Seeking high yield? Do you know why stocks have high dividend yields in many cases? It’s because their stock prices are moving significantly lower, which means these companies are not in line with current industry and/or consumer trends.

Do you know what happens when a company isn’t in line with trends? Their revenue moves lower, which then means that company must cut costs. One way to cut costs is to cut the dividend, which then leaves you holding the bag because you’re left with a stock that is suffering from depreciation and doesn’t pay a generous dividend. To make matters worse, some of these companies have borrowed money at low rates in order to pay their dividends. If the company doesn’t grow and generate strong cash flow, then how will those debts be repaid? (For more, see: Best Places to Find High-Dividend Yield Stocks.)

For a basic look at each company’s leverage situation debt-to-equity ratios have been included below. You always want to see a debt-to-equity ratio below 2.00, preferably below 1.50. A debt-to-equity ratio below 1.00 is an excellent sign. The good news is that there might be some dividend opportunities, which will be included below. In order to find the right opportunities, you can’t be focused on high yield. That’s a trap.

High-Yield Stocks

Of the eight highest-yielding stocks, you will find two common trends. One, their stocks have been slammed over the past year. You will also notice that six of the eight stocks below have debt-to-equity ratios north of 1.00 and four of them have debt-to-equity ratios north of 2.00. Negative stock performance is indicated in parentheses. (For more, see: The Risks of Chasing High Dividend Stocks.)

1-Year Stock Performance

Dividend Yield

Debt-to-Equity Ratio

FTR

(50.24%)

8.97%

2.78

CTL

(30.84%)

8.12%

1.44

HCP

(39.05%)

8.45%

1.14

NAVI

(62.41%)

7.49%

31.86

IRM

(32.41%)

7.26%

8.35

HCN

(30.39%)

5.45%

0.75

GRMN

(39.50%)

5.88%

0.00

STX

(53.06%)

7.98%

2.27

If you invested in any of these stocks over the past year, you lost money. Based on current economic conditions as well as the individual situations for the companies listed above, if you were to invest in any of them over the next year, then you would be more likely to lose money than make money. Fortunately, there are better dividend opportunities. (For more, see: How and Why Do Companies Pay Dividends?)

Better Dividend Opportunities

The key to success is to not fall into the trap of chasing high yield and instead to look for resilient companies that have delivered stock appreciation over the past year in a difficult environment while paying a relatively generous dividend and sporting a healthy debt-to-equity ratio. Look at the difference between the numbers below and the numbers above, which immediately prove that you should seek quality yield over high yield. (For more, see: The Top Rated Dividend Paying Stocks for 2016.)

1-Year Stock Performance

Dividend Yield

Debt-to-Equity Ratio

JNJ

2.09%

2.95%

0.28

SYY

7.76%

2.88%

1.09

T

4.45%

5.27%

1.02

KO

1.00%

3.10%

1.72

RAI

34.98%

3.03%

0.97

JNJ and RAI might be the safest options, which is why I own RAI.

The Bottom Line

Don’t chase high yield. It’s a trap. In order to find the right opportunities, you can’t be focused on high yield. Whether you’re investing on your own or with a money manager, you might want to consider stocks from the second list prior to considering any stocks from the first list. (For more, see: Johnson & Johnson Stock: A Dividend Analysis.)

Dan Moskowitz owns shares of RAI. He does not have positions in any of the other stocks listed above.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.