Is the dividend yield criterion for judging the merit of the share? The answer is yes, no and may be! The rate of dividend is one of the factors to judge the intrinsic strength of a share. It is a strong and well-advertised factor but not the sole one. ?What is the rate of dividend that the company has been paying?? is an attention-demanding (weird use of language for the situation) question. Payment of dividends is one the four important functions a progressive company can perform legally. The others are b) reinvesting in the company to create fresh assets; c) building a war chest and d) buy back its own shares. It is very easy to calculate the percentage of dividend that the company pays. Dividend paid during the past twelve months divided by the current price of the share.

Share prices change constantly. As already stated, the scale of dividend being paid by the company is one of the important criterions, while selecting the shares to build a portfolio. That means the sectors like finance and energy merit serious consideration from this point of view. Well, you go by the total investment strategy styled Dogs of the Dow based on the theory that the highest-yielding shares represent the best bargains in the Dow Jones Industrial Average at any given time. This is further substantiated by the fact that such companies have a long-term growth prospectus plans and therefore do not alter dividend payment policy quite often. They believe in keeping the shareholders happy, instead of plough back the money to build the assets of the company.

So, the conclusion is simple and straightforward. If the dividend yield is high, it is reasonable to assume that the real value of the share is low as compared to its intrinsic worth. The prices of shares will rise. So, the desirable technique is to select ten such Dow stocks and invest in them and sell these high-yielding stocks after one year. Find their replacements by inducting ten new companies. This exercise, when repeated annually, has proved to be a great bargainer to the investor. Proceed cautiously however! Yield alone does not tell the entire story. You need to be sure that the yield is reliable and the business model of the company is sound and will hold on for a long-term basis. The best share to buy need not be always the highest-yielder.

Try to judge the latent strength of a company, not its artificial merit. The so-called partial strength of paying high dividends could be the deliberate ploy of a company or a banking institution to attract more customers. Be wary of the flashing warning signals, and the sudden spurt in the advertisement gimmicks adopted by a company. High yield of dividend is a good omen as well as a danger signal. Your discretion and judgment play an important role in forming the portfolio in the light of the dividend yield.

High dividend yield normally attracts the investors on the lookout for a steady stream of income and retirees. These investors, like others need to familiarize themselves about the traps, while choosing shares to build the special portfolio to make the regular income out of it. Two important issues to be considered are whether the dividend rate is sustainable. The history of the dividend payments is important. If you find sudden spurt in the rate of dividend in the year under review, go to the basics. Is this higher rate justifiable and will it be possible for the company to sustain it in the long run?

If the rate of the share is cheap and yet the company is announcing high rate of dividends, that should set you thinking instead of being elated with your choice of the portfolio. Investment issues always deserve double scrutiny and closer examination.