Dividend yield is the ratio of a company’s total dividends relative to its share price. If the share price rises, then the ratio would diminish.
While investors can still find high yield options, you could be taking on greater risk, writes Charles Rotblut for American Association of Individual Investors.
“High yields are a sign that other investors perceive problems and want a higher yield to be compensated for those risks,” Rotblut said. “In the current market environment, stocks with yields above 4.5% should be analyzed closely. There might be some bargains, but since higher yields imply lower valuations, it is important to remember that some stocks are cheap for a reason.”
Additionally, Rotblut reminds investors to look at total return since both price appreciation and income contribute to overall wealth. [Surveying the Dividend ETF Landscape]
Some dividend ETFs include:
- SPDR S&P Dividend ETF (NYSEArca: SDY): 2.82% 12-month yield
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG): 2.17% 12-month yield
- WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN): 3.88% 12-month yield
- iShares Dow Jones Select Dividend (NYSEArca: DVY): 3.43% 12-month yield
- iShares High Dividend Equity Fund (NYSEArca: HDV): 3.22% 12-month yield
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.