The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By Lisa Springer
NEW YORK ( StreetAuthority) -- High dividend stocks can be terrific investments that provide income and growth potential, however, investors must be careful to avoid "dividend traps" -- stocks that offer enticing high yields, but lack the fundamentals to maintain their rich dividend. These companies are at risk of dividend cuts or even ending payments altogether. But when investors can find high-yielding stocks with the fundamentals to sustain -- and even grow -- their dividends, it can be one of the safest, most reliable ways to grow wealth over time.
With this in mind, I've found two dividend traps I think investors should avoid and two stocks for safe, high dividends.
High-Yielder to Own #1: AT&T (T)Dividend Yield: 6% If your goal is safety and a generous dividend, then consider owning AT&T. This telecom giant is the second-largest wireless service provider behind Verizon (VZ), and benefits from rising smartphone sales. AT&T failed in its bid to acquire T-Mobile, but recently expanded its 4G network to 11 new markets, including New York and Los Angeles, and acquired spectrum licenses from Qualcomm (QCOM)that greatly extend mobile broadband coverage. AT&T yields 6% and cash flow totaling $27.1 billion easily covers $7.5 billion in dividend payments. AT&T has produced 5% yearly sales growth and 4% annual earnings growth for five years, and analysts expect growth to accelerate to 9% next year. Last month, AT&T raised the dividend 2.3% to a $1.76 annual rate, marking 28 consecutive years of dividend growth. The share price has barely budged, but an investor who purchased AT&T five years ago would have collected $9.39 per share in dividends and a 31% return on his investment.
High-Yielder to Own #2: National Health Investors (NHI)Dividend Yield: 6% This health care REIT (real estate investment trust) invests in nursing homes, assisted living facilities, medical office buildings and hospitals. People require more health care services as they age, and National Health Investors benefits from trends showing a 50% increase in America's senior-citizen population by 2025 to 63 million. This company began an expansion spree in 2011, acquiring four assisted living centers in Louisiana and constructing a rehab facility in Arizona. National Health also recently secured a $200 million credit line that will be used for more health care investments.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV