Dividend yield investing
100 years ago people use to invest in the stock market for dividends not capital appreciation. They would buy high yield stocks and hold. Now the stock market is all about capital appreciation. But one way to invest that is quite conservative is dividend yield investing.
How to make money with dividend yield investing
Find a high quality company that does not cut its dividend. That means year after year they pay dividends and intend to in the future. Not just REITS or utilities or Dogs of the Dow but sleepy high quality companies that currently have a high dividend yield because of a price decline. I use MSN stock screen er. From these stocks make sure they are solid, then invest. If the yield is good chances are its undervalue. This is one way to make money in the stock market with a dividend yield investing strategy.
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6 responses to Dividend yield investing
Mark,
What do you consider a high dividend yield? They all seem pretty low right now. In relation to bonds, I assume anything above 3% would be good. I have read that a stock paying above 6% is risky.
Oscar
I do not think a stock above 6% is risky at all. I think it depends on what the company is doing. I have seen companies that pay high yields to liquidate assets and others because that is the nature of their business, that is they are not a growth company.
But the basic idea you know already that when a stock is beaten down, it is beaten down for a reason and the company could always cut its dividend to conserve cash. So what is a high yield today, might not be the tomorrow and then you are stuck with a lemon, yielding low and in financial trouble.
But I go back to my first point, I think stocks yield high for different reasons. If you can find a few nice yield stocks, that have a good reason they are paying high, other than their price tanked recently, than they are nice to stash money into as a conservative investor.
I will do a more detailed reply latter.
High yield dividend stocks do exist in the USA
Oscar I am not recommending stocks here but here are some examples of stocks that are yielding high because they are making money rather than in trouble. For example a company like BBEP, BreitBurn Energy, I think it is a pretty healthy company with low dept and over a 8% yield. Or Credit Suisse Group CS which has a 3.8% yield. There are a lot of REITs that just collect rent and get a return of return as they are quietly making money, many REITS are dogs but there are some good ones.
Or NGPC or NGP capital resources. This is a high yielding stock, about 7.4% and it seems in good health, even though it took a big dip in price.
For me to invest in a yield stock I want to see the price history and beta. If I am looking for a bond type stock, I look at something where the price rarely changes and dividend payout history is good. If I am looking for a total return stock I would accept a stock like NGPC maybe, which has some room for appreciation based on earnings.
I am not recommending these stocks as I have not done my homework fully on these, but rather some examples.
I think my three favorite places to start narrowing the playing field is Jim Jubek:
Start here: jubakpicks.com/jubak-dividend-income-portfolio/ He is someone who is sitting on dividend stocks and taking a lot of time to drill down into the company.
Also like a recommend a lot, valuengine.com – if you find a high yield stock there and of good value by their calculation, no promises but often they are a safe investment as with the top picks from MSN.
Screen first with the experts or quant shops, then have a universe to cherry pick from and I think you will find some nice stocks yielding over 6% if you go through those 3 sources to start.
Also remember foreign prefered and yield stocks are operating in a different rate environment than the USA. You have some countries that have a higher rate/yield environment with not much additional risk, but rather just a different set of market conditions.
In fact you can buy a government of Poland bond at almost 6%. In my opinion Poland is one of the most credit worthy countries around. It did not have a crisis, it has a very good balanced finance minster and a constitutional limit on spending. I think rates are high here as they are simply very conservative.
jubakpicks.com/2010/10/15/want-a-stock-rocket-try-a-high-dividend-telephone-stock-really-im-not-kidding/
Here is one more example of a high yield stock that is not that bad.
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