Blink and you'll miss it.
Today's market is moving fast. Volatility remains high
and traders are highly reactive to economic and other news.
Opportunities don't last long. That's true for price, and
that means it is also true for dividend yields. Investors
who seize these fleeting chances will see substantial
returns, both in terms of yield and capital gains.
The Stage has Left the Station
Take Wells Fargo (NYSE: WFC). Shares of this leading
financial institution performed 38.8 percentage points
better than the S&P last year,
even amid the meltdown in the financial center.
began 2009 with a modest dividend yield of 4.6%, about
the same as a triple-A bond.
Ho hum, right? Nothing for a serious
income investor to write home about...
But then the markets began to roil. Stocks didn't take off,
as some thought they would. Instead, they tanked. The market
suffered a punishing January, and Wells reached at a low of
$14.23. Its yield rose to a far more enticing 9.6%.
You want a yield like that in this market, you'd better grab
it. The opportunity to lock in this rich payout didn't
even last 24 hours.
Here's how fast it disappeared: The very next day,
bargain hunters swooped in and drove up the price of the
stock. By the end of the trading session, the yield had fallen
an entire percentage point, to 8.2%. By
the end of the month, prices had risen to the point where the best yield investors could get
from Wells was another point lower -- only 7.2%.
Now, investors who acted decisively and bought shares
when the yield was at its high will earn a nearly 10% payout from one of
the strongest banks in the country. They'll actually earn
return of investors who bought the shares only weeks before.
Should these investors ever tire of that rich stream of cash, then
all they have to do is sell their shares for a tidy profit.
Remember, when yields fall, prices rise.
And believe it or not, your opportunity to lock in this
yield may be closer than you think. You see, in these rough
and tumble markets, prices -- and thus yields -- can move
very fast. Wells is currently inching back toward its low.
Once it gets there, though, be ready. You won't have much
Another example: General Electric (NYSE: GE). GE's
executives have reiterated the company's commitment to its
dividend. It still has its platinum triple-A credit rating. And yet shares
of GE -- one of the largest, most diverse and most
innovative companies in the world -- have slid -33% so far this year,
pushing the yield on these shares to an astonishing 11.5%.
This opportunity is still available -- but, just like
Wells Fargo, your chance to grasp these yields isn't
going to last.
This Tool Lets You Choose Your Yield
If you're interested in locking in high yields,
there's a tool you can use to make sure you obtain the
payout you're looking for. In fact, this tool actually lets you
choose the exact yield you want to receive.
It's called a "limit order." Individual investors
typically use "market" orders -- which means they buy their
shares at the best
available price. But more sophisticated traders prefer to use limit
orders to specify exactly how much they are willing to pay.
You see, by choosing your price, you can choose your
yield. If you want to capture GE's current yield,
place a market order. If you want to hold out for a 12%
yield, then put in a limit order to buy shares if and only
if the price drops to $10.33, which implies a yield of 12%.
Just elect the GTC or "good till canceled" option on the
order. If the price hits $10.33, your order will be filled
and you'll have your 12% yield.
How to Determine Your Price
Here's the magic formula, which you can use to
ascertain what price will equal the yield you're after:
Annual dividend = yield times price.
You just plug in the variables you know. Say you're hoping
to earn an 11.5% yield from GE and you know that its annual
dividend is $1.24. Your little math problem now looks like
this: $1.24 = 0.115x
To solve for x, you divide by $1.24 by 0.115. In
other words, to achieve an 11.5% yield from GE shares, you'd
have to buy them at $10.78.
Timing is everything when it comes to yield. This chart
compares Wells Fargo shows the amazing difference that a
strong yield can make over time....
Strong dividend opportunities don't last long. Wells
Fargo's lasted less than a day. This market is loaded with
chances for serious income investors to lock in head-turning
yields on some of the world's best dividend-paying
Global Dividend Opportunities
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