Dividend Yield and Total Return

More thought-provoking ideas from Oppenheimer Funds 

Dividend yield is a popular idea these days for both individual securities, and mutual funds.  I’ve no issue with that.  However, just because the yield is low doesn’t make an individual stock or fund unattractive.   For example some companies have well above average returns to capital employed.  This means that they can earn high returns on monies re-invested into their own businesses.  Usually (but not always) this means that they show a lower than average dividend yield.   Don’t take this as an unattractive trait.  The returns on the re-invested cash might be far higher than you could find elsewhere. 

Mutual funds may not show a high dividend yield, and there may be little to glean from it.  If you held a portfolio of companies that earn high returns on capital it makes sense to re-invest dividend proceeds into them.   Some portfolio managers do this instead of distributing cash.  This can be a logical and wise choice, but it means the dividend yield may not be particularly high.  Before I went for the yield strategy I might ask the question about what the yield on the portfolio is, and not simply assume that the dividend payout represents the portfolio’s dividend stream. 

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