And that makes sense. Many companies must pay high dividends to compensate investors for the risk of owning the company’s stock.

Some of these companies borrow money and use the debt to pay their dividend. That’s exactly what Kraft Heinz was doing. And this strategy often ends up being a disaster for investors.

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Disclaimer: The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One ...

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