Question

Describe the benefits of investing in dividend yields. Justify with reasons whether dividend stocks able to achieve sustainable capital appreciation over the long term.

Answer 1

Dividend yield describes the income that investors would be disbursed against the current price of stocks they have invested it.

Dividend yield also known as the ratio of the bonus paid per share and the current market value of the shares

The ratio is calculated through the below-mentioned formula, and the outcome is expressed as a percentage.

Dividend Yield= Annual Dividend / Share Price x 100

Typically, stocks that generate a higher dividend yield when compared against a specific benchmark are known as high dividend yield stocks.

Investors benefit from investing in high dividend yield stocks as dividends can then double as a steady income source for investors. Dividends earned passively are often reinvested by investors in the stock market to make more money. Dividend paying stocks is the profit that investors gain via share price appreciation as well as through the distributions received.

To ensure that the shares they want to opt for are the best dividend stocks of high quality, investors should judge them based on the following –

· Their consistency in paying a dividend.

· The consistent growth in the percentage of dividend.

· Regular earnings

· Less susceptibility to major economic cycles

. Consequently, investing in high dividend yield stocks doesn’t make sense for investors who are eyeing rapidly growing companies. This is because businesses who are still in their high growth phase will reinvest their profits to expand further instead of giving dividend payouts to shareholders.