Dividend.com analyzed the search patterns of visitors to our site during the past week ending March 19, 2016. Below, we give an analysis of how intelligently readers used Dividend.com to help them in their investment decision-making process by providing a breakdown of what was searched the most on Dividend.com ranked by volume spikes to ticker pages.
The Difference Between a High Yield and a Healthy Yield
Our High-Yield Dividend Stocks page was trending last week. Many investors seem to confuse a high yield with a healthy yield. Let Dividend.com explain: a high yield is not a healthy yield, and a healthy yield is not a high yield.
The High-Yield Dividend Stocks page is actually used to identify stocks that are “dividend traps” and, as such, shouldn’t be in your portfolio if you are looking to go long.
The Best Dividend Stocks are those stocks that have a healthy yield and should be in your portfolio if you are looking to go long.
Below, we analyze the difference between a healthy yield and a high yield:
The average dividend yield of the 2,100 stocks that Dividend.com tracks, after adjusting for the top 5% of outliers and the bottom 5% of outliers, is 2.73% as of March 20, 2016. This is approximately the same yield as the Dow Industrials at 2.58%, Dow Transportation at 1.39% and the Dow Utility at 3.26%.
Any stock with a yield between 75% of the average yield of 2.73% and 125% of the average yield is considered a healthy dividend yield by Dividend.com.
Keeping that calculation in mind, a yield between 2% and 3.4% is considered a healthy dividend yield. Now, since the average dividend yield of the 2,100 stocks that we track changes every day, the definition of a healthy yield changes every day too.
If the market goes up quite a lot, the average yields are going to drop, which would result in a new range of healthy yields that would be on the lower side. If the market falls a lot, the average yields are going to go up, which would result in a new healthy range that would be on the higher side.
So companies like Southcross Energy Partners (SXE) and Dominion Resources Trust (DOM) should be avoided at all costs, as a yield of 195% and 125%, respectively, are not sustainable.
Dividend Yields by Sectors
The above chart shows yields categorized by sectors.
The overall average yield of the stocks we observe is 2.73%. Utilities and financials are currently yielding 3.99% and 3.47%, respectively, which is higher than the average yield.
Financial yields receive a major boost due to REIT payouts, while utilities (gas, water and electric) have been the star performers in 2016 as investors valued them higher due to their safe business models and their long track record of paying dividends.
Basic materials is showing an average yield of 3.21%, which is significantly higher than the average. But the important distinction to be made here is that basic materials are showing that yield due to a significant price depreciation seen in oil and gas stocks.
Financials and utilities, on the other hand, are showing that yield in spite of rising stock prices.
This hypothesis is proved with the following numbers we observe.
Relative Strength by Sectors
Utilities as a sector is showing the least percent change from its 52-week high, followed by financials. On the other hand, basic materials as a sector is showing the highest percent change from its 52-week high.
Looking at these charts together, we see that utilities and financials are showing a healthy yield, while the basic materials yield is inflated due to a drop in stock price. Basic materials stocks right now seem to have high, unhealthy, unsustainable dividend yields.
Here we analyze currently observed payout ratios, earnings growth and P/E ratios across industries.
The Bottom Line
We at Dividend.com know how technology is interwoven in our daily lives. Dividend.com has become a central source of information for all things dividends on Wall Street. By analyzing how you, our valued readers, search our property, we hope to uncover important trends that help forecast stock market performance. Each week, we’ll share search patterns from the previous week in order to assist you in making insightful decisions for your portfolio.
