WHAT IS AN 'Accidental High Yielder'

Accidental high yielder is a term that refers to a type of stock that earns an abnormally high dividend yield in the context of a specific firm.

BREAKING DOWN 'Accidental High Yielder'

An accidental high yielder is a stock of a company that, though it was not intended to pay an excessive dividend yield, its dividend yield rose when the price of the stock fell while the actual dividend payout remained constant. It is the adjustment of this ratio that classifies the stock as an accidental high yielder.

Accidental high yielders occur more commonly during bear markets, when stock prices decline. The term bear market refers to times when security prices fall, causing widespread pessimism that perpetuates the downward spiral of the stock market. Because investors anticipate losses, they sell their securities and the cycle continues. Some companies prevent their stocks from falling into this category by lowering their dividends. These stocks can also provide an attractive total return for investors who purchase them at their depressed prices and then reap capital gains in addition to the dividends when prices rise.

Accidental High Yielder and Dividend Yields

By definition, accidental high yielders refer to a specific stock’s dividend yield. A dividend refers to the portion of a company’s earnings they distribute to its investors.  Dividends do not only refer to cash payments, and can include shares of stock or other property. The board of directors decides on dividends paid to the shareholders and that amount represents the shareholders’ portion or income from the company. The board also chooses the timeframes and payout rates of the dividends, but generally dividends are monthly or quarterly. Companies may also issue special dividends outside of that regular schedule.

A dividend yield measures the dividend in terms of a percent of the current market price and is most commonly quoted in terms of the dollar amount each share receives, or dividends per share. Investors use the dividend yield as an indicator for how much a company will pay out in dividends in relation to its market share price. It is also an important tool for weighing the value of investing in a company. You can estimate a dividend yield by using a previous year’s dividend yield and dividing that number by the share price. In a bear market, for example, investors or companies will adjust the expected dividend yield, as the value of the market overall is going down. If the company has predicted a smaller yield because of market conditions, as in a bear market, but then experiences a rise in share price, and as a result experiences higher dividend yields, that stock is an accidental high yielder.

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