Stock Yields And How To Maximize Them


Stock yield is the income return on an investment. Put simply, it is the ratio of annual dividends divided by the share price. It is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. Illustrated with an example, assuming you buy a stock for $40 (cost basis) and its current price and annual dividend is $44 and $1, respectively, the “cost yield” will be 4.4% ($1/$40) and the “current yield” will be 4% ($1/$44).

All stock traders are in the business to make profits and thus, to maximize stock yields but in today’s uncertain environment one of the biggest problems facing investors is how to maximize income without taking undue risk with their money. Hence, the best way forward is for a trader to adopt a number of suitable strategies. As you might expect in this case, timing is of the essence so you should pay close attention to the various signs in the market in order to detect when the market is at its lows or is nearing its highs. The volume of shares traded is a good indication of this. Entering the market when the volume of share trading is low and the price earnings ratio indicates that stock is undervalued, provides a chance to enter the market early and sell when the volumes gradually increase. If the volume and the share price peaks and then starts to decrease marginally, then you need to exit.

Another way to maximize stock yields is the 15% strategy where the aim is to get an annual return of 15% from capital appreciation and dividend yields, ultimately doubling your money in 5 years. This process is simplified if you split the contribution to this rate of return between capital appreciation and stock dividend earnings, as opposed to simply stock trading gains alone. Many stable blue chip companies pay out generous dividends so an investor can use these stocks to simply earn yearly cash and dividends. You can also maximize stock yields by purchasing Exchange Traded Funds (ETFs). With an ETF, it is possible to play a stock, an option, a currency and a stock index all in one instrument, thereby presenting a trader with further profit-making opportunities.

When it comes to stock trading, it is important to be aware of the role of scaling in and out. If you have entered a volatile stock trade which is moving very well, one way to ensure you are not caught out by a sudden price drop is to scale out of the trade gradually. You should therefore scale down your position by taking profits along the way. Many traders do not practice, but should, this important principle which protects profits against a hefty reversal of the trend. One final golden rule is never to add to losing positions in the hope that they will reverse. This will almost certainly lead to heavier losses.

A trader therefore has a variety of ways to place trades that will maximize stock yields.

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