Right, you always want to verify why a stock’s yield is increasing or decreasing.

Particular to this scenario, it’s a circular cause/effect. Because the stock prices are depressed, the yields are higher. The high yields attract investors looking for “stable returns”, thus driving the stock price up while depressing the yields.

Nice post
.-= The Rat´s last blog ..BIN Revisited: From Tantrum to Tantalization =-.

Thinking aloud is always welcome – that was kind of how this post was written

Agreed. High yields (by themselves) are not the determining factor since companies may use astronomical, teaser yields to entice investors.

Generally speaking, it seems to me that the technique is more about the weighing the probabilistic outcome that the company has a: worthwhile enough yield (better than what you could get elsewhere), stable enough payout, and investable (made up word) enough business model other people would be willing to buy into.

It’s still a tough balance, because you never know what could happen. A good example would be Pfizer (PFE) which, in the past year, had a fair amount of articles written about it being a decent place to park cash.

It’s yield got around 8%, had a large cash cushion, relatively stable business (except for an expiring patent on Lipitor and pending healthcare legislation), and strong payout history. Until they HALVED it!

The reason is that as far as I know, the research doesn’t say it was the high yield dividends that paid up all that return. It could be low yielding fast growers that increase their payout every year and saw price rises to match (though that capital appreciation would then match the income gains… hmmm.. thinking aloud here I admit!)

?? Didn’t quite understand the comment.

The post wasn’t advocating fixed income options although I would agree on the 10-yr bond comment given the USAA details.

Initially I was focusing on the phrase “yield compression”, specifically in relationship to high-yielding dividend stocks.

Then I switched gears as I realized it seemed to become a “something old is new again” idea for investing.

Since the main themes are (working backwards from the about page) – achieving financial security through optimization and achieving optimization through education – I want to stay away from any concrete predictions or anything of that sort for now.

Plus, I’m a “monkey with darts” kind of guy.

I don’t see inflation for at least another year, if not too.. and therefore, maybe only in 2011 will the Fed start tightening.

There’s too much slack right now, so I expect cheap money for a while, but just in case I’m wrong, I’m not investing in treasuries!
.-= Financial Samurai´s last blog ..Marketing Or Manipulation? =-.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=521148&Ntt=dividend
.-= FinEngr´s last blog ..Can Shrinking Yields Be a Good Sign? =-.