Help – Dividend Value Watch
The Dividend Value Watch table shows a number of dividend paying companies which we are watching carefully sorted by their current dividend yields, together with their Low Price/High Yields levels, as well as High Price/Low Yield levels.
Once an investor knows the undervalue and overvalue zones of the dividend paying companies that are of interest it is a matter of keeping track of the shares as they progress through their cycles and wait for them the reach historic undervalue levels before taking action.
Note: when dividends are increased (or decreased), the yield is re-calculated in order to avoid selling too soon, or purchasing too early.
Why is this useful?
Taking a lead from Benjamin Graham’s comment in The Intelligent Investor that an “investor’s primary interest lies in acquiring and holding suitable securities at suitable prices” we very much focus on companies that are trading at, or, near their historically undervalued levels.
Note: each company’s undervalue profile of dividend yield is unique and established over considerable time periods – often over more than 10 years. It represents the historically repetitive areas of Low (undervalue) Price and High Yield.
It is important to point out that a repetitive area is neither absolute nor inviolate. It is quite common for prices to trade in (up to) 10 per cent zones above or below their undervalue and overvalue levels.
In times of heightened market volatility shares often exceed these long-established trading zones. In most cases though, this is a transitory event as abnormally high-yields will eventually attract sufficient buying interest in order for share prices and dividend yields to return to long-established patterns.
A share may depreciate 50 per cent or more and still not be undervalued by historical standards. Or it may decline only moderately and be historically undervalued due to substantial increases in the dividend, backed by sales and earnings.
Buying at the bottom?
One should not be disturbed by the fact that a share that has reached its historic undervalue level may ‘ebb down’ even further before it reverses. Exact bottoms, like precise tops, have a certain illusive quality.
At a share’s historic undervalue level it does not have much lower down to go. It’s an increasingly good buy; the best a long term dividend income investor can hope for is to buy in the undervalued range.
Further dips in share prices are minimised, since unreasonable higher dividend yields then would result in attracting income hungry buyers.
As the bear market approaches maturity, an increasing number of high quality dividend paying companies will fall into the undervalue category, where patient long term dividend income investors are waiting to buy at ‘bargain’ levels for current income and future capital gains.
Note: good value is not necessarily identified merely by a steep decline from a previously high price.
When the stock market finally reaches its nadir, general pessimism will prevail. At that moment, it is not easy to be the ‘only’ optimist in a disgruntled crowd. But this is the time where fortunes are been formed.