Not all dividend stocks are created equal.
Some are Fake Dividend Stocks – with high yields disguising deteriorating fundamentals and overvalued stocks.
Others are False Dividend Stocks, where companies borrow or burn capital because they cannot afford to pay the dividend.
But there’s a third category that’s even trickier…
Dividend-Trap Stocks.
These are quality businesses—strong cash flows, decent ROIC, solid reputations. But the stock price? Way too high.
They’re priced for perfection, and the dividend yield doesn’t even beat a risk-free bond.
In other words, you’re taking big stock market risk for bond-level reward.
We take you through the dangers of Dividend-trap Stocks in our latest special session. Specifically, we break down:
- Why “good companies” can still be bad investments.
- How to identify overvalued dividend stocks that quietly erode capital.
- A simple 3-part screen to flag Dividend-Trap Stocks in any market.
Get replays on all our training sessions, podcasts, reverse DCF case studies, and more in our online community. Its free to join – just complete this form.
Want to know where to get good dividend stocks? We’re hosting a separate live training on June 17at 1pm ET. In this training, we’ll not only cover the dangers of dividends, but also show you which dividend stocks are worth owning. Reserve your spot today.
Request the stocks you want us to cover at support@newconstructs.com.
This article was originally published on June 13, 2025.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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