When it comes to investing in the stock market, you’ll find that there are those who invest for the capital gain (the profit from the rise in stock price) and those that invest for the income through dividends. (There are also those that invest simply so they can brag about their portfolio at dinner parties, but those people are douches and not worth talking about here).
Now I will admit that investing in stocks just for the dividend income is a smart strategy. Not everyone wants to ride the stock price wave of ups and downs month after month and would prefer to get regular cheques that offer a good return on your investment.
Most companies DO pay dividends but the amount that they pay, the yield, can vary dramatically depending on whether the company is more concerned with growth and investing the shareholder equity back into the company, or whether they pay out the majority of their profits back to shareholders as income.
The highest paying dividend stocks are generally those that receive an income themselves, such as property stocks who receive rental income or insurance companies that receive regular payments from customers. They are the ones to look for because they pay the highest yields.
However generally the companies that pay out high divs don’t have high increases in stock price year to year. Usually that is because the company isn’t as focussed on expanding, they just want to carry on receive their regular payments from customers and then passing the profits on to you.
So it’s usually either high yield stocks or high growth stocks. Not both.
Or is it? I’m about to show you a company that not only fits all of my investing rules so is likely to be an awesome long term investment, but also has a high dividend yield of 5.70% p.a.
But first, you are probably wondering what a good yield to look for is?
Any stock that pays more than your usual high interest bank account will be a good bet. Personally I like anything that is above 4% p.a. but you can often find 5% p.a. and sometimes even 6% p.a. as well.
How do you find high yield dividend stocks?
There are a few different ways that you can invest in high yield stocks either directly by finding companies that pay high divs, or through a trust or fund.
For most people they will head over and find a high yield fund through one of the bigger investment banks such as Fidelity.
But since I like to buy stocks directly (yes I realise I have control issues), I like to find both high yield stocks AND those that are likely to increase in value too.
Soooo, you might be wondering if there are any stocks that are currently listed in the Dow Index (DJI) that fit my rules AND pay out a high dividend yield.
And wouldn’t you know it, there is!
You can have your cake and eat it too. Yeah baby.
First up, here’s a list of the 30 companies listed in the Dow index and their dividend yields (as of writing).
As you can see, three of the companies have div yields of over 4% and they are Merck & Company (MRK) with 4.3%, AT&T (T) with 5.7% and Verizon (VZ) with 5.2%. Any of these companies could make great investments if you are buying for the dividend income.
But if you follow the simple rules for investing, then you’ll also find that one of them fits all of the rules as well.
Is it a top company? Yep!
Has ROE of > 15%? Yes, its ROE is 18.88%
Good Earnings Growth? Yup, Qrty Earnings currently is 38.90%
Debt Levels Under 75% Check, just 57.6
Increasing Stock Price? Oh Yeah, increased 18.72% over the past year.
Oh and what was that dividend yield again? 5.7%!!!
Oh yeah baby, show me the money!
Right now AT&T is an all round winner both for growth and income. It’s definitely a buy in my books.
Who said you had to buy for either income or capital gain when you can do both?
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