EVRG - Get Paid To Wait: 13 Potential Dividend Opportunities
2024-03-14 12:15:57 ET
Summary
- The Efficient Market Hypothesis states that the stock market is efficiently priced, and therefore it is impossible to consistently generate alpha.
- I believe that while the market may be efficient, not all investors are rational, in turn creating value opportunities.
- I present a simple approach to identify such potential opportunities with 13 current examples.
Get Paid To Wait
The Efficient Market Hypothesis tells us that share prices reflect all available information and therefore it is effectively impossible to consistently generate alpha. Academics have long accepted this theory and provided sufficient data to prove that it's true. While there certainly are proponents of the theory, it also has its critics. Many famous investors disagree with the hypothesis and have track records that prove it cannot be true. Regardless whether you believe the stock market is efficiently priced, I believe most people would agree with me when I say that investors are not always rational. And herein lies the opportunity for the average investor that is willing to bet against the herd.
I use a simple method to seek out such opportunities. As a dividend investor, one way to gauge whether a given stock has steered off its rational trajectory is to compare its current dividend yield to the long-term trailing average. I typically seek out at least a 20% disconnect between these two data points. Finding these potential opportunities is easy, the hard part is figuring out which ones are most likely to revert back to "normal". The premise is quite simple, you buy the given stock at a discount locking in an above average dividend yield, relative to what the stock has paid historically, and you wait for the valuation to correct. When the valuation corrects you capitalize on the share price appreciation, and while you wait for this to happen you collect a better than average dividend yield. I call this "getting paid while you wait"!...
Get Paid To Wait: 13 Potential Dividend Opportunities