2 Risky Dividend Stocks to Avoid (and 2 Safe Ones)

When it comes to dividend stocks, the yield is certainly not everything. Why would you want a couple bucks instead of returns?

Dividend investors are always looking at one thing and one thing only in most cases: the yield. That dividend yield can lead you to do some pretty crazy things … like investing in sectors that are set up to fail.

That’s why we’re going to focus on two dividend stocks that are incredibly risky right now. These stocks have long been strong options, but that’s no longer the case. But don’t worry! After we go over these two dividend stocks, there are two I would certainly recommend as being quite safe.

Risky options

Right now, there is one sector that I wouldn’t touch with a 10-foot pole, and that’s oil and gas stocks. Here in Canada, we have become so heavily dependent on our oil and gas production. But this has opened up companies and, indeed, the country to a massive collapse.

This is the case for two dividend stocks that investors continue to pour money into. Those are Enbridge (TSX: ENB) and Suncor Energy (TSX: SU). These two massive dividend stocks certainly have high yields. Currently, Enbridge stock holds a yield at 7.37%, and Suncor stock at 4.22%.

Granted, those dividends are supported, including by long-term contracts. But if you’re looking for returns as well, then I would stay far away from these investments. Suncor stock has a volatile past, with shares climbing and falling based on the price of oil and gas. Meanwhile, Enbridge stock is facing so many regulatory hurdles investors don’t know what to think of it. Now, shares have hardly moved in the last several years!

This is why these are two risky dividend stocks that simply are not worth the yield. However, there are two safe stocks that I would certainly consider instead.

Safe options

When it comes to safety, it’s time to go basic. I mean that literally with basic materials stocks. These companies offer an investment into areas that will always remain strong. Whether it’s the copper we use for plumbing and electricity, the coal needed for steel, or any other basic material, these companies provide superb long-term investment opportunities.

Granted, many of these companies don’t have drool-worthy dividend yields. But that’s because the companies are investing right back into the business. This is why they remain some of the best buys, with stable dividends and growth opportunities to boot.

Two that I like these days are Teck Resources (TSX: TECK.B) and Lundin Mining (TSX: LUN). Both of these companies operate within the basic materials sector and have seen earnings climb with demand climbing — especially as we see more demand from artificial intelligence operations, renewable energy, and electric vehicles.

All of these operations and more will need basic materials to survive and thrive. And that demand isn’t going away. So, with Teck stock offering a dividend yield of 0.74%, with shares at all-time highs, and Lundin stock a yield of 2.33% and shares also near all-time highs, these are strong options for investors. So, don’t take on risk for a high yield. Instead, consider a safe dividend with more returns on deck.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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