Building a share portfolio for yield
by Wealth Know How in DIY Investing
James Dunn looks at how building a diverse equity portfolio for yield uses similar rules as constructing any diversified portfolio. Many factors need to be taken into account not the least of which is the size and quality of each company. This is a must see video for those investors seeking some guidance on what to consider in striking the right balance.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 27 Jan 14
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James Dunn looks at how building a diverse equity portfolio for yield uses similar rules as constructing any diversified portfolio. Many factors need to be taken into account not the least of which is the size and quality of each company. This is a must see video for those investors seeking some guidance on what to consider in striking the right balance.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Some sectors like mining/resources don’t typically feature many high-yielding stocks; still it may be necessary to include some of these stocks to maintain a diverse portfolio—you may need to “budget” and trade-off some yield for diversity and a balanced basket.
Don’t be seduced into just stuffing a portfolio with all the highest yielders—it’s a company’s sustainable earnings and continued prospects that ultimately support the yield, and your closest attention should go to these factors. Remember too that a company’s dividend yield is inverse to its share price — meaning that a high yield can mean the stock is in trouble, and the market actually expects a dividend cut. It’s the old story — if something looks too good to be true, it probably isn’t true.
The dividend cover — the ratio of the company’s net profit to total dividend payout — is an important number here, because if this ratio is more than 1, the company is paying out in dividends more than it earns. That’s got obvious ramifications for how sustainable the yield is.
You’ve also got to think whether the yield is fully franked, because the franking credits may help increase your yield after tax. A fully franked yield can be worth more in your hand after tax than a higher unfranked pre-tax yield. This is particularly so if you hold your shares in a self-managed super fund, because you may receive franking credit rebates that could significantly boost the after-tax yields.