It’s a dividend stock investor’s worst nightmare: That dividend that he or she has been relying on gets cut.
Dividend investors who own Hanesbrands HBI stock know how that feels: After a tough 2022, management decided to prioritize debt reduction and, as a result, entirely eliminated the company’s quarterly dividend in February 2023.
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” explains Dan Lefkovitz, a strategist for Morningstar Indexes. “Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to really screen for dividend durability, reliability going forward.”