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Here's something for the daredevils among you dividend investors out there.

Sensible investors who are tired of bad news and hate surprises, you're excused. The dividend stocks we're going to look at here are strictly for people who understand that dividend cuts are a distinct possibility and that share price carnage may ensue.

There are few investor errors that are more bush league than jumping on a stock just because it has an astronomical dividend yield. We're talking here about anything in the rough area of 7 to 12 per cent, more for income trusts. Yields rise as share prices fall, so a very high yield means an extreme level of investor pessimism about a stock.

Generally, the risks outweigh the potential benefits when looking at exceptionally high-yielding stocks and trusts. You simply cannot count on buying them and benefiting without interruption when yields are at least three times what you can get from five-year Government of Canada bonds.

And yet, it's hard to dismiss the home-run potential for these stocks if they maintain their dividend, or trim only modestly. You could lock in a rich dividend yield, while also reaping a sizable share price gain when the markets rebound for keeps. So let's set up an experiment. Let's create a portfolio of dividend stocks for daredevils and see how it does over the year ahead.

To be included in this portfolio, a stock must have a dividend yield of 7 per cent or more, which compares with about 1.9 per cent for a five-year Canada bond. Income trusts must have yields over 15 per cent or more. Second, let's say that trusts and stocks require a market capitalization (that's share price times the number of shares outstanding) of $500-million or more, so as to give us a more solid, established group of companies. We'll exclude energy trusts because their payouts are tied to volatile energy prices more than anything else.

Apply these screening criteria and you end up with a total of 16 stocks and trusts ranging from Epcor Power L.P. EP.UN-T with a yield as of April 8 of 20.7 per cent, to Power Financial PWF-T , with a yield of 7.1 per cent. In between are some blue-chip names that include a pair of banks, Bank of Montreal BMO-T and Canadian Imperial Bank of Commerce CM-T , insurer Great-West Lifeco GWO-T , the real estate company Brookfield Properties and several income trusts.

To better understand stocks like these, let's look at three themes in dividend investing.

The danger signified by high yields is real

Shareholders of companies like Russel Metals RUS-T , which is on our list, know this well. Russel is a distributor and processor of pipes and other metal industrial components and it's obviously struggling against recessionary economic conditions. Recognizing this, investors drove the yield on Russel shares to about 11 per cent before the quarterly dividend was cut in late February to 25 cents per share from 45 cents. Russel was one of the higher-yielding common stocks traded on the TSX before the bear market hit, but we're talking about half the late February level.

Russel shares were in the low $16 range before the dividend cut. In the three weeks following, they dropped about 40 per cent to a 52-week low of $9.25. Guess what – investors appear to be pricing in yet another dividend cut. As of late this week, the shares were trading at prices indicating a yield of 9.6 per cent.

Torstar Corp. is an example of how an already weak stock can fall after a dividend cut. The company announced in late February that it was reducing its dividend and the shares fell roughly 33 per cent in the following days. Torstar shares have come back a bit, but they're still down by about two-thirds in the past 12 months.

Cutting a dividend can actually help a company

Corporate revenues are down in the recession, and many companies find they have to pay higher rates of interest to borrow money. One way to deal with the resulting cash squeeze is to cut the dividend on common shares.

As much as shareholders hate this, especially the ones relying on dividends for income, there's no question that cutting a dividend can help restore a company's financial flexibility and overall health.

TransCanada Corp. TRP-T is one of the country's most notorious dividend-cutters thanks to a surprise reduction back in 1999. Since then, TransCanada's financial strength has improved to the point where it raised its dividend earlier this year, in the midst of recession. Telus Corp. T-T chopped its dividend to 15 cents a share from 35 cents back in late 2001 and has since boosted it gradually back to 47.5 cents. Both stocks have outperformed the S&P/TSX index over the past 12-, 36- and 60-month periods.

Dividend cuts can help companies in the near term, too. It's almost like investors are braced for the worst and, once it occurs, they can relax. Charter airline Transat AT TRZ.B-T suspended its dividend on March 11 to conserve cash, and its share price has since risen close to 29 per cent.

We are not in an environment of unrelenting dividend gloom

The U.S. stock market is a lot worse off than Canada's in terms of dividend cuts. Standard & Poor's reported this week that the first quarter of 2009 was the worst since 1955, and that dividend decreases outpaced increases by a ratio of four to three. Since 1955, increases have outnumbered decreases by 15 to one.

Here in Canada, a wide swathe of blue-chip companies have actually increased their dividends this year. These dividend growers in tough times include TransCanada, Enbridge ENB-T , Canadian National Railway CNR-T , SNC-Lavalin SNC-T , Rogers Communications RCI.B-T and Atco ACO.Y-T , as well as smaller companies like CCL Industries CCL.B-T , Metro Inc. MRU.A-T and Enghouse Systems ESL-T .

It's standard investing wisdom for investors to seek out dividend-growth companies like these for exposure to the stock markets. As for those dividend stocks for daredevils, time will tell.