Please stay tuned for important disclosure information at the conclusion of this episode.

Welcome to Investing Insights. I'm your host, Ivana Hampton. It might be tempting to buy

dividend stocks with the highest yields, but not all dividend payers are safe. Those big payouts could be signaling that a company's

fundamentals are cracking. Looming financial risks could recap it on income-focused investors' portfolios,

but there are ways to spot dividend traps. Morningstar Index's Strategist and columnists, Dan Dan Lefkowitz explains how to avoid the risk.

Good to see you, Dan. Always good to be with you, Ivana. Well, what is a dividend trap and under

what conditions do they tend to develop? Yeah, a dividend trap is a stock that lures investors in

with a big fat payout that ends up being unsustainable.

So the dividend end gets cut.

And it's not just a loss of income when a company eliminates, reduces, suspends its dividend payment.

It's usually also accompanied by a share price decline as well.

So it's just a bad investor experience.

In terms of conditions, one way for a

stock to have a high yield is for its share price to be depressed. That often happens when there are

fundamental problems that are challenging the business. So investors have to be really careful.

You know, if you target the highest yields in the stock market, that can often lead you to troubled sectors,

troubled industries, troubled companies. You and your team published research on dividend

traps just before Dow Chemical cut their dividend in half over the summer. How does your research

explain what happened with Dow? Yeah, Dow Chemical, really well-known business at times,

you know, considered a blue chip stock. But the business has seen better days. Yeah, Dow Chemical, really well-known business at times, you know, considered a blue-chip stock.

But the business has seen better days. Our stock analysts noted that in 2024, the company's

dividend payments exceeded its free cash flows. So, you know, at one point, the yield surpassed 10%,

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