One of Wall Street's favorite myths is that only idiots buy high dividend paying stocks.The myth goes like this. The smart money boys realize that a stock's dividend is unsustainable and will probably be cut. Being wise, they do the smart thing and start to sell the stock. As the stock falls the dividend yield that the stock pays rises inversely and the stock that is paying say a dollar a share in dividends can have its yield rise from say 3% to 6%. As the dividend return that the stock is paying rises the fools that are too stupid to realize that the dividend is unsustainable and will be cut, rush in and buy the stock. In due course, the stock dividend is cut and the suckers get killed.

This is one of Wall Street's most cherished myths. The truth is somewhat different. If the only stocks that you will consider investing in are popular blue chip stocks like the Dow stocks, the Nifty-Fifty and the S&P 500, then the myth is usually correct. As a practical matter, these are the only stocks that Wall Street cares about. The reality is th

at there are about 17,000 stocks in all, about 10,000 of which trade daily. These stocks never appear on Wall Street's radar scope.

Wall Street does not exist to serve the individual investor. It exists to serve the institutional investors. Institutional investors can only consider investing in stocks with huge capitalizations. They insist on being able to move massively in and out of stocks without influencing the price. As a practical matter, this is only possible with the top 500 or at most 1,000 stocks with the biggest capitalization. In this world, the world of the dinosaurs the myth of the dangerous high dividend paying stocks works about as advertised.

If you leave this world behind and enter the unknown and unreported world of small-caps and micro-stocks, the reality changes. Wall Street is blind to this reality change. When you stop to think about it the stock market is divided into two worlds. The world of big-cap stocks and everyting else. Big-cap stocks are beloved by both institutional investors and individual investors. I have already told you why they are beloved by institutional investors. The case for individual investors is somewhat different. To be perfectly blunt about it they are too stupid to even know that these stocks exist. Besides, they are afraid of investing in stocks that they have never heard of before.

As a result of the concentrated buying power of both institutions and individuals, big-cap blue chips are constantly being bid up by unrelenting bidding wars. As a general principal, it can be said that small-cap and micro-cap stocks tend to sell at lower prices and to pay higher dividend yields than big-cap stocks of equal quality. In other words the fact that a small-cap stock is paying a 6% dividend does not necessarily mean that the dividend is about to be cut.

It is amazing how unknown these high dividend paying sectors are. The following are sectors where 6% plus dividend paying stocks can be found. The kings of high dividend paying stocks are royalty stocks, master limited partnerships and reits ( real estate investment trusts). Some carefully selected closed-end mutual funds are also of interest.

Reits are the most commonly known. They usually specialize in owning shopping centers, office buildings and residential apartment complexes. Dividends of 6% and more are common. Less well known are are the MLPs or master limited partnerships. Typically, they will own oil and gas pipelines and oil storage facilities. They tend to pay dividends in the 7%-9% range. Royalty stocks tend to pay higher dividends than any other type of stock. As much as 8%-10% is not unknown. The ones that I own are all located in the U.S. and Canada. Typically they will have royalty interests in hundreds of thousands of acres of land usually located in Texas, Oklahoma and New Mexico. My favorite has royalty interests in over two million acres of land. I will discuss the virtues of closed end mutual funds at another time.

The important thing to understand is that high dividends are not an abnormality for these nearly unknown sectors. They are the norm. They are legally structured so as to enable them to pay unusually high dividends. By the way, at 6%, compounded money doubles in 12 years, at 8% it doubles in 9 years and at 10% it doubles in 7 years.