Barron’s points out that investors who focus solely on yield may be more susceptible to value traps:
Owning an investment for its dividend doesn’t relieve you of the other, hidden exposures of the asset. Value, growth, quality, junk, etc.: You’ve made a choice whether you realize it or not.
Pankaj Patel, quantitative strategist at ISI Group, highlighted one risk for clients this week:”Dividend yield as a factor is susceptible to value traps. To use dividend yield as a factor for stock selection it needs to be combined with other factors.”
We have found that combining yield with relative strength has been effective at leading us to those stocks that not only have high dividend yields, but are also technically strong. Click here to read more about why we use rankings based on total return (price + yield) to identify holdings for the First Trust DWA Relative Strength Dividend UITs.
Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. See http://www.ftportfolios.com for more information.
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