"High yield" is always only relative to the price of a stock, it may just mean that its share price has dropped. But for the value investor, this isn't necessarily a bad thing. Sometimes, stocks show high dividend returns when their prices have been knocked by overly bearish investors, creating a golden investment opportunity for value hunters.
But how do you know when a high dividend yield stock is undervalued? Options trading can be a pretty reliable indicator in this department. Call options traders are usually savvy enough to recognize when a stock is trading below its fair value. They look for stocks expected to see significant upward momentum over the coming weeks. If they're buying call options on a high dividend yield stock, it means they think most of the bad news is already priced in, creating opportunity for near-term gains.
Source: Motley Fool
Related Articles:
________________________________________________________________
Subscribe to:
Post Comments (Atom)
0 comments
Post a Comment
Post a Comment
Note: Only a member of this blog may post a comment.