High-yield stocks pay generous dividends
Q: What are “high-yield” stocks? — K.R., Sacramento, California
A: They’re stocks that pay generous dividends, as expressed by their dividend yield.
A dividend yield is simply a company’s current annual dividend amount divided by its stock’s current price. If Fingernail-on-Blackboard Car Alarm Co. (ticker: AIEEEE) pays $2 per year (typically, it would be 50 cents per quarter) and trades for $50 per share, its yield is 4 percent (2 divided by 50 is 0.04).
Many solid companies, such as FedEx and Nike, sport low dividend yields. Others, such as Amazon. com, Facebook and Alphabet, pay no dividend at all. That’s not necessarily bad — it just suggests that they have better things to do with their money, such as reinvesting it in their businesses. Instead of a dividend, they might deliver relatively rapid stock price appreciation, though that’s never guaranteed. Dividends aren’t guaranteed, either, but with established, growing companies, they’re rather reliable. you don’t know starts urging you to invest in something. That’s a “cold call,” and it can be dangerous.
You might be informed that you’re among the “lucky few” to be offered a “surething investment.” You might even be guaranteed that your money will “triple within six months!” (Of course, you’ll be required to “Act now!”)
Don’t fall victim to a call like that. Remember that any investment that sounds too good to be true probably is. If it were so lucrative, no one would need to sell it by phone. Promises of high returns with low risk are likely to be broken.
Avoid “inside” tips, because it’s illegal to pass on or act on material that is inside information. Steer clear of anyone unwilling to provide details in writing. Beware of predicted or “guaranteed” profits.
Stocks that cold-callers try to sell are often ones that no one else wants, ones they need to unload. This applies to initial public offerings, too. Shares of IPOs that people are excited about tend to be hard to come by, not aggressively pushed over the phone.
You can ask any coldcaller to put you on his “do not call” list. You can also prevent other trusting folks from being conned by turning in any hypesters. Take names and notes during the call, and report anything shady to the Securities and Exchange Commission at sec.gov/complaint/select. shtml. The SEC offers excellent guidance on cold-caller restrictions at sec.gov/ investor/pubs/coldcall.htm — for example, the caller must give his name and the name and contact information for his employer. It offers instructions for getting on the National Do Not Call Registry, too.
If you’re thinking of investing with a cold-caller, think twice or thrice. Check out the regulatory background of the salesperson and/or brokerage by visiting finra.org/brokercheck or calling 800-289-9999.
Here’s the simplest solution for when you’re cold-called: Just hang up.
Foolish trivia:
Name that company
I trace my roots back to the Executive Leasing Company, launched in St. Louis in 1957 with seven cars. My founder started renting cars in 1962, and in 1969, renamed me in honor of the aircraft carrier he served on in World War II. Today I’m a rental giant, with my own flagship brand as well as Alamo Rent A Car and National Car Rental. I boast more than 7,200 locations in more than 90 countries and a fleet of more than 1.8 million vehicles. I rake in more than $20 billion annually and am privately held. Who am I?
Last week’s trivia answer
I trace my roots back to 1986 and the Silver King Broadcasting Company, which aimed to boost the Home Shopping Network’s viewership by buying television stations. Before various spinoffs, I housed Expedia, Ticketmaster, TripAdvisor and more under my roof. Today, based in New York City, I’m a leading media company with many familiar brands, such as HomeAdvisor, Vimeo, Dotdash (formerly About. com), Dictionary.com, The Daily Beast, Investopedia and Match Group’s online dating portfolio, which includes Match, Tinder, PlentyOfFish and OkCupid. Who am I? (