High-yield stocks are attractive for easy-to-understand reasons. When they outpace the S&P 500’s average yield and inflation, they can provide substantial income. But they can also become a double-edged sword for investors. High yields can be, and often are, red flags that point to fundamental changes that have yet to be reflected in dividend payment metrics. Investors' due diligence includes determining what drives the high yield and what the rest of the market thinks of the investment. Fundamentals can be bullish, but the stock price is unlikely to perform as expected if the market isn’t buying it. In this case, high yields are compounded by bullish market sentiment and reasons for investors to buy in.
