Introduction to Dividend Yield

Simply put, dividend yield is the amount of annual dividends per share divided by the stock price per share. For example, if a company pays annual dividend $5 and currently the company’s stock is trading at $50, the dividend yield is 5/50 = 10%. Many investors prefer high dividend yield stock rather than high growth stock without dividend payment. The reason is because in general it seems to be safe to hold high dividend yield stock especially when the outlook of the economy is uncertain. Think about it: The only way to profit by investing in the stock that doesn’t pay the dividend is through the stock price appreciation. However, investors can profit from high dividend yield stock simply by receiving the dividends. It is very attractive when everyone thinks the economy won’t be good in the near future.

Dividend Yield Strategies

There are several investment strategies that we can consider by applying dividend yield concept

Dogs of the Dow

Dogs of the Down is a simple strategy that suitable for investors that prefer high dividend yield with passive investment style. Here is how it works: At the beginning of the year, you choose the top 10 highest dividend yield stock in Dow Jones and invest the equal amount of money into each one. By the end of the year you liquidate it and repeat the same process for the next year
You can find the list of Dogs of the Dow for 2012 here
Also you can use the Stock Fundamental Data Download to list the stock from highest dividend yield to lowest dividend yield among Dow Jones stock.



You can also include the ex-dividend date and dividend pay date information. The list is not the same as the list for Dogs of the Down 2012 because it is based on the latest trading data as of Jan, 31, 2012
 

Vertical Sorting of Dividend Yield

Another way is to sort the dividend yield by the segment. Take SPY, which is the S&P 500 index ETF for example, we can dissect SPY into following segment: XLE (Energy), XLF (Finance), XLI (Industry), XLK (Technology), XLU (Utility), XLP (Consumer Staples), XLV (Health Care), XLY (Consumer Discretionary).  Simply load those symbols into Stock Fundamental Data Download and sort them by the dividend yield. Result is as following:



The result shows XLU (utility) has the highest dividend yield and XLK (technology) has the lowest dividend yield

Horizontal Sorting of Dividend Yield

You can also sort the dividend yield horizontally. For example, you might be interested in investing in different countries and wonder what the dividend yield is for each of the country.
Here is an example that we can sort by dividend yield among following 19 countries.



As you can see, among the listed countries, EWP (MSCI Span Index) has the highest dividend yield (9.47%), almost 10%! This high dividend yield reflect the fact that currently investors are not confident in regarding the current debt issue Span is facing

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Comparing the Volatility across Different Assets

 
In the previous article, we showed the steps that everyone can calculate the volatility for particular a particular stock/ETF he or she is interested in. So what’s the general volatility of other assets that we are interested in? In this article, we are going to compare the volatility among four popular assets: equity market, corporate bond, real estate, and gold
 

Popular ETF to Represent Those Assets

Before the invention of ETF, individuals are hard to diversify their portfolio to different asset classes. However, with the increasingly popularity of the ETF, It is easy to get the specific risk exposure you prefer. If you want to get the corporate bond exposure, you can simply buy the corresponding corporate bond ETF just like you buy other stocks. The creation of ETF really helps the individual investors diversify their portfolio without mutual fund managers. Here is the ETF that we are going to use as a practice to measure the volatility for different assets:
Equity Market: SPY
Corporate Bond: LQD
Real Estate: IYR
Gold: GLD
 

Results

As usual, you can use Stock Historical Download or Yahoo Finance to download the historical price to calculate the volatility. The data range we choose is between Jan, 2005 and Jan, 2012. The reason is that because gold ETF GLD was not created until 2005. Different intervals such as 7 years, 5 years, and 3 years are calculated to see the volatility difference among different intervals


As we can see, different asset classes do have different volatility characteristic while the interval chosen to calculate the volatility has small impact in terms of volatility.
It shows that actually real estate (IYR) has the highest volatility, following by gold (GLD), then stock market (SPY). Corporate bond (LQD) has the lowest volatility.  It affirms our general expectation that the risk of bond is lower than stock. On the other hand, the reason why real estate has the highest volatility, which is somewhat contradictory to the traditional view treating real estate investment as a safe investment, might be something to do with the subprime mortgage crisis.

