The following is a guest post from Rob, a fan of My Own Advisor living in Munich, Germany.
Conventional wisdom says that high yields are a warning sign and for the most part I think the folks that share that wisdom are correct. But this year after selling off a large portion of my holdings, sitting out and waiting for the market “correction” that never happened, I decided to get back into the market. There was a problem with my plan though: everything I wanted to buy had gotten quite expensive. The stocks I wanted to buy were not overpriced but they were certainly above what I was willing to pay. That gave me pause for thought…
I decided to turn David Stanley’s Beating the TSX strategy on its head. Haven’t heard of his method? Well, it’s the Canadian cousin of the “Dogs of the Dow” strategy yet it applies to stocks on TSX index instead – focusing on undervalued and underappreciated U.S. stocks. You can read more about David’s strategy here.
What I did was search the whole Canadian market using sites like Top Yields and another site I know Mark has used in the past: Canadian DRIP Primer. I looked for stocks yielding over 4%. From the yield-screen I found about 10 stocks that were of interest to me.
From there I did the following…
1. I used this free stock analysis tool from Globe Investor and I typed the stock symbol I was interested in, example:
2. After searching for my company, I read this on the analysis page:
What this tells me is this stock (an example only here folks), Canadian Oil Sands is currently out of favour and I love high-yield out of favour stocks.
Does my work stop there? No. I still need to do a bit of research. I have to answer some questions that align with my risk tolerance and buying criteria (e.g., has the dividend been reasonably stable? Is there an obvious problem that I should be aware of?). After questions like these have been answered, I’m confident about my decision to buy or avoid this stock and move on to the next stock on my list.
This is my process for looking at higher yielding stocks, out of favour companies that definitely have some risk but I’m willing to accept that risk; companies I’m intending to hold through thick and thin.
Do you have any strategies to invest in higher-yielding stocks? If so, do tell.
Rob L. is a fan of My Own Advisor living in Munich, Germany. Rob is passionate about investing and is currently working through his own plan for financial freedom, about 10 years away.
My Own Advisor: The example listed in this article is for illustrative purposes only. You should consider consulting a financial professional before making any important investment decisions. All financial decisions are yours and your responsibility.
<images from Globe and Mail: http://www.theglobeandmail.com>