Notes

High Yield Dividend Stocks - How exactly to Pick so when to Buy
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Why is a particular stock yielding a dividend significantly greater than other stocks? There may be a variety of reasons. A higher dividend is often a sign of high risk. Whether the risk is real or perceived is a question that all investor must determine. Another factor may be the type of stock. If it's a small business Development Company, a Master Limited Partnership, or perhaps a OWNING A HOME Trust the high dividend is at least partially due to the government requirement that the vast majority of the income is passed through to the stockholder/unitholder so as to maintain a corporate tax free status.

A high dividend might be a result of the cost of the stock having dropped significantly because of an overall downturn available in the market, a downturn for the reason that specific sector, or bad news in that specific equity or within an equity with similar characteristics. Obviously once the price drops and the dividend stays the same the yield rises. Again this may or may not reflect the specific valuation of the particular stock under consideration. What each of the above boils right down to is know the stock you are evaluating. Know the business it really is in, know where it stands versus its competition, and know how it really is performing currently versus previous quarters/years. Unless you know what a company does, or hardly understand what it does you need to eliminate it from your screening universe.

Price Considerations/Timing

Where a stock's price is in its range is a very significant factor. Every stock moves up and down regardless of whether the marketplace is within an upward or downward trend. Some of these moves are market driven, plus some are driven by very specific actions. High yield stocks have a tendency to fluctuate greatly prior and subsequent to the ex-dividend date. The dividend capture crowd really wants to get in on the dividend. Those thinking about capital gains want to buy before the pre ex-dividend rise, and sell before the ex-dividend drop. Many investors simply want to buy before the dividend, while others like to buy after the stock drops following the ex-dividend date. Price can be greatly impacted when a company sells additional stock to generate funds.

Since BDCs, MLPs, and REITs have to pass through most of their profits they frequently sell additional stock to invest in new growth. Very often this is regarded as a dilution and many stock holders sell immediately after this kind of announcement. The key here is to determine whether or not it is in fact a dilution or if the new income from the growth funded by the sale of new stock will a lot more than overcome the increase in shares outstanding. Usually the best way to create this determination is to see what has happened historically together with looking at what the business says they plan to do with the money received from the sale of stock. In short, being aware of a person stock's typical price cycle and what impacts it is necessary in terms of timing a buy.

Statistical Metrics

Look at price earnings ratios to see in which a particular equity fits among its peers. If the PE is very high compared to other companies like themselves it increases a red flag. Likewise if it's too low compared to similar outfits the question is, why? Obviously a low PE due to an irrationally good deal is the type of opportunity to look for. Metrics such as for example price to book value, price to sales, price to cash flow, should be looked at within the historical framework of this stock in question and also the industry that it's in.

Questions that require to be asked: Is the dividend safe? May be the dividend fully supported by earnings or distributable cashflow? What percent of earnings are paid out in dividends? In manufacturing more info should know the business's debt to equity ratio. It really is generally a given that it is better to have more equity than debt yielding a debt to equity ratio of less than 1. Similarly it really is generally favorable to possess more current assets than current liabilities, and an ongoing ratio of 2 or more is generally an excellent guideline. With MLPs, REITs and BDCs, these ratios do not give as clear an image and things such as distributable cashflow, hedging, leverage, yield curve, and interest rate trend, are as important or even more vital that you understand. Again, it certainly boils down to understanding the business under consideration.

In evaluating high yield equities, size of a company is less important than its position among its peers, its historical performance and projected future results. It really is obvious, however that large well established companies that have many years of historically growing dividends are likely safer than smaller, newer companies. However, the recent crisis on Wall Street and nov many giants proves that what may appear to be obvious might not be so, and what historically has been safe may not be in the future.

Analysts

Most equities are evaluated by a minumum of one analyst and many are evaluated by four, five or even more. Opinions are based on fundamentals, technical analysis, or a combination of both. There are also a variety of on-line services offering computerized analysis such as for example MSN Money (free) or Value Line (paid) that plug a stock's metrics into a formula which produces an "opinion". Analyst ratings are interesting as often one analyst will place a buy rating on a stock while another places a sell rating on the same stock based on the same information. While considering analysts' opinions offers a helpful background check and is a way to obtain thought provoking information, they're not a replacement for your own homework and personal evaluation.

No one knows what your own personal criteria for buying, selling or holding a stock are better than you. No one knows your tolerance for risk better than you. Nobody knows how much money you should allocate toward a particular sector or equity more than you. So although it is informative to look at analysts' reports, remember that they're only opinions, and when you do your homework your opinion is often as good or better than theirs! Remember, no-one cares more about your cash than you do!

Copyright 2009 All rights reserved worldwide, Boyd Investment Holdings LLC.

Bob Boyd invites you to visit the High Yield Equity Stock Report for further articles and a regularly updated high yield dividend stock list: http://www.highyieldreport.blogspot.com This site is focused on assisting investors making use of their homework in the highly volatile and frequently misunderstood group of high yield dividend investing within a diversified investment program.
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