Part 7/10:

While dividend investing offers many benefits, it is not without risks. Dividends are not guaranteed; during economic downturns or company distress, dividends may be reduced or eliminated altogether. Investors must be cautious and understand the sources of a company's cash flow. Relying on dividends paid from borrowings or unstable revenue streams can be risky and may lead to a "value trap," where high yields mask underlying business problems.

Effective dividend investors analyze financial statements carefully, ensuring that dividends are supported by sustainable cash flows from operations—such as providing goods or services—rather than from excessive borrowing. Recognizing the difference between high-yield, stable companies and those offering unsustainable dividends is crucial.