So far, I have been advocating the advantages and rewards of dividends-investing. However, like all things in the universe, there is always a flip side. Investing in dividends-paying companies carries certain risks too.
If you think dividends are all rainbows and sunshine, think again.
Risk 1: Dividends are NOT guaranteed
There is absolutely no hard written law that compels companies to pay dividends to their shareholders. Absolutely none. The decision to distribute dividends depends with the board. During an economic downturn, dividends can be drastically cut or even stopped. During the 2008/2009 global financial meltdown, many companies that historically paid huge dividends stopped doing it. Banks were the worst hit.
Personally, I try to select companies with a long, proven track record of paying dividends. Take Starhub for example. This telco company not only paid attractive dividends throughout the 2008 sub-prime crisis, it even increased the payout from 4.5 ......
