Investments that combine consistent income with solid balance sheets can produce both immediate and long-term income for investors. Dividend stocks can also provide a beneficial cushion against the effects of market downturns on growth stocks — a top concern as U.S. stocks struggle to see price appreciation in mid-March.
While few stocks are required to pay dividends, it’s important to note that not every stock that elects to offer a portion of profits to shareholders is a suitable long-term hold. A dividend trap occurs when a company with less-than-ideal fundamentals offers a high dividend compared to share prices. The company then cuts dividends after attracting new investors, which usually causes share prices to plunge.
