Grab These 5 High Earnings Yield Stocks For Solid Returns
Zacks Investment Research | Mar 01, 2020 09:11PM ET
Earnings yield is useful for investors concerned about the rate of return on an investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price per share — the inverse of the price-to-earnings (P/E) ratio.
While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued. That’s because this metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock.
Earnings yield is not as widely used as P/E ratio as a valuation metric but investors most commonly compare the earnings yield of a stock to the prevailing interest rates, such as the current 10-year Treasury yield, to get a sense of the return on investment it offers compared to virtually risk-free returns.
If the yield on the stock is lower than the 10-year Treasury yield, the stock would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued.
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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