Course 407: High-Yield Stocks
How Has the Stock Performed?
In this course
1 Introduction
2 What Is the Company's Dividend Track Record?
3 Is the Payout Ratio Rising?
4 Are the Company's Sales and Earnings in Line and Stable?
5 Does the Company Generate Consistent Free Cash Flow?
6 Is the Balance Sheet Healthy?
7 How Has the Stock Performed?
8 Is This Stock Expensive Relative to Others in Its Industry?
9 Conclusion: Looking Both Ways

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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