03-11-2014, 04:08 PM
(03-10-2014, 12:34 PM)hendi_alex Wrote: "yield on investment"
I keep seeing this feel good term being used as if it has some relevance at what is the current 'future date'. IMO yield on investment has almost no relevance to anything. Perhaps if such is inflation adjusted, then it gives some idea as to how an incremental purchase succeeded over time. But for the portfolio as a whole, to me, yield on investment means nothing. All that really matters, is the yield as measured against the current portfolio value or for some, all that matters is the actual amount of cash flow that is generated at a particular time and how that cash flow varies over time.
I don't mind seeing the term used, but at least for me, the term always relegates the comment to a feel good comment rather than a substantive one.
I'm still of the opinion that one could simplify this whole process by asserting that [companies which have greater than market average rates of earnings growth will outperform the general market.] As posted earlier, I'm not convinced that dividend growth stocks will out perform any companies to which the first statement applies, but they should out perform dividend stocks in general, i.e. dividend stocks that don't have as much earnings growth to support dividend increases.
The fixation with dividends, to which I'm also guilty, could be counter productive in the sense that earnings growth, margin expansion, sales growth, moat, and other metrics may be far more important. As my income portfolio continues to get funded, I'll be considering these issues much more seriously.
I seem to be the one flouting the phrase, because it's the measure I use to determine if my portfolio is generating the income I expect. If my total invested dollars is $100,000, which includes all purchases and re-invested dividends than I call that amount My Total Investment. When I look at what my portfolio is returning to me in Income that's my Yield on Investment.
If I'm getting $5,500 in dividends on the $100,000 than my Yield on Investment is 5.5%. If the market value of the portfolio is $155,000 today than the current yield may be 3.54%. But the dollar value for income is still $5,500. If the market crashes and the portfolio drops to $85,000 I don't worry as long as the dividends are not cut and I'm still getting $5,500 (or more if companies raise the dividend). I don't then say my yield is 6.47%.
Market value is of no concern to me unless I want to sell an investment, which I rarely do, (or add to the stocks I own). If I do buy or sell than my Total Investment will reflect the cost change.