Dividend Stocks, Pros and Cons

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Also, paying a good dividend doesn't guarantee safety. Financial companies have historically been healthy dividend payers. But the fact that Lehman Brothers, Bear Stearns and Merrill Lynch all paid decent dividends ultimately had little bearing on the safety of those stocks.

Indeed, some money managers think dividends are an overrated and inefficient way to invest. "Dividends are fine, but they can go down or even go away," says Ethan Anderson of Rehmann Financial in Grand Rapids, Mich. "I'm not saying great stocks don't pay dividends. I'm saying a great dividend does not mean a stock is great. In my opinion, dividends are like stock splits -- good for marketing."

Mr. Anderson says dividend-paying stocks, such as utilities, are generally more stable stocks, but he prefers to focus on earnings and growth. Rather than counting on dividends for income, he says, investors can simply sell stocks if they need the cash.