We can also plot the annualized return comparison among those assets


Unlike volatility, the annualized return does fluctuate a lot for different intervals, especially the stock market and real estate. It shows us how difficult it is to profit from timing stock market

Stock Fundamental Data Download Available Now

We are pleased to announce that the Stock Fundamental Data Download (SFDD) version 1.0 is released! Wondering which stock you are interested in has the lowest PE ratio? How about PB and PS ratio? Which stock has highest earning growth rate potential? Stock Fundamental Data Download provides the solution for you!

Stock Fundamental Data Download (SFDD) can download the fundamental data for the stock symbols that are listed in Yahoo Finance and save it as .csv format. You are able to create your own symbol list and define the data fields you would like to download (currently there are more than 30 data fields supported and more to come). Also SFDD allows you to edit and sort the data downloaded on the fly before you export the data. You can access the complete document here.
 

Main Features

· Only one time purchase fee, no further subscription fee
· Free upgrade for future release
· Batch downloads the symbol lists defined by you.
· Support more than 30 data fields, and more is coming
· In-software edit capability allows you to rearrange the data before exporting it
· Support various stock exchanges
· Define your own data field to download
· output data is plain ASCII text with comma separated csv format

We provide the trial version with absolutely no cost to you. Try it now and tell us what you think. We would be more than happy to get any feedback or suggestion from you!

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Measuring the Risk - Volatility

 
When it comes to investment, in addition to the return on the investment, the other thing that we are always interested in knowing is that how much risk we are taking to make a specific investment. But exactly what is risk? How can we quantify the risk?

Risk VS. Uncertainty

Although there is no clear distinction between the risk and uncertainty, we can use Frank Knight’s distinction as the starting point: Risk has an unknown outcome, but we know what the underlying outcome distribution looks like. Uncertainty also implies an unknown outcome, but we don’t know what the underlying distribution looks like. For example: Amazon is going to announce its fourth quarter earnings in January 31, 2012. As of writing, we don’t know what the price movement of amazon stock is after the earning is announced, but we do have the past history to measure the likelihood of the price movement after earning is announced. That’s the risk. On the other hand, current European sovereign debt crisis posts an uncertainty for us because the outcome is unknown and there is no past history for us to gauge the likelihood of the outcome

Measuring the Volatility of the Stock as the Risk

Although there is no way to measure the uncertainty of a particular stock, we can measure the volatility of the stock according to the past history of price movement to represent the risk of investing in the stock. The volatility of the stock is simply the standard deviation of the price movement for a certain period of time:

Calculate the Risk of the Market (S&P 500)

You can calculate the risk of the market (S&P 500) or any particular stock/ETF you are interested in by following steps:
1. Get the stock historical price data: Use Stock Historical Data Download to download the past 10 years, monthly price movement for symbol S&P 500 (^GSPC)
2. Calculate the monthly price % change based on the monthly price movement
3. Uses the Excel function (STDEV.S) to calculate the volatility for you. Remember you have to times the number by sqrt(12) to make it annualized volatility
You can download the sample excel here
Following is the S&P 500 volatility distribution based on last 10 years, 5 years, 3 years, and 1 year data

The volatility ranged from 16% to 18.9%.
As we can see, the volatility of the stock changes if we use the different intervals of past history
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New Version of Stock Historical Data Download Available Now

We are pleased to announce that the Stock Historical Data Download version 1.6 is released! If you have purchased this software before, you can upgrade to the latest version simply by login to your account and reinstall the file. New features in the latest version includes the integration of the command mode and the capability to save/load .set file directly from Setting Window

Integration of the Command Mode

Stock Historical Data Download supports command line argument to achieve the fully automation. It is done by reading the symbol list file (.slist), which includes the symbols going to be downloaded, and the setting file (.set), which includes the setting options that are going to be loaded to setting window.

