Dividend Paying Stocks Are Not Always Safe

Do not automatically believe that dividend paying stocks are safe. They can get into trouble. They can decrease dividends, even if in the past they always raised them. They can stop dividends. Generally speaking dividend paying stocks, especially ones that continue to raise dividends are safe, but not always.

For example, TransCanada Corp (TSX-TRP) got into trouble in 2000 and cut their annual dividend from $1.12 to $.80. I know that people who held this stock were upset.

Even if you use such lists as the S&P/TSX Dividend Achievers, their stocks are not always the best to buy. It is fine to use such lists, but even at that you have to investigate any stock on their list to see if it a good one to buy. Look at their handling of Loblaw’s. This stock got into problems in 2005, but it was only deleted from this Dividend Achievers list in December 2007.

And, even good stocks do not always stick around. Of the first 3 stocks I bought, Bell (BCE), Labatt’s and Bank of Montreal, it looks like I will soon only have Bank of Montreal. I had to sell Labatt in 1995 as it was being taken over by Interbrew. It had been a good company and paid a nice dividend. Bell will soon be gone. Bell was actually the first stock I bought. I only have figures on Quicken from 1987, but it says that from 31 Dec 1987 to the end of last month, I have made a return of almost 9 ½% per year on this stock.