Notes

High Yield Dividend Stocks - How to Pick so when to Buy
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Why is a particular stock yielding a dividend significantly higher than other stocks? There may be a number of reasons. A high dividend is often a sign of high risk. If the risk is real or perceived is really a question that each investor must determine. Another factor could 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 reaches least partially a result of the government requirement that the vast majority of the income is passed through to the stockholder/unitholder as a way 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 exactly the same the yield goes up. Again this may or may not reflect the specific valuation of the particular stock in mind. What all of the above boils right down to is know the stock you are evaluating. Know the business enterprise 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 don't understand what it does you should eliminate it from your screening universe.

Price Considerations/Timing

Where a stock's price is in its range is an extremely significant factor. Every stock moves up and down regardless of whether the market is in an upward or downward trend. Many of these moves are market driven, and some are driven by very specific actions. High yield stocks have a tendency to fluctuate greatly prior and subsequent to the ex-dividend date. website wants to get in on the dividend. Those thinking about capital gains need it before the pre ex-dividend rise, and sell before the ex-dividend drop. Many investors simply need it prior to the dividend, while others like to buy after the stock drops following a ex-dividend date. Price can also 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 perceived as a dilution and many stock holders sell immediately after this sort of announcement. The key here's to determine whether or not it is actually a dilution or whether the new income from the growth funded by the sale of new stock will a lot more than overcome the upsurge in shares outstanding. Often the best way to make this determination would be to see what has happened historically together with looking at what the company 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 vital when it comes to timing a buy.

Statistical Metrics

Look at price earnings ratios to see where a particular equity fits among its peers. If the PE is quite high compared to other companies like themselves it raises a red flag. Likewise if it is too low in comparison to similar outfits the question is, why? Obviously a low PE caused by 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 cashflow, should be viewed within the historical framework of the particular stock in question in addition to 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 companies you should know the company'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 is generally favorable to possess more current assets than current liabilities, and a current ratio of 2 or more is generally an excellent guideline. With MLPs, REITs and BDCs, these ratios do not give as clear a picture and things such as for example distributable cashflow, hedging, leverage, yield curve, and interest rate trend, are as important if not more important to 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 is obvious, however that large more developed companies that have a long time 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 can happen to be obvious will not be so, and what historically has been safe might not be in the future.

Analysts

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

No one knows what your own private 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 cash you should allocate toward a particular sector or equity a lot more than you. So while it is informative to look at analysts' reports, understand that they are only opinions, and if you research your options your opinion is often as good or much better than theirs! Remember, nobody cares more about your money 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 web site is dedicated to assisting investors with their homework in the highly volatile and frequently misunderstood group of high yield dividend investing within a diversified investment program.
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