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Dividend StocksAre dividend stocks a viable means of generating income? When most people think of income producing investments, CD's and Bonds come to mind. Many investors are not aware, or they just forget that high yield dividend stocks are a legitimate means of generating steady streams of income. Dividend yield can be calculated by dividing the annual dividend per share by the share price. This measures the actual return given to the owner of the stock. For example, if a stock has a share price of $50, and it has a dividend of $2 per share, then the yield is 4%. There are many factors investors should consider. Can the current yield be maintained on a long-term basis? A clear example of a deceptive yield can be seen in the current subprime crisis. Investors who purchased Bank of America and Citigroup or other financial Institutions for their lofty yields, were probably not happy when these institutions reduced their dividends. Most investors who have been in the market for several years, knew that a reduction would occur on the financial institutions. Another factor I like to look at, is the volatility of the stocks share price. I do this by checking the 52 week high and low. If it is trading in a narrow margin, then I consider it safer. However, a stock that is at a current 52 week low, could easily move to a 5 year low. This should only be one consideration. One of the most powerful investment tools known to Wall Street, is Dividend Reinvestment Plans, commonly called DRIP's. These plans reinvest your dividends into more shares of stock. The reinvested amount purchases more shares when the stock price is low, and fewer shares when the price is high. Studies have shown that these plans can have annual double-digit returns. Be cautious when purchasing a stock that has a high yield. Always look at the history of the dividend payout. Lofty yields can be an indicator of more serious problems. However, if all the fundamentals are sound, and the yield is high, by all means, purchase that stock.
High Yield Dividend StocksDisclaimer: I am not a registered investment advisor. Everything on this website is my opinion and put her for the enjoyment of my readers. I do not recommend making financial decisions based upon my opinions. I advocate doing your own research and making an informed decision. All information put forth on this website was obtained freely via the internet, radio and television. I do not have any contracts or deals with any financial newsletter of any kind. Income generated from this site is done through advertisements. I will always let my reader know if I hold any position on a recommendation I make. |