How to assess the high dividend yield stocks?
While companies that have a high dividend yield are considered safe, it is important to remember that it is not the high yield that makes them safe. Rather, they have a high dividend yield because they are safe. Further, the dividend yield does not provide a complete picture. Dividend is but a portion of the returns you earn from a stock – rest of it is from capital appreciation. If you compare the dividend yield of a stock with the yield from a fixed deposit – you would typically find that the dividend yield is lower despite the higher risk that stock investments carry. A better way to assess a stock would be to look at its earnings yield instead. Most analysts use a forecast of future earnings when valuing a company.
How to understand which are the good dividend paying stock companies?
Once you have identified high dividend stocks, decide on which ones to invest in using fundamental analysis. Remember that stocks that pay dividends can always decide to reinvest without paying them if they run into bad times. That said, if you are investing for dividends – make sure that they are strong performers in their respective sectors, like Blue Chip stocks
