These Dividends Are Done

...Even with the recent rally, dividend yields are sky-high. According to Capital IQ, there are 1,175 stocks on our major exchanges with yields of 5% or more. But many of these are dividend traps, enticing us with the promise of fat quarterly payouts, only to cut them down the road.

As a stark reminder, we can look to General Electric. Once hailed as the safest of the safe, GE has in short succession received government help, cut its dividend to save cash and (hopefully) retain its AAA debt rating, and then lost that AAA status anyway.

More examples abound, from Dow Chemical (NYSE: DOW) to amusement-park operator Cedar Fair (NYSE: FUN) to just about any big bank that comes to mind....

The first thing I do when I see a tasty dividend is look for obvious problem areas. If I can spot a major problem quickly, it saves me further research. Notice the payout ratios (the percentage of earnings a company pays out in dividends) in the table above. If I see a payout ratio greater than 50%, I get suspicious. When the payout ratio goes above 100%, that means dividends aren't currently being covered by earnings....

http://www.fool.com/investing/dividends-in...s-are-done.aspx

Parenthetical Note: FUN is currently paying 9.4 percent dividends and has no earnings per share, but rather a loss of 20 cents per share.