For dividend specialist Ruy Hungary, from Empiricus, investors must take other factors into consideration to avoid being fooled by the high dividend yield alone (Image: Gadini/Pixabay)
It is not uncommon to find investors focused on dividends which are based solely on the dividend yield when choosing stocks to invest in.
But this could be a mistake, in the view of analyst and dividend specialist Ruy Virgínia, from Empiricus. “Yields very high levels are more of a warning sign than an opportunity,” he said in an interview with Market Giro programdo Money Times.
For those less familiar with the term, the dividend yield represents the percentage of the share value that returns to the shareholder in the form of earnings.
Hungary remembers that it is important to understand the business and what explains the yield excessive.
“There are countless cases of investors who end up looking only at the yield. They even receive a 10% yield, but when they look at the share price a year later, it has fallen by 50%. At the end of the day, it earned a 10% dividend and the stock fell 50%. A very large loss of capital”, he explains.
In this sense, the dividend specialist at Empiricus says he looks for companies that combine two fundamental characteristics:
- Good dividend payout; e
- Possibility of capital gain.
“One yield of 8% with a capital gain of 10% to 15% is an excellent return if you think that this can happen annually. If it catches on in the long term, it can give formidable returns. When you look at our portfolio, you will see more or less this combination”, explains the analyst.
To find companies of this type, Hungary highlights that the investor must understand whether the valuation of the company evaluated is interesting and whether the business “can offer stability to the point of providing predictability in cash generation over a longer period of time”.
This way, it is possible to understand whether the dividends will continue to be paid in the long term or whether they were “one-offs”, and whether the value of the share will not “plummet” – which would take away the attractiveness of the stock, even if the earnings are interesting.
Free: check out the analyst's top five recommendations for seeking dividends and capital gains right now
To assist investors in this “mission” of finding shares that bring dividends and valuations attractive, Money Times' Giro do Mercado program asked the analyst to select the 5 stocks in which he sees the most attractiveness at the moment.
And Hungary's answer is in a free report made available to all interested investors.
In addition to the companies, you will also find the theses that explain the reasons why the stocks were selected and a brief summary of what to expect from the market in October.
To access the selection of five stocks just click this link or the button below. In a few seconds, the information will be sent. Good investments: