The high-yield investing strategy is typically thought of as buying high-yield stocks. High-yield stocks are those stocks that pay a high dividend. The flaw in this strategy is that too often the focus is on yield to the exclusion of some really great investing opportunities that result in high-quality capital appreciation chances as well. Buying those stocks, however, is the best high yield investing strategy.
High-yield investing is not the same thing as high-yield savings. If you are looking for information on high-yield savings accounts, try here.
Smart High-Yield Investing
Let’s start from the beginning. Your best investing strategy for long-term goals like retirement and college investing is a well-diversified portfolio tailored to your goals and risk tolerance. Only after your main portfolio is set up in this manner should you consider other investing strategies. So, go out, get 10% going into your 401k, put a nice hunk of change into your kids’ 529 college savings plans, and fill out your emergency savings. Only after those are taken care of should you be looking at high yield investing. But, if you are going to look at investing strategies, I love what I call smart, high yield.
High-Yield with Capital Appreciation
To really make money in stocks with less risk, I look for stocks that pay a high yield while being great companies that have reasonable upside.
Would you consider Apple stock a high-yield stock?
Most investors, financial planners, and analysts wouldn’t either, but did you know that in April 2013, you could have gotten a 3.01% yield on Apple stock? Even with the 20% market correction in 2022, you won’t get close to that. At about $150 per share, you will only get 0.61% yield from Apple stock. Of course, Apple stock has a lot of capital appreciation potential as well.
Here is the great thing about yield on companies like this. Once you buy your shares, that is your yield. It is your yield for as long as you hold your shares, no matter how much they go up. So, you could be holding one of the main, most-held, growth stocks out there as a high-yield dividend stock right now.
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The catch is pairing the yield with the company’s future and its capital appreciation prospects.
For example, in January 2019, a time that doesn’t require looking back a decade at the “best” spot, you still could have picked up Apple shares at a 1.89% yield. That doesn’t sound very high-yieldy, but it is way more than you are going to get on your Goldman Sachs savings account like Marcus, or other high-yield savings account, and you get to own Apple stock along the way.
Imagine, Apple paying you nearly 2% to own their stock. Sounds like a great deal, right?
How to Find High-Yield Capital Appreciation
The catch to finding the best high-yield capital appreciation stocks is to wait for the right opportunities. Too many investors wake up every morning expecting great investment opportunities. Even worse are investors who choose a specific day to find their new investment just because today is the day they read an investing article, or they came into a little bit of money. Stock prices don’t revolve around when you want to pick investments and buy stocks.
Instead, the best investments come from constantly looking at and tracking possibilities and then striking when the time is right. Picking up great company’s stocks cheap enough to get great dividends almost always involves buying a dip, or some irrational bad news, or a drag down that has little or nothing to do with the future prospects of the company. That makes a market correction a great time to go dividend hunting.
In other words, the best high-yield investments are often on the down, not on the up.
So, how do you find the top high-yield investments for you?
Start by tracking the companies you like best and seeing where that takes you.
For example, if you like Apple stock, start tracking it. The bad news is that as of today, it doesn’t really fit the bill. Apple yield is just 0.70% as I type this.
But that does not mean we are sunk. Add Apple stock to your stock tracker. If you have an account at Stash, Wealthfront, Acorns, or Fidelity or Schwab, they all have one built into your account. Otherwise, Yahoo offers a free one at quote.yahoo.com. One day, and that day may be soon, a market correction or other event may push the price down to 1.0% yield range.
In the meantime, branch out. Think of other stocks you like or look at the related stocks to Apple and see if there are others you like. Are there winners there that might benefit from the same forces driving Apple but with a higher dividend because it isn’t quite so popular?
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Tech is a tough cookie because most tech stocks don’t pay high dividends. Some stocks like most of the FAANG stocks (other than Apple) just refuse to pay cash dividends because people will support their stocks anyway.
But we are coming out of a pandemic, right? What about the companies that make those vaccines? Pfizer and Johnson and Johnson aren’t exactly fly by night companies that were floundering before the Covid vaccines ramped up their sales. Pfizer pays 3.83% dividend, and that isn’t even historically high. (Much of my position pays 4% or better based on some 2020 buys 🙂 JNJ pays a lower dividend but is more diversified than being a straight drug company like Pfizer.
People getting back to work, and with stimulus dollars in their pocket might be looking to do some work on their house. What about Home Depot or Lowes? Check the “others like this” on your chart application and you might see Walmart, which might connect you to Target, and Costco. 2%, 1.25%, 1.55%, 1.21%, and 0.83% respectively.
Again, the point is not to race out and buy any of these stocks based on reading this article today, but to add the ones you like to your tracker and watch for your opportunity. Check in on them daily, if possible, weekly if not. Dividends don’t move a lot based on day-to-day price fluctuations unless the price really moves that day.
Once you have a list to keep an eye on, it is time to learn how, when, where, and why to pull the trigger on your favorite stocks. I’ll be walking you through that coming up soon. Subscribe, follow, or keep checking back to get all the details.
By Brian Nelson
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson owned Pfizer, Target, Apple, and Home Depot stocks, which are mentioned above, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.