To What Point Are You Blind When Looking At Your Dividend Stocks?
Have you ever heard of what investors call the “value trap”. A value trap happens when a stock is trading at a very appealing P/E ratio. Investors think they have found the deal of the year and they buy it without thinking further. The problem is that sometimes, the stock is a value trap: it’s worth a lot today, but the economics around the stock will eventually lead the company to be less profitable. This is why the P/E ratio will never go higher. Investors are then stuck with shares trading at a low P/E ratio but they will never catch up and go back to a higher multiplier. This is the value trap. Now, there are also dividend traps!