Increase Your Dividend Yield By Recognizing Dividend Stock Valuation

Too many investors ignore stock valuation when they purchase dividend stocks for income. There’s a tradeoff. They simplify the investing process by averaging into quality businesses but risk having a higher average cost for their dividend investment. Consequently, a higher cost leads to a lower initial dividend yield (and lower subsequent yield on cost when the dividend stocks increase their dividends).

How do you tell a dividend stock’s valuation?

Some investors do not know how to value dividend stocks. Understandably, there isn’t a clear-cut formula to determine if dividend stocks are undervalued, fairly valued, or overvalued. Too many factors come into play, including the stability of the business’s earnings or cash flow, the historical valuation, the growth rate in the future, the safety of the dividend, etc.

Fortis stock's fair value range by Yahoo Finance in November 2021
Source: Yahoo Finance – Fortis stock’s fair value range

If you’re not sure about how to determine if a stock is cheap or not, use the analyst consensus price target as a guide. Although sometimes there are big changes for these price targets after an earnings report, it’s still better than ignoring the valuation factor altogether.

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Halloween Special: The Scariest Stock on Earth

I thought it would be interesting to write an article as a Halloween special. Happy Halloween to all — no matter if you’re going around to collect candy, handing out candy, or enjoying some chocolate yourself.

painting of a black cat wit witch hat sitting next to a pumpkin

A stock having one of the following traits is bad enough. Having all of them will make it the scariest stock in the world…

A poor balance sheet

If a company has tonnes of debt on its balance sheet, it could become insolvent. Avoid stocks with excessive debt. What is excessive? It’s normal for certain industries or sectors to have high debt levels. So, the best thing to do is to compare the debt levels of a company you’re interested in with those of its peers. For example, utilities and real estate investment trusts (REITs) typically have higher levels of debt.

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Dividend Investing: Are You Investing for Passive Income?

Dividend investing can be a perfect way to earn passive income. I started this blog years ago, intending to earn passive income from dividend stocks. That’s why I chose the domain name passive-income-earner.com. However, I wasn’t investing for passive income initially.

Image by photosforyou from Pixabay

I failed to set the criteria for passive income investing — something like the following. First, the dividend stock should provide a sufficient yield. Second, the business cannot be so volatile that there’s a chance of a dividend cut. Third, the stock should allow you to sleep well at night.

Does the dividend stock have a big enough yield?

Some dividend stocks, even though, they’re backed by quality businesses, are not good for passive income. For example, Canadian Pacific Railway (TSX:CP)(NYSE:CP) yields only 0.8%. The best five-year GIC rate is going for 2.3%. So, I would require a dividend stock with a yield of at least 3% for passive income.

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