High Yield, Low Yield

Q Is it smart to sell my low-dividend-yield stocks and buy more high-yield stocks? — R.P., Farmington, New Mexico A Not necessarily. High dividend yields are certainly appealing, as they deliver significant income, but they’re not equally safe or attractive. Many solid companies pay out most of their earnings in dividends and sport fat yields. That’s great, and such stocks are good for those seeking income. But since a dividend yield is the result of dividing a stock’s annual dividend amount by its current stock price, a high yield can also reflect a stock that has fallen in price, possibly because the company is in trouble.

Also consider a dividend’s growth rate. A modest dividend today can be a fat dividend in a few years if the company is increasing its payout regularly and significantly, as many do. Some low-dividend stocks may be paying much fatter dividends within a few years.

To see dividend-paying stocks the Motley Fool has recommended, check out our “Total Income” service at Fool.com/services. Q

*** How are stockbrokers paid? — M.B., Norfolk, Virginia A If you’re referring to brokerages, they make some money by charging trading commissions (though many brokerages now offer commission-free trading). Typically, they earn more from interest on client assets, interest on margin loans, and fees for asset management and other services.

If you mean the humans who might call you and try to sell you an investment, or through whom you might buy or sell stock, they’re generally paid via salary, commissions on sales, incentive bonuses and advisory fees; the mix depends on the company they work for. Brokers who depend heavily on commissions can cost you quite a bit, if they encourage you to trade frequently. Want more information about stocks? Send us an email to foolnews@fool.com.