I have cautioned on several occasions that securities that offer unusually high yields carry above-average risk. That’s an axiom of the stock markets that investors have to understand.
Stocks that offer payouts of 6 per cent+ may look very attractive but they carry a lot of baggage. The company may have a history of uneven earnings, high volatility, questionable management, or a high payout ratio. It may operate in a market sector that is highly cyclical or is out of favour. The yield is a tip-off that there are probably problems lurking beneath the surface even if they are not evident at first glance.