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.
High-Yielder to Avoid #1: Nokia (NOK)Dividend Yield: 10% Nokia's 10% dividend may be tempting, but investors should avoid this stock for many reasons. For example, this mobile phone manufacturer has been consistently out-innovated by Samsung and Apple ( AAPL) and has lost about half of its smartphone market share, which once stood in the neighborhood of 30%. Nokia recently switched its phones to the Microsoft operating system, but that move doesn't much improve outlook. In the last five years, market share for Windows phones has plummeted from 42% to 5%, while Google's ( GOOG) Android and Apple's IOS phones have skyrocketed from 11% to 82%. Nokia's profits have slid 70% in three years, and sales fell each quarter in 2011, including a 13% drop in the September quarter to $12.35 billion, from $14.2 billion a year ago. Nokia posted a third-quarter net loss of 3 cents per share compared with earnings of 20 cents per share in last year's third quarter. Nokia's dividend payout exceeds 200% of annual earnings. Nokia has $14 billion, enough cash to cover dividends for now, but is under pressure to increase technology spending, leaving less for dividends. Nokia's share price is down 50% in the past 12 months, and short sellers hold 25% of the stock, signaling the slide may continue.
High-Yielder to Avoid #2: CPI Corp (CPY)Dividend Yield: 20%+ CPI shares yielded 5% for years, but the yield has since soared above 20% this year as the company's prospects and share price deteriorated.
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