What's the point of buying Dividend Stocks for yield, when the Stock Price itself may decline so much more.
If that's the case then what's the point of buying ANY stock if you can lose money?
You don't invest in a stock for yield. Yield is just the conversion of stock value to cash that is returned to you, lowering your cost basis. It is not Total Return.
Here's just one of the very popular high-yield dividend stock that pays ~15% divided. And its fallen 25% since March.
If you bought and held this stock as it dropped 25% from your purchase price, it was a bad investment. Fortunately, the 15% yield offset some of your loss and you only lost 10%.
Whats the point of Dividend yield when the original investment is losing? What about capital preservation?
Capital preservation applies to any position regardless of whether it pays a dividend or not. The dividend isn't the problem here.
The only way this can make sense is, that the same stock owner now has 25% more stocks, keeping the net value of his shares the same.
For that to happen, the dividend would have had to have been 25%. With reinvestment, the value of the shares would have been somewhere in the vicinity of 'the same'. However, share price was dropping continuously, so reinvested shares would have lost some money as well and the return would have been a bit less than 'the same'.
Or, the share holder holds out long enough to accumulate enough yield to come above the total drop.
Buy low, sell high always makes money. Buy high (with this stock), not so much.
If you invested $10,000 in AMJL on 12/29/17 at $19.22 (closing price) then you bought 520.29 shares
You received $2.78 in dividends or a total of $1,446
AMJL closed at $11.17 on 12/28/18, down $8.05 for the year (a loss of $4,188).
Of the $8.05 price drop, $2.78 was due to share price reduction by the stock exchanges on the ex-dividend dates and $5.27 was due to poor stock performance.
Total Return = Capital Gain + Interest + Dividend
To keep it simple, let's ignore interest earned if dividends not reinvested
-$2,742 = - $4,188 + $1,446
Or you could achieve the same answer by adjusting the share price loss by the total amount of dividends received and multiply by the number of shares:
(- $8.05 + $2.78) x 520.29 = - $2,742
If the dividends were reinvested, then the number of shares owned on 12/29/18 would be 610.10
Because share price declined, reinvesting the dividends increased the loss.
610.10 * $11.17 - $10,000 = - $ 3,185
You can verify these numbers at: