High Yield Dividend Stocks, Diversification & Market Timing
Although I am generally not an advocate of market timing (my crystal ball has been on the blink lately), there is one circumstance when the timing seems to be right for high yield investors.
That time is when external factors impact the market in such a way that numerous dividend paying stocks, with strong and consistent fundamentals, drop in price so that their dividends begin to show extraordinary yields.
Today there are a multitude of negative factors impacting the financial markets: problems in Greece causing the markets to be concerned about all of Europe's financial stability, continuing scandals and crises on Wall Street, with Goldman Sachs under SEC and congressional scrutiny being the latest, and finally the concerns about our increasing national debt, have caused our markets, which rose briskly from March 2009 to March 2010, to suddenly take a rapid downturn punctuated by the unexplained May 6th 1000 point spike down in the Dow in a 30 minute period.
This perfect storm of events has caused many very sound companies to drop in price creating an opportunity to find unusually high yields among some of the best blue chip stocks.
There are plenty of places on line to go and find lists of dividend paying stocks.
Suffice it to say that, as I write this article, opportunities abound to lock in high yields in oil & gas master limited partnerships, real estate investment trusts, business development corporations, and many blue chip companies in telecommunications, pharmaceuticals, healthcare and consumer staples.
Creating a diversified portfolio of high yield income producing stocks is not difficult.
It is important, however to determine your own individual investment criteria and tolerance for risk, so that you purchase equities that are appropriate for you.
For example, if you are looking for dividend paying stocks that have consistently raised dividends, simply type into any search engine, "consistent dividend increasing stocks," and you will find a world of information to begin your search for stocks suitable for you.
If you are looking for equities yielding over 5%, over 7%, over 10% or even higher, put your criteria into any search engine and again you will have plenty of information to begin your due diligence.
While it may be tempting to invest a high percentage of your available funds into one or two equities that seem to fit your criteria perfectly, it can be quite risky to do so.
No matter how perfect a company's track record has been, how consistent their dividend, or how exceptional their management, events over the past few years show that almost any company can take a fall.
Look at Enron, AIG, Lehman Brothers, and the myriad of banks and financial companies, previously considered "orphans and widows stocks," that dropped almost overnight during the financial crisis precipitated by the subprime mortgage fiasco.
No matter how good an individual stock looks, it almost always pays in the long run to be diversified.
Speaking of diversification, most of the time investment advisors suggest investing in a wide range of equities with a mix of income, growth, value, international, domestic, large cap, small cap, etc, with various different categories represented such as energy, finance, telecom, pharmaceuticals, utilities, etc.
Since investment advisors are most often in the equities business in some form or other they often forget that there are other forms of diversification that may not be suitable for everyone, but can make a lot of sense for certain investors looking for high yield.
At the present time, due to the decline in real estate prices, there is a great opportunity to directly purchase and manage small investment properties, duplexes, triplexes, single family homes, etc.
This may not be for everyone, but for those who are willing to take on the duties of landlord, the returns can be rather handsome.
Like the current situation with dividend paying stocks where the price is depressed raising the yield, the same thing is currently true regarding investment properties.
Like purchasing equities, it is important to do your homework and determine if the investment property is right for you.
How far is it from where you live? What are your true costs? How much of the maintenance and management can you do yourself? Another form of diversification is having a second job.
This doesn't have to be overwhelming, but a few thousand dollars a year coming in from consulting, or even baby sitting, will add up over time if the proceeds are invested in your portfolio.
Having multiple and diversified sources of income has always been a good idea, but in today's world of uncertainty, it makes even more sense.
Today, dividend yields are higher than normal, real estate prices are lower than they have been in years, and there are always opportunities for those who are willing to work hard to find them.
That time is when external factors impact the market in such a way that numerous dividend paying stocks, with strong and consistent fundamentals, drop in price so that their dividends begin to show extraordinary yields.
Today there are a multitude of negative factors impacting the financial markets: problems in Greece causing the markets to be concerned about all of Europe's financial stability, continuing scandals and crises on Wall Street, with Goldman Sachs under SEC and congressional scrutiny being the latest, and finally the concerns about our increasing national debt, have caused our markets, which rose briskly from March 2009 to March 2010, to suddenly take a rapid downturn punctuated by the unexplained May 6th 1000 point spike down in the Dow in a 30 minute period.
This perfect storm of events has caused many very sound companies to drop in price creating an opportunity to find unusually high yields among some of the best blue chip stocks.
There are plenty of places on line to go and find lists of dividend paying stocks.
Suffice it to say that, as I write this article, opportunities abound to lock in high yields in oil & gas master limited partnerships, real estate investment trusts, business development corporations, and many blue chip companies in telecommunications, pharmaceuticals, healthcare and consumer staples.
Creating a diversified portfolio of high yield income producing stocks is not difficult.
It is important, however to determine your own individual investment criteria and tolerance for risk, so that you purchase equities that are appropriate for you.
For example, if you are looking for dividend paying stocks that have consistently raised dividends, simply type into any search engine, "consistent dividend increasing stocks," and you will find a world of information to begin your search for stocks suitable for you.
If you are looking for equities yielding over 5%, over 7%, over 10% or even higher, put your criteria into any search engine and again you will have plenty of information to begin your due diligence.
While it may be tempting to invest a high percentage of your available funds into one or two equities that seem to fit your criteria perfectly, it can be quite risky to do so.
No matter how perfect a company's track record has been, how consistent their dividend, or how exceptional their management, events over the past few years show that almost any company can take a fall.
Look at Enron, AIG, Lehman Brothers, and the myriad of banks and financial companies, previously considered "orphans and widows stocks," that dropped almost overnight during the financial crisis precipitated by the subprime mortgage fiasco.
No matter how good an individual stock looks, it almost always pays in the long run to be diversified.
Speaking of diversification, most of the time investment advisors suggest investing in a wide range of equities with a mix of income, growth, value, international, domestic, large cap, small cap, etc, with various different categories represented such as energy, finance, telecom, pharmaceuticals, utilities, etc.
Since investment advisors are most often in the equities business in some form or other they often forget that there are other forms of diversification that may not be suitable for everyone, but can make a lot of sense for certain investors looking for high yield.
At the present time, due to the decline in real estate prices, there is a great opportunity to directly purchase and manage small investment properties, duplexes, triplexes, single family homes, etc.
This may not be for everyone, but for those who are willing to take on the duties of landlord, the returns can be rather handsome.
Like the current situation with dividend paying stocks where the price is depressed raising the yield, the same thing is currently true regarding investment properties.
Like purchasing equities, it is important to do your homework and determine if the investment property is right for you.
How far is it from where you live? What are your true costs? How much of the maintenance and management can you do yourself? Another form of diversification is having a second job.
This doesn't have to be overwhelming, but a few thousand dollars a year coming in from consulting, or even baby sitting, will add up over time if the proceeds are invested in your portfolio.
Having multiple and diversified sources of income has always been a good idea, but in today's world of uncertainty, it makes even more sense.
Today, dividend yields are higher than normal, real estate prices are lower than they have been in years, and there are always opportunities for those who are willing to work hard to find them.