Dividend Yield Explained

The dividend yield is another important concept in deciding how to buy stocks.

The dividend yield is defined as the dividend per share as a percentage of the share price, and is an important metric in deciding which are good dividend paying stocks.

Resource stocks generally tend to have the lowest dividend yields.  This is because most miners are in an expansion phase, and as such use their profits to re-invest back into the business.

Stable industries like the financial sector, and many real estate companies, tend to have the higher dividend yields.

Some of the leading dividend yield stocks are

Hastings Diversified Fund which is an infrastructure fund with some gas transmission assets. Its dividend yield is 9.7%.

Telstra is still up there but its share price continues to take a beating. We don’t feel its dividend payments are sustainable at 9.6%, given that earnings aren’t expected to grow any time soon.

Tattersalls and Tabcorp are also up there paying over 8% dividend yield.

Stockland is one of our preferred ones, currently has a yield of 6.7%.

Among the big banks, National Bank is leading the way with a yield of 5.5% while Westpac, ANZ and Commonwealth Bank are around 4.3%.

BHP Billiton has a yield of around 2.6%.

A final point to consider in deciding how to buy stocks, is that shares may have high dividend yields because their price has sunk so low.

A company whose dividends are falling at a slower rate than the decline in their share price, will actually see their dividend yield rise.  Consequently, the returns from dividend payments are offset by a declining share price, so the investor ends up losing out on a stock with a higher dividend yield.