Finding Stocks With “Big and Safe” Dividends


This week’s AAII Weekly Digest highlights these “must-read” AAII articles:


What You Need to Know About Bond Yields to Determine Your ReturnsWhat You Need to Know About Bond Yields to Determine Your Returns

Current yield is simplistic to calculate, but other measures of yield can help you make better investment decisions. However, advisers and the media talk about yield on different investment products without necessarily clarifying what the word ‘yield’ actually means. This article provides a simplified understanding of the meaning of the different yields that are stated on individual bonds—either taxable or tax-free.

Screening With the Big, Safe Dividend Formula

Wayne A. Thorp, CFA

Many investors seek income to supplement their portfolio returns while at the same time insulating themselves from market declines. In “The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns” (John Wiley & Sons, 2010), Charles Carlson outlines a recipe for investment success. We discuss Carlson’s investment philosophy and then introduce his proprietary ratings to narrow down the stock universe to a more manageable collection of dividend-paying stocks.

Portfolio Turnover and Optimizing ReturnPortfolio Turnover and Optimizing Return

Managing a portfolio involves many decisions that impact your long-term realized aftertax rate of return. The primary focus should be on picking and holding the right investments that fit together, but investors often forget about the drags that reduce realized returns, including the trading activity within your respective account. The more frequently you trade, the more your realized return will be reduced by brokerage fees, the impact of the bid-ask spread and the possibility of higher taxes on realized short-term versus long-term capital gains.

Analyzing a Stock by Its Dividend and Shareholder Yield

One theory of valuation is that a stock is worth the cash distributable to shareholders. An advantage to methodologies based on this concept is that cash distributions are not influenced by accounting adjustments. Cash is either returned to shareholders or it’s not. In this article, we discuss strategies for valuing stocks both based on their dividend yield and on their shareholder yield, which combines dividends and share buybacks. We also discuss the potential drawbacks to using such strategies.

Our Member Question for this week is:

Comparing high dividend yield companies with low dividend yield companies, do you believe that high dividend yield companies are:

A) Less risky
B) Just as risky
C) More risky


Last Week’s Results:

How do you expect your investment portfolio to perform relative to the S&P 500 over the next 12 months?

Individual Investors Reveal the Advantages They Have Over Professional Money Managers

As investors, it’s hard to ignore the run the stock market has been on since November. Given the returns the market has generated over the last several months, we asked our readers how they expect their own portfolios to do relative to the market over the next year. In addition, our weekly special question asked what advantages our readers think they have over professional money managers.

AAII Investor Classroom: Getting a Handle on the Bond Market

The AAII Investor Classrooms help build the foundation for becoming a more effective manager of your own investments. In the bond markets, individual investors, even those with considerable wealth, are all little guys, who are trying to navigate a market dominated by far larger traders. Indeed, many of the new fixed-income securities created over the last 10 years were specifically tailored to the needs of pension funds or insurance companies and may not be appropriate for individual investors. In addition, many specific corporate and municipal bonds are illiquid, making pricing difficult. The individual investor faces many disadvantages when compared to institutions. In order to protect your own interests, if you want to buy individual bonds, you need to become an informed investor, and you need to stick to bonds whose characteristics and risks you understand.


The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a risk-free Trial AAII Membership to start becoming an effective manager of your own assets.


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