Create/Load Symbol List file

We recommend you to create/load symbol list file (.slist) by following steps:
1. Add the symbols you want to save in the .slist file, then chose File->Save File->Symbol List from main window to save the list into the file
2. To load the saved .slist file, simply choose the file from File->Open->Symbol List from main window

Create/Load Setting File

We recommend you to create/load setting file by following step:
1. In the setting window, choose the setting you would like to save, then click OK
2. In the main window, choose File->Save File-> Setting to save the current setting into .set setting file. Note the data field information will also be saved
3. To load the saved .set file, simply choose the file from File->Open->Setting

Use the Command mode

Stock Historical Data Download supports the command mode by directly activating the exe file “StockDataDownload.exe” from the Windows console. Following is the sample screenshot of the command mode window:



You can find the executable from the installation directory. The command mode has the general format:
StockDataDownload.exe -s “slist file” -o “setting file” [-q]
“slist file” is the target symbol list file.
“setting file” is the predefined setting file
if –q option is specified, the command mode window will be automatically exist when the task is done otherwise you have to hit the Quit button to exist the window
You have to specify both files to make the command mode work

Directly Save/Load .set file from Setting Window

Following is the sample screenshot of the Setting Window for version 1.6



At the Bottom of the window there are Save/Load buttons that allows you to directly save/load .set file from the Setting Window. It is more convenient!



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Market Risk Premium 101

Introduction

When comes to the investment, we might measure the performance of the investment by its nominal return. For example, if the stock you bought in year 1 yields a return 12%, then probably you think this stock is good one to own. On the other hand, if it simply yields a return about 7% in year 2, then you might feel not so good compared to 12% return. However, if further information is revealed that in year 1 the 10-year US treasury bond could give you 8% and in year 2 the 10-year US treasury bond has only 1%, do you still think 12% is better than 7%?
 

High Risk, High Reward

When making the decision in terms of what financial instrument to invest, we are trying to put the money in the one that can give us the best return on investment per risk we take. The main reason why people invest their money in the stock market rather than in the US Treasury bond is because historically it gives us higher return on investment. The reason why we expect to get higher return on investment from stock is because of the fluctuation of the stock price that we might end up losing the principle. With the additional risk we take, extra return is needed to justify investment. It is obvious that if we can get the same return on investment as stock market by investing the money into the US Treasury bond, no one would invest any money into the stock market.
 

Market Risk Premium, the excess return above the risk-free rate

Because of this reason, we are more interested in knowing what’s the excess return above the risk-free rate rather than the nominal return. Take the hypothetical example we mentioned at the beginning, in year 1, the excess return above the risk-free rate would be 12% - 8% = 4%. However, in year 2, the excess return above the risk-free rate would be 7% - 1% = 6%. Actually the stock market performs better in year 2 than in year 1!
 

Estimate the Market Risk Premium

The formula to estimate the market risk premium is simple:
Market Risk Premium = market total return – risk free rate, while market return would be:
(Market Price End – Market Price Beginning + Total Dividend Received) / (Market Price Beginning)
 

Use the Free Data to Calculate the Market Risk Premium Yourself

It would be nice if we can calculate the market risk premium ourselves to get a feel how much excess return do we get in average. Luckily, there are many free data on the internet that we can utilize. Below would be the steps you can follow:^
1. Get SPY ETF historical data: Typically we use S&P 500 index to represent the market. However, it doesn’t have dividend information, so we use SPY, which is the ETF of S&P 500 index to calculate the total market return. You can simply go to Yahoo Finance website to get the data or simply use Stock Historical Data Download to download it for you. Download both monthly quotes and dividend from 1993 to 2012
2. Get ^TNX historical data from Yahoo Finance: the ^TNX historical prices represent the 10-year US Treasury yield. We can use it to represent our risk-free interest rate
3. After putting those data together, we can summarize the result as following:

