New Delhi, July 29 -- If you've been investing in the markets for long, you'd be aware of the concept of dividend investing. Here is the most dangerous number in it: the dividend yield.

It looks simple. Annual dividend divided by share price. A stock paying Rs.10 on a Rs.100 share yields 10%, and 10% sounds wonderful when a fixed deposit gives you 7%.

But look at that formula again. The yield rises when the dividend rises and when the share price falls.

Which means the highest-yielding stock on any screen is often not the most generous company in the market. It can also be the one whose price has collapsed.

And there is a second trap underneath the first.

A dividend is only real if the company can afford it. Plenty of businesses have...