Published Sun, 22 Sep 2019 09:35:00 -0400 on Seeking Alpha
Co-produced with Beyond Saving and PendragonY
Our Service, High Dividend Opportunities ('HDO'), focuses on finding opportunities that provide a high level of current income- investments that provide a larger than average dividend.
We often target investments with yields over 7%, frequently these investments are immediately labeled as "high-risk", "sucker yields" or are said to be "just returning capital". Often with little more evidence than just pointing at the yield.
There is misunderstanding and a lot that is read into a high-yield. While many high-yield investments are in fact high risk, many low-yield (or zero yielding) investments are also high risk. Dividend yield alone is not a measure of risk.
Yields are high for a number of reasons-
"Pass-through" entities like REITs, BDCs or MLPs are designed to pass the majority of their profits directly to investors. This results in a much higher than average yield. Capital allocation strategy- when companies have excess capital they have a variety of choices of where to allocate it. Many will buy back shares on the market, increasing share-price, others decide to increase the dividend. The company is trading at a low price- yield is the annual dividend divided by the current price, so as price declines the yield goes up. So when a yield is high, it is because the company is cheap. On the other hand, when the yield is low, it is indicative of a company that is expensive. The first step of buy low/sell... Read more
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