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