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High-yield stocks occupy a unique niche in the stock world: one where capital appreciation isn't the prime concern of many of the investors who buy them. The tradeoff for a high-yield stock is that you get the relative safety of a predictable income stream by passing up less certain, but possibly more rewarding, capital gains. Stability is one of the key advantages to high-yield stocks. Investors may not reap stellar capital gains, but downside risk is limited as well.
Philip Morris hasn't quite fit this mold. From 1995 through 1997, it delivered 30% annual capital gains on top of its 4% yield, making its investors very happy. Since the beginning of 1998, though, the stock has been on something of a roller-coaster ride as the market reacted to a series of tobacco lawsuits: It sank during the first half of 1998, rose during the second half, then shed more than 50% of its value in 1999 after losing several court cases. The stability normally associated with high-yield stocks hasn't been there for Philip Morris.
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