Diary of a Dividend Diva: Skimming Off the Choicest Payouts: 1. A yield in the "sweet spot." A too-high yield indicates stock-specific risk, while a too-low yield requires too much trading for one to accumulate a decent amount of income. For my partnership, the goal is 8% dividend income -- so I target stocks yielding around 4%, assuming I will "turn" my capital twice during the quarter. A 4% yield is high enough to be meaningful (any individual dividend is around 1%), but still low enough that yield does not indicate excessive risk.
2. Reasonable trading volume. You need to get in and get out relatively quickly, so you need some liquidity in the stock. Certainly you do not want to move the price with your trading. I tend to just use highly liquid large-cap stocks for which my trading will be irrelevant.
3. I focus on sectors that are not owned "for the dividend." Certain groups, such as utilities, are owned by income investors. As a result, they trade efficiently. You can capture the dividend, but you may have to wait two or more months for the price to return to even so you can get out. That negates the point of rotation, which is high capital utilization. As a result, I am more active in sectors in which the dividend is incidental to why investors own the stocks. Technology is a great example, as most investors in tech do not care about the dividend. They own the stocks for growth.
2. Reasonable trading volume. You need to get in and get out relatively quickly, so you need some liquidity in the stock. Certainly you do not want to move the price with your trading. I tend to just use highly liquid large-cap stocks for which my trading will be irrelevant.
3. I focus on sectors that are not owned "for the dividend." Certain groups, such as utilities, are owned by income investors. As a result, they trade efficiently. You can capture the dividend, but you may have to wait two or more months for the price to return to even so you can get out. That negates the point of rotation, which is high capital utilization. As a result, I am more active in sectors in which the dividend is incidental to why investors own the stocks. Technology is a great example, as most investors in tech do not care about the dividend. They own the stocks for growth.