High Dividend Investing
High dividend investing is one proven strategy many investors use to mitigate risk and produce income in either volatile or bear markets. This strategy consists of searching for high dividend yield stocks and reviewing their earnings per share (EPS) and balance sheet to determine if the company can continue to pay out dividends in the future.
A high dividend yield stock is generally a stock that produces a dividend greater than 6%, or which falls within the top 10% of dividend stocks when searched and ordered by dividend percent. The dividend percentage is determined by taking the annual dividend amount the company pays out, and dividing it by the stock price. For example, if stock XYZ has a yearly dividend of $0.78, and it’s stock price is $10.00, the dividend yield is currently (0.78/10) = 7.8%. Since this is higher than 6%, and money market funds generally pay out interest in the 4 – 6% range, this would be considered a high dividend stock. It’s also worth noting that as the stock price declines, the dividend yield will increase. This assumes the company will not lower their dividend pay out, which is why it is important to review the company financial balance sheet and EPS history verses future predictions.
There are several methods that can be used to search for high dividend stocks. Many financial web sites contain stock screening features that include sorting and searching on a stock’s dividend. The MSN Stock Search site is a very useful tool for searching and identifying high dividend stocks. Another method is to use the local newspaper or Wall Street Journal to visibly search for high dividend payouts by scanning the dividend column. Create a list of stocks symbols you have found, the current price, and dividend. This will give you a starting point for doing further research to find stable companies that will continue to pay out hefty dividends for the long run.
Investing in financially stable high dividend stocks provides two benefits to the individual investors.
- A quarterly income stream is established that can offset any decline in stock price during bear markets or short downturns
- When stocks rebound from downturns or bear markets, quarterly dividends magnify the overall profit. The quarterly dividend is paid out to shareholders in addition to the stock price appreciation.
High dividend investing is a stable and proven approach to establishing recurring income and offsetting loses during downturns in the stock market. This makes high dividend stocks an essential addition to any individual investors portfolio.