Yields and P/E ratios

QAre the best stocks to look for the ones with high dividend yields and low P/E ratios?

ANot necessarily. Remember that a dividend yield is the result of dividing the annual dividend amount by the current stock price, so if the stock plunges, the yield will soar. Looking for solid yields of, say, 2% to 4% (or even more) is fine, but do extra research before grabbing an ultrahigh yield. It’s also good to seek out dividends that are being increased regularly and significantly over time.

Many great and growing companies don’t pay dividends, though, so don’t write off nonpayers. (Current nonpayers include Warren Buffett’s Berkshire Hathaway, Amazon.com, Netflix, Paypal, Facebook and Google parent Alphabet.)

As for the price-toearnings (P/E) ratio: While a low P/E suggests a better value than a high one, remember that P/ES vary by company and industry (and that companies with no current earnings will have no P/E).

Do some digging and compare a company’s recent P/E ratio with its five-year average to see if it’s now relatively high or low. Compare it with peers in its industry, too. The “forward” P/E ratio, based on the coming year’s expected earnings instead of the past year’s earnings, is also good to check out. You can research companies at sites such as Fool.com, Morningstar.com and Finance.yahoo.com — and look at many more numbers than just the yield and P/E ratio.

QWhat does it mean if investors are “long” on a stock?

AIt means they’ve bought shares, expecting them to rise in value — as opposed to shorting a stock, where they’d aim to profit if its price fell.