4 Stocks With High Earnings Yield To Boost Your Portfolio
Zacks Investment Research | Jul 19, 2017 09:07PM ET
Earnings yield is a very simple but handy ratio for investors keeping their money in stocks or bonds. It is the reciprocal of the price-to-earnings (P/E) ratio and used to figure out undervalued stocks. This ratio is very useful for investors when they want to compare stocks with the market or fixed income securities.
Earnings Yield is calculated as (Annual Earnings per Share/Market Price) x 100. It is used to compare a stock with other stocks as well as with fixed income securities. While comparing similar stocks, the one with higher earnings yield should provide better returns.
This ratio also comes handy in comparing the performance of a market index with the 10-year Treasury yield. When the yield of the market index is higher than the 10-year Treasury yield, stocks can be considered as undervalued in comparison to bonds. This implies that investing in the stock market is a better option for a value investor.
However, while T-bills are risk free, investing in stocks always comes with a caveat. Hence, it would be a good idea to add a risk premium to the 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 10% 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
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