If you can understand fourth-grade math, there’s a great income investment available to you.
It’s all thanks to the big bear market in natural resource stocks…
The math I’m talking about is a simple formula we use to calculate a stock’s dividend yield.
[ad#Google Adsense 336×280-IA]Say we have a business that pays an annual dividend of $3 per share. Let’s also say the business’ stock price is $100 per share.
This would provide you a dividend yield of 3% if you buy the stock.
We get this figure by dividing the payment ($3) by the investment amount ($100).
Now, let’s say the stock price declines to $50 per share, but the business is still paying that $3 per share in annual dividends.
Do the math of dividing three by 50, and you see that you’ll receive a 6% yield if you buy the stock.
This math is important to anyone interested in earning investment income. It has made natural resource stocks some of the best income investments you can find today.
Over the past few years, most natural resource stocks have been in a bear market. The coal sector is down more than 80% from its 2011 high. The gold-stock sector is down more than 70% from its 2011 high. Oil stocks were hammered last year as crude oil fell from $100 a barrel to under $55 a barrel.
The resource-stock sector has fallen so much that many of the world’s best companies – who control irreplaceable trophy resource deposits – are now yielding more than 4% in dividends.
For example, Chevron (CVX) is one of the world’s top oil and gas producers. It has raised its dividend for 27 years in a row. Due to the oil selloff, its shares are 20% off their 2014 high. The stock now yields 4.1%. Fellow blue-chip oil producer ConocoPhillips (COP) yields 4.6%. And these dividends are safe. They will be paid this year… and the years after that.
Or… consider giant metal producer BHP Billiton (BHP). It’s the world’s largest diversified mining company. It produces iron ore, oil, copper, coal, aluminum, and other commodities. BHP shares are down 35% from their 2014 high. The stock now yields 5.4%.
The lesson here is: If a company’s dividend holds steady but the share price declines, the dividend yield for new buyers goes up. All things being equal, you want to buy income-producing investments after their share prices fall. You can think of it like “buying income on sale.” And it allows you to earn large yields on your money.
The past few years have been rough on the resource sector. But the best producers have low-cost assets… so they’re able to pay reliable dividends. Share prices are down, and dividend yields are high. That’s why I’m buying today.
Good investing,
Matt Badiali
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Source: Growth Stock Wire