5 Dividend Stocks You Should Never Buy (And What to Look for Instead)

By Jeff Wright, President & Founder of Fish Creek Capital

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Not all dividend stocks are created equal. Some look attractive on the surface — especially when you see a big, juicy yield percentage — but underneath that number can be a business that's quietly falling apart.

At Fish Creek Capital, we focus on dividend growth investing because it's a strategy that holds up over the long term. Before we explain what to look for, let's walk through five warning signs that should make you think twice before adding a dividend stock to your portfolio.

1. Unsustainable Yields

If you see a stock advertising an 8% to 12% annualized yield, don't get excited just yet. That number alone doesn't tell you whether it's a great deal or a trap.

Before buying, dig into how the company is actually generating that yield. In many cases, a sky-high yield is a red flag that the company is bleeding cash or in financial decline — and a dividend that high often isn't sustainable for much longer.

2. They Don't Grow Their Dividends

This is the one we care about most, and it's the foundation of how we build portfolios at Fish Creek Capital: dividend growth.

A company that pays a dividend but never increases it is quietly losing ground every year. Inflation doesn't pause for your portfolio, and if your dividend isn't growing, you're not keeping pace with rising costs. Over time, that flat dividend is worth less and less in real terms.

The fix is simple: look at the company's earnings growth and confirm the dividend is actually growing alongside it. If there's one takeaway from this list, it's this — don't buy a dividend stock that isn't growing its dividend.

3. They Lack Business Stability

A high dividend yield means nothing if the underlying business can't reliably support it. This shows up often in sectors like energy and telecom, where you'll sometimes see eye-catching yields sitting on top of shaky business fundamentals.

If a company can't demonstrate the operational stability to keep funding its dividend long-term, that high yield is more of a warning sign than a selling point.

4. Overweight in One Sector

It's easy to get pulled into a single attractive REIT or utility stock while chasing a high yield — but concentrating your portfolio in one sector is a risky bet, no matter how good that one stock looks.

A diversified portfolio protects you from sector-specific downturns. Don't let one appealing yield pull your whole strategy out of balance.

5. Missing Out on Total Return

Dividends are only half the picture. If a company isn't growing its dividend, there's a good chance you're also missing out on stock price appreciation — the other half of your total return.

The stocks worth holding show both: a growing dividend and an appreciating share price over time.

The Bottom Line

Avoiding these five red flags is just as important as knowing what to look for. Sustainable, growing dividends backed by real earnings growth and business stability are the foundation of a strategy built to last — not a quick yield grab that falls apart a few years down the road.

If you'd like a free review of your current portfolio or financial situation, schedule a consultation with Fish Creek Capital, and we'll walk through it together.

Jeff Wright is the President and Founder of Fish Creek Capital (Fish Creek Value Management, LLC, CRD #291643), a registered investment advisory firm focused on retirement planning, insurance, and dividend growth investing. This content is for educational purposes only and does not constitute personalized investment, tax, or financial advice. Please consult a qualified professional before making investment decisions.