Recently in Barron’s there was an article about income in retirement. The article said that high dividends are a warning sign that a company may be in trouble. That is an incomplete assessment. All stocks are not the same. There are classes of stocks that are designed more for dividends than for growth. Those are:
Real Estate Investment Trusts (REITs)
Business Development Companys (BDCs)
Master Limited Partnerships (MLPs)
Banks and Insurance companies
REITs, BDCs and MLPs all have special structures that essentially force them to pay out profits as dividends, rather than keep them to grow the company. Banks and insurance companies traditionally have emphasized income over growth.
Just because you’re looking at a REIT doesn’t mean that juicy 5% dividend is super safe. But if it is in one of these categories, it’s not automatically a danger signal and may be worth further research.