Dividend yields are very attractive parts of the investing game. Any time you can get cash flow from your investments, you’re in good shape. When it comes to calculating your yield, it’s important to also note the yield based on the capital invested. Most people only look at the dividend yield based on current stock price. Let me explain further…
If you invest $1,000 in a stock paying 5% at the time you invested, you’ve essentially locked in a 5% yield on your money. If the stock doubles, and your investment is now worth $2,000, the current yield on the stock might be 2.5% but you’re still earning the 5% based on the money you allocated. Now, why is it good to look at it this way?
Well, I like to look at yields this way, because it shows you how well you cand o if you buy high yielding stocks during downturns or when the stock prices are low. If that same stock that you purchased a $1,000 chunk of dropped 50% due to a market crash, and you invested $500 with the same dividend payout, you are essentially locking in a 10% yield as long as you hold the stock, regardless of what the stock price does – (whether it moves higher or lower). This is a great way to invest in dividend paying stocks.
Watch the market and take advantage of excellent buying opportunities! Locking in high yields can make you a lot of money!
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