High dividend stocks offer the most consistent return on investment. Investors either look for quick returns or invest in stable high dividend stocks.
Some stocks may give small earnings but an expensive PE i.e. price to earnings ratio. The investors who buy these stocks expect considerable growth and look for good returns in the form of stock price appreciation. These investors are not satisfied with a mere 10% per annum; their real aim is to make 10% in couple of days.
How is price to earnings ratio (PE) calculated? The calculation is simple enough. All you need to do is take the share prices and divide it by the expected earnings of every individual share. The result will be your PE ratio.
The stock market is very unpredictable but many investors say that the PE should stay with the stocks growth. For example if a stock traded at $10.00 and then reaches $12.50 then the growth is 25%. The PE should also be 25% then.
The price to earnings ratio follows the stock price. If the PE ratio goes down so will the stock price and likewise if the PE ratio goes up so will the stock price. Investors try to find stocks with high PE ratios and good paying dividends.
A dividend yield of over 5% is very good ROI (return on investment) because even if the stock decreases or increases in price or even stays the same you will at least get your dividend percentage.
Some stocks have very high yields of over 10% but you need to watch these stocks carefully because there can be dividend cuts in the future.
