Monday, September 21, 2009

Income Investing - High Dividend Yield Stocks

I am starting another mini 5 part series. This time, the topic will be on income investing and the various instruments that an investor can invest in to obtain an income.

Posting #1 - Investing in High Dividend Yield Stocks


Some people call this high yield investing. Investing in high dividend yield stocks basically means buying stocks of companies or corporations that have the habit of paying out dividends (a.k.a cash) every month or year. After reading this article, you should be able to know how to compute dividend yield for a certain stock, understand what high dividend yield means and also have an idea of some of the high dividend yield stocks that are available in the market including how to search for them.

Calculating a Stock's Dividend Yield

It is really simple to calculate a stock's dividend yield. The method I use is simply to take the amount of dividends given out each year divided by the price of the stock and multipy by 100. For example:

If price of ABC stock is $10.00 and the dividends for that year is $1.00 , the dividend yield works out to ($1.00 / $10.00) * 100 = 0.10 * 100 = 10%

The dividend yield of the stock works out to be 10% per annum. The reason this number is important is because it gives you a basis to compare the yield with other similar stocks. Thing to note is that comparing dividend yield between 2 stocks might not be a good basis alone as the higher yielding stock might have a lower price due to certain factors that have occured after the last dividends that it paid out. This accounts for its seemingly higher yield.

Another good reason for having the yield is that it gives you a rough gauge of how much dividends you can expect to get each year based on your invested capital. IF the dividend yield of the stock is 10% and you have invested $10000, you can expect to receive $1000 per year in dividends.

What is considered a high dividend yield stock?

I would like to think that a high dividend yield stock is basically one that has a relatively higher yield compared to peers in a similar industry. Most people however compared dividend yields across different stocks in different industries and buy the stocks with the highest dividend yield. For me, a high yield will be one that gives me a better return than the bank's fixed deposit.

Looking for High Dividend Yield Stocks?

If you are looking for high dividend yield stocks, you can check out S&P's Dividend Aristocrats List which provides a filter on various dividend yielding stocks. Another simple way is to simple search using Google. Just key in the words High Dividend Yield Stocks and you will get lots of suggestions from various websites and blogs.

READ THE ENTIRE SERIES:
1. Investing in High Dividend Yield Stocks
2. Investing in REITs
3. Investing in Canroys
4. Investing in Rental Property
5. Investing in Bonds

SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far

3 comments:

  1. Hi,

    I would like to share with you what I wrote before. Perhaps that would help in your series.

    http://wealthbuch.blogspot.com/2009/04/passive-dividend-investing.html

    Good work writing! Looking forward to read the rest :)

    ReplyDelete
  2. Thanks JW! Really like your blog too. It is informative and I like the fact that you are so young but already have invested so much in the stock market. Keep up the good work and may we learn from one another =)

    ReplyDelete
  3. I would like to share that preferred dividend means getting first preference when dividends are doled out to shareholders.

    Preferred Stock

    ReplyDelete

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