High Yield Dividend Stocks – How to Pick and When to Buy
Buy What You Know
Why is a particular stock yielding a dividend significantly higher than other stocks? There can be a number of reasons. A high dividend is often an indication of high risk. Whether the risk is real or perceived is a question that each investor must determine. Another factor may be the type of stock. If it is a Business Development Company, a Master Limited Partnership, or a Real Estate Investment Trust the high dividend is at least partially a result of the government requirement that the vast majority of the income is passed through to the stockholder/unitholder in order to maintain a corporate tax free status.
A high dividend may be a result of the price of the stock having dropped significantly due to an overall downturn in the market, a downturn in that specific sector, or bad news in that specific equity or in an equity with similar characteristics. Obviously when the price drops and the dividend stays the same the yield goes up. Again this may or may not reflect the actual valuation of the particular stock under consideration. What all of the above boils down to is know the stock that you are evaluating. Know the business it is in, know where it stands versus its competition, and know how it is performing currently versus previous quarters/years. If you don’t know what a company does, or don’t understand what it does you should eliminate it from your screening universe.
Tags: dividend stocks, high yield stocks
Deviden stocks, Long Term Investment | admin February 7, 2010 | 
Comments (0)
