High yield stocks
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A high-yield stock is a stock whose
dividend yield The dividend yield or dividend–price ratio of a share is the dividend per share, divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant ...
is higher than the yield of any benchmark average such as the ten-year
US Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and th ...
note. The classification of a high-yield stock is relative to the criteria of any given analyst. Some analysts may consider a 2% dividend yield to be high, whilst others may consider 2% to be low. There is no set standard for judging whether a dividend yield is high or low. Many analysts do however use indicators such as the previously mentioned comparison between the stock's dividend yield and the 10-Year US Treasury Note.


Indices

Several stock indexes are based on high-yield stocks, such as Dow Jones U.S. Select Dividend Index and FTSE High Dividend Yield Index. S&P High Yield Dividend Aristocrats Index contains companies that have raised their dividends. Equity securities of companies in the utilities industry typically pay relatively high dividends.


Concept

A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the
stock price A share price is the price of a single share of a number of saleable equity shares of a company. In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for. B ...
. High dividend yields are a particularly sought after by income and value investors. High-yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky.


Dividend Aristocrats

Dividend aristocrats are known for decades of consecutive years of dividend increases, this does not necessarily mean they have high dividend yields. In fact, the average yield for th
dividend aristocrats ETF
is between 1.8% and 2.4%. Nonetheless, picking stocks from the top yielding dividend aristocrats is a method for boosting portfolio yields, with the averag
high yield aristocrat
offering investors about a 4% return, with the safety of decades of dividend increases backing up each stock.


Dogs of the Dow

The Dogs of the Dow strategy is a well-known simple strategy which incorporates high dividend yields. The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the
Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity inde ...
and buying an equal position in all 10 at the beginning of each year. At the end of each year, the investor finds the 10 highest dividend yield stocks again, and reallocates their positions so as to have an equal position in all 10 Dogs of the Dow. The Dogs of the Dow made a compounded annual return of 18% from 1975 to 1999 outperforming the market by 3%. This would make $10,000 turn into $625,000 in 25 years.{{cite web, url=http://www.fool.com/school/dowinvesting/dowinvesting.htm, title=Fool.com: The Foolish Four Explained, publisher=


The Dow 5

The Dow 5 strategy is a variation of the Dogs of the Dow strategy. This strategy dictates the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average, and buy the 5 lowest priced of those 10 stocks at the beginning of each year. At the end of every year, the investor remakes the list, and reallocates their positions so as to have an equal position in all 5 stocks. This strategy has made an annual return of 19.4% from 1975 to 1999. This would make $10,000 turn into $840,000 in 25 years.


Foolish Four

The Foolish Four strategy was a strategy popularized on the investing website ''
The Motley Fool The Motley Fool is a private financial and investing advice company based in Alexandria, Virginia. It was founded in July 1993 by co-chairmen and brothers David Gardner and Tom Gardner, and Erik Rydholm, who has since left the company. The compa ...
''. The Foolish Four was almost certainly a result of
data dredging Data dredging (also known as data snooping or ''p''-hacking) is the misuse of data analysis to find patterns in data that can be presented as statistically significant, thus dramatically increasing and understating the risk of false positives. ...
. From the time of its discovery onward, it has been famously unreliable in its returns, and even its original creators have since disowned it.


References


External links


Regular updated list of high-yield stocks
Stock market Financial ratios Dividends Corporate finance