Year	SPY Begin Price	SPY End Price	Dividend	Total SPY Return	10-Year US Treasury	MRP
1993	31.29	35.24	1.183	16.40%	6.39%	10.01%
1994	35.24	35.51	1.462	4.91%	5.64%	-0.73%
1995	35.51	49.1	1.243	41.77%	7.59%	34.18%
1996	49.1	61.33	0.972	26.89%	5.58%	21.31%
1997	61.33	78.09	1.375	29.57%	6.50%	23.07%
1998	78.09	102.7	1.392	33.30%	5.51%	27.79%
1999	102.7	113.45	1.414	11.84%	4.65%	7.19%
2000	113.45	112.52	1.454	0.46%	6.67%	-6.21%
2001	112.52	93.81	1.032	-15.71%	5.18%	-20.89%
2002	93.81	72.46	1.498	-21.16%	5.03%	-26.19%
2003	72.46	97.11	1.63	36.27%	3.97%	32.30%
2004	97.11	103.05	2.197	8.38%	4.14%	4.24%
2005	103.05	113.15	2.149	11.89%	4.13%	7.76%
2006	113.15	129.93	2.446	16.99%	4.53%	12.46%
2007	129.93	126.46	2.701	-0.59%	4.83%	-5.42%
2008	126.46	78.09	2.721	-36.10%	3.64%	-39.74%
2009	78.09	103.58	2.177	35.43%	2.84%	32.59%
2010	103.58	126.04	1.786	23.41%	3.61%	19.80%
2011	126.04	128.02	2.576	3.61%	3.38%	0.23%
Average						7.04%

From year 1993 to 2011, the market risk premium in average is 7.04%. That means if we invest our money into the stock market during this period instead of 10-year US Treasury bond, the excess return we expect to get is 7.04% annually. However, if we look at the plot, the market risk premium is quite different each year.
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Generate MetaStock ASCII Format by Stock Historical Data Download (SHDD)

Introduction

MetaStock is a stock charting and technical analysis tools created by Equis International. In order to use this tool, there are two necessary components: The MetaStock software itself and the data service. However, data service subscription is not cheap. If you are MetaStock End-Of-Day user, it costs you $59/month for only North American Subscription Package. Another feasible option would be purchasing MetaStock End-Of-Day software and using SHDD to provide you the data.

How it works

it is simple. First, you use SHDD to generate MetaStock ASCII format, and then use the tool DownLoader provided by MetaStock software to covert ASCII to final MetaStock format.

What is MetaStock ASCII Format

Depends on the version of the MetaStock software you are using, there are different ASCII format:

1. MetaStock ASCII (7 column): The sample format will look like this:

INTC,20111212,24.18,24.29,23.61,24,94839500

INTC,20111213,24.06,24.06,23.42,23.56,78518900

INTC,20111214,23.48,23.56,23.14,23.31,56394300

Column 1: Symbol

Column 2: Date

Column 3: Open

Column 4: High

Column 5: Low

Column 6: Close

Column 7: Volume

2. MetaStock ASCII (8 column): The sample format will look like this:

INTC,D,20111212,24.18,24.29,23.61,24,94839500

INTC,D,20111213,24.06,24.06,23.42,23.56,78518900

INTC,D,20111214,23.48,23.56,23.14,23.31,56394300

As you can see, it is similar to ASCII (7 column) format. The only difference is that there is an extra column to represent the bar duration. It is usually D for day.

Settings to Generate MetaStock ASCII Format

For the complete doc about Stock Historical Data Download, please click here.

You can achieve this easily by editing the setting window:

1. MetaStock ASCII (7 column)

a. Set the Date Format as following:



You can check the Add Header if you want the header to be in the data

b. Customize the Data Field:



You can save the current setting and load it next time to save the time

2. MetaStock ASCII (8 column): It is similar to MetaStock ASCII (7 column) setting with following column setting:



That’s it!

As of writing, the most recent version of SHDD is 1.5. Please always use the latest version.

Actually not only MetaStock format, but virtually any format can be generated by SHDD as long as the total columns are less than 8. If you have any specific format that would like us to support, please let us know and we will implement it for you for the next release.

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