Hunting for dividends

Q

With so many stocks having plunged, pushing up dividend yields, is it smart to go hunting for fat dividend yields? — F.R., Cincinnati

A

In theory, yes. A dividend yield is a simple fraction: It’s the amount of a company’s annual dividend divided by its current stock price, so as a stock price falls, the yield will rise. And these days, most stocks have fallen — often by quite a lot, and largely not due to anything wrong with the companies involved, but just because the economy is challenged and shrinking.

For example, if the Wicker Sink Co. (ticker: SIEVE) pays out $0.50 per quarter, or $2 per year, and its stock price is $50, its dividend yield would be $2 divided by $50, or 0.04 — which is 4%. If the global pandemic sends its stock price down to $30, its yield will be $2 divided by $30, which is 0.067, or 6.7%. That’s a much fatter and more appealing dividend!

But be careful: Remember that if the company is really struggling with the economic pullback, it might be forced to reduce, suspend or even eliminate its dividend. So go ahead and look for fat payouts, but also make sure the company’s cash flow is fairly dependable.

Q

Can you recommend some easy-toread books on how to invest in stocks? — K.W., Winona, Minnesota

A

Peter Lynch’s books are accessible classics for beginners, as are John Bogle’s “The Little Book of Commonsense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” (Wiley, $25) and “The Little Book That Still Beats the Market” by Joel Greenblatt (Wiley, $25). When you’re ready, you might read up on brokerages at Theascent.com.