High yield stocks
Encyclopedia
A high-yield stock is a stock whose dividend yield
is higher than the yield of any benchmark average such as the ten-year US Treasury
note. The classification of a high-yield stock is relative to the criteria of any given analyst. Some analysts may consider a 2% dividend yield to be high, while other may consider 2% to be low. There is no set standard for judging whether a dividend yield is high or low. Many analysts do however use indicators such as the previously mentioned comparison between the stock's dividend yield and the 10-Year US Treasury Note.
A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the stock price
. High dividend yields are a particularly sought after by income and value investors. High-yield stocks tend to outperform low yield and no yield stocks during bear markets
because many investors consider dividend paying stocks to be less risky.
strategy is a well known simple strategy which incorporates high dividend yields. The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average
and buying an equal position in all 10 at the beginning of each year. At the end of each year, the investor finds the 10 highest dividend yield stocks again, and reallocates their positions so as to have an equal position in all 10 Dogs of the Dow. The Dogs of the Dow made a compounded annual return of 18% from 1975 to 1999 outperforming the market by 3%. This would make $10,000 turn into $625,000 in 25 years.
strategy is a strategy popularized on the investing website The Motley Fool. This strategy dictates that the investor take the 30 Dow Jones Industrial stocks and divide the dividend yield of each one by the square root of the stock price.
Dividend Yield ÷ Stock Price.5
Take the 5 stocks with the highest ratio and drop the stock with the highest ratio. The investor is then to invest in the last 4 stocks called the "Foolish Four". This strategy has returned 24.5% annually from 1975 to 1999 which would make $10,000 into $2.4 million.
Dividend yield
The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...
is higher than the yield of any benchmark average such as the ten-year US Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
note. The classification of a high-yield stock is relative to the criteria of any given analyst. Some analysts may consider a 2% dividend yield to be high, while other may consider 2% to be low. There is no set standard for judging whether a dividend yield is high or low. Many analysts do however use indicators such as the previously mentioned comparison between the stock's dividend yield and the 10-Year US Treasury Note.
A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the stock price
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
. High dividend yields are a particularly sought after by income and value investors. High-yield stocks tend to outperform low yield and no yield stocks during bear markets
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
because many investors consider dividend paying stocks to be less risky.
Dogs of the Dow
The Dogs of the DowThe Dogs of the Dow
The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins, in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price....
strategy is a well known simple strategy which incorporates high dividend yields. The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
and buying an equal position in all 10 at the beginning of each year. At the end of each year, the investor finds the 10 highest dividend yield stocks again, and reallocates their positions so as to have an equal position in all 10 Dogs of the Dow. The Dogs of the Dow made a compounded annual return of 18% from 1975 to 1999 outperforming the market by 3%. This would make $10,000 turn into $625,000 in 25 years.
The Dow 5
The Dow 5 strategy is a variation of the Dogs of the Dow strategy. This strategy dictates the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average, and buy the 5 lowest priced of those 10 stocks at the beginning of each year. At the end of every year, the investor remakes the list, and reallocates their positions so as to have an equal position in all 5 stocks. This strategy has made an annual return of 19.4% from 1975 to 1999. This would make $10,000 turn into $840,000 in 25 years.Foolish 4
The Foolish FourFoolish Four
The "Foolish Four" is a discredited mechanical investing technique that, like the Dogs of the Dow, attempts to select the member stocks of the Dow Jones Industrial Average that will outperform the average in the near future....
strategy is a strategy popularized on the investing website The Motley Fool. This strategy dictates that the investor take the 30 Dow Jones Industrial stocks and divide the dividend yield of each one by the square root of the stock price.
Dividend Yield ÷ Stock Price.5
Take the 5 stocks with the highest ratio and drop the stock with the highest ratio. The investor is then to invest in the last 4 stocks called the "Foolish Four". This strategy has returned 24.5% annually from 1975 to 1999 which would make $10,000 into $2.4 million.