4 High Earnings Yield Stocks To Improve Your Portfolio
Zacks Investment Research | Nov 12, 2017 08:43PM ET
The importance of financial parameters in making prudent investing decision is undeniable. When you are not able to decide whether to invest in stocks or bonds, you can take the help of some key financial metrics. One such metric, which assists investors in making correct decisions, is earnings yield. It is the reciprocal of the price-to-earnings (P/E) ratio. In fact, this ratio is very useful for tracking undervalued stocks. It also comes in handy for comparing stocks with the market or fixed income securities.
Earnings yield can be computed as (Annual Earnings per Share/Market Price) x 100. This is used for comparing stocks from the same sector or industry. The stock with higher earnings yield is likely to produce better returns.
For the purpose of comparing the performance of a market index with the 10-year Treasury yield, this ratio is also very useful. When the yield of the market index is higher than the 10-year Treasury yield, the stocks can be considered as undervalued in comparison to bonds. This gives an indication that investing in the stock market is a better option for a value investor.
Investment in Treasury-bill is not fraught with risks. However, investing in stocks always comes with a caveat. Hence, it is a good idea to add a risk premium to Treasury yield while comparing it with the earnings yield of a stock or the broader market.
The Winning Strategy
We have set Earnings Yield greater than 9% as our primary screening criterion, but it alone cannot be used for picking stocks that have the potential to generate solid returns. So, we have added the following parameters to the screen:
Estimated EPS growth for the next 12 months greater than or equal to the S&P 500: This metric compares the 12-month forward EPS estimate with the 12-month actual EPS.
Average Daily Volume (20 Day) greater than or equal to 100,000: High trading volume implies that a stock has adequate liquidity.
Current Price greater than or equal to $5.
Buy-Rated Stocks: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have been known to outperform peers in any type of market environment. You can see Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.