Penny stocks are rarely the high-yield investments that some aggressive investors think they can be. Instead of putting too much money into penny stocks, investors will benefit the most by seeking shares of high-quality companies with a history of paying a consistent dividend

Penny stocks can be more easily manipulated than most stocks that trade on exchanges. That’s because of their generally low trading levels and resulting price volatility. When you combine this with the lack of regulatory oversight on some stock exchanges and the fact that it is easy to launch these companies, you can see why investment fraud is more common with penny stocks.

If your goal is to buy high-yield investments, then dividend-paying stocks are a much better target than penny stocks.

Are Penny Stocks Worth It? Learn everything you need to know in 'Canada's Penny Stock Guide' for FREE from The Successful Investor. Canadian Penny Stock Guide: Find where to find Penny Stocks that pay well.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Buy penny stocks as a small portion of your portfolio, if that

When you buy penny stocks you could have a big payday if you make the right choice. But the odds against success are high. Penny stocks are almost always involved in riskier ventures such as finding mineral deposits that can be mined at a profit, commercializing unproven technologies or launching new software.

In general, penny stocks have lower trading volumes, or liquidity. That means it may be more difficult to sell a stock when you want to. Penny stocks also suffer from large price fluctuations, so any bit of news will cause a penny stock’s price to rise or fall.

If you want to invest in high-yield investments, look for dividend-paying stocks instead of penny stocks

Dividend stocks are some of the best income investments because dividends don’t lie.

At TSI Network we think investing in dividend stocks is one of the best investment decisions you can make. Dividends serve as a way for companies to share the wealth they accumulate through successfully operating their businesses.

Dividends are cash outlays that an unsuccessful company could never produce. A history of dividend payments is one thing that the best dividend stocks all have in common.

These payouts are drawn from earnings and cash flow, and paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or monthly. Dividends can produce as much as a third of your total return over long periods.

You can get regular income with the best dividend-paying investments

Canadian dividend stocks offer both capital-gains growth potential and regular income from dividend payments. In fact, the best dividends are often maintained regardless of price declines for the underlying stock.

Taxpayers who hold Canadian dividend stocks get an additional bonus. Their dividends can be eligible for the dividend tax credit in Canada. This means that dividend income will be taxed at a lower rate than the same amount of interest income (investors in the highest tax bracket will pay tax of around 25% on dividends, compared to 50% on interest income). Investors in the higher tax bracket pay tax on capital gains at a rate of 29%.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Some dividend yields are lower than they used to be, as stock prices climbed for much of the past year. But it’s still safe to assume that dividends will continue to supply perhaps a quarter of the market’s total return.

When you add in the security of stocks that have dividend records going back many years or decades, Canadian dividend stocks are an attractive way to increase profit with the least risk. The potential for tax-advantaged capital gains only adds to their appeal.

However, high-yield investments with the highest yields are not necessarily the best investments, either

When looking for high-yield investments, you should avoid the temptation of selecting stocks simply because of their above-average yields.

That’s because a high yield may signal danger rather than a bargain if it reflects widespread investor skepticism about the company’s ability to keep paying its current dividend.

Dividend cuts will always undermine investor confidence and can quickly push down a company’s stock price.

Above all, for a true measure of stability, focus on stocks that have maintained or raised their dividends during economic or stock-market downturns. That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they also provide an attractive mix of safety, income and growth.

A track record of dividend payments is a strong sign of reliability and a strong indication that investing in the stock will be profitable for you in the future.

What types of stocks do you invest in when specifically seeking high-yield investments?

Have you invested in a high-yield dividend stock that turned out to be sinking? What did you learn from the experience?