Factors such as good capital gains and regular, strong dividends come to mind instantly.
Dividend yield is a good indicator of a company’s financial strength.
What is dividend yield?
Very simply, the dividend yield can be represented as:
Annual Cash Dividend per Share Price per Share
For example, assume both Company A and Company B pay out RM1 for each of its shares. However, the share price for Company A is RM10/share and RM20/share for Company B.
Applying the formula above, the dividend yield for Company A’s shares is 10% while it’s 5% for Company B.
In this simple example, assuming all other factors remain equal, it’s clear that Company A gives a higher dividend yield and therefore, is a better pick compared to Company B.
Here are some examples of high dividend yield blue chip stocks in FY2012:- JT International 12.8%
- Guinness Anchor 9.4%
- Malayan Banking 7.1%
- Maxis11.1 6.9%
Low on excitement, high on returns Although a high dividend yield stock is quite frequently referred to as a ’boring pick’,it offers stability and is a good choice for an investor who is looking for long-term gains.
Getting a bigger bang for the buck is what every investor aims for ultimately; and a high dividend yield stock may just serve that purpose.
However, keep in mind that such stocks may not experience much price volatility as they tend to follow a ’slow and steady’ climb, but climb they will (in the long term)
Therefore, capital gains coupled with a healthy dividend yield make a smart choice.
"Do not based on 1 year dividend yield to determine whether is a high dividend yield stock. It is advised to based on at least 3 years dividend record coupled with EPS records. " This is because sometimes, the company only give one time special dividend due to special corporate exercise (eg. sell-off their business units and give the money as special dividend).
QUOTE OF THE DAY
“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.” – Warren Buffet
Traits of a high dividend yield stock More often than not, a high dividend yield stocks shares a few common traits, among them:
a) Frequency of dividend payouts Indicates the health of the company, i.e. its profitability. However, beware of companies that may actually borrow to pay out dividends!
b) An effective, committed and well-managed management team It’s obvious that a well-managed company is reflective of its management team, one that is able to steer clear of obstacles come challenges.
c) Popular pick of fund managers Fund managers normally do their homework before recommending stocks. Therefore, it should be relatively safe to go with their recommendations.
d) Active in Research & Development A company that continually comes up with new ideas, products and such shows dynamism and conveys the message that it will continue evolving to emerge stronger each time. Selecting a high dividend yield stock is a smart investment move as it offers huge potential with advantages
