Saturday, April 07, 2007

Dividends Determine Value In The Long Run

The newsletter Investment Quality Trends, published twice monthly, analyzes a list of stocks rated from undervalued to overvalued based on a company's yield. The newsletter's foundation of a stock investment is based on quality and value. Stocks rated below B+ by Standard and Poor's Earnings and Dividend Ranking measure are not include in IQ Trends' recommendations. The publisher notes:
When all other factors which rate analytical consideration have been digested, the underlying value of dividends, which determines yield, will in the long run also determine price. The key to value, therefore, lies in yield as reflected by the dividend trend. Individual stock prices fluctuate between repetitive extremes of high dividend yield and low dividend yield. These recurring extremes of yield establish Undervalue and Overvalue price levels. When a dividend is raised, the Undervalue and Overvalue price levels are raised automatically so they will continue to reflect the historically established yield extremes. Each stock has its own distinctive high and low yield characteristics and must be evaluated individually.
The chart for the Dow is detailed below:

(click on chart for larger image)

Dow Jones Industrial Average Dividend Yield Chart
Investment Quality Trends
First-April 2007
Kelley Wright, Managing Editor

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