George Divel Investment Tip # 11

Shop for Stock Bargains — But shop carefully

Now that the stock market has been pounded down, bargain hunters tend to look around for stocks whose prices seem much less than their true value. One type of bargain hunter pursues stocks that pay a dividend, on the theory that the income from the dividend assures the quality of the investment.

This certainly can work. But like most investment strategies, it is easily misapplied.

If you are thinking of picking up some shares of dividend-paying stocks that are taking a beating you need to see whether the dividend payouts are showing signs of strength and rebound — making a stock a bargain — or whether they are warning investors that the shares are due for a collapse.

Remember, dividends are not fixed, they can change according to the fortunes and policies of the company. If a dividend yield gets to be “too good to be true” it is a good bet that the company will soon cut that dividend and when they do the shares are likely to decline in value.

The best way to play the bargain hunting game is to do your homework and consult with an experienced investment advisor.

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