Paying a Reasonable Price

When buying stock, it is a good idea to try to pay at least a reasonable price for your stocks. Paying a price that is relatively high can affect your long term return for any stock.

The test I like best is the dividend yield test where you compare the current dividend yield to the historical and 10 year median dividend yields. What you want is the current dividend yield to be equal or high than the historical and/or 10 year median dividend yields. In stock that I follow, I have the historical and 10 year dividend median yields.

I like a positive dividend yield test to be confirmed by the P/S Ratio test. The P/S Ratio test is where the current P/S Ratio is lower than the 10 year median dividend yield. I do these tests for me because I have spreadsheets on the stocks I have and that I follow.

However, there are some simple ways to get information that is close. If you do a quote for a stock on Morningstar you can get the current dividend yield. On this site you can also get 5 year average "Trailing Dividend Yield %". You can compare these yields and get a good idea if the stock price is reasonable or not.

Take a look at Canadian Utilities Ltd (TSX-CU, OTC, CDUAF) on the Morningstar site. If you click on the "Dividends" tab, you will see a forward Dividend Yield of 4.96%. Below the 5 year average "Trailing Dividend Yield %", is 4.34%. Since the 5 year average is low than the current yield, the stock is probably selling at a reasonable price.

I like a positive dividend yield test to be confirmed by the P/S Ratio test. The P/S Ratio test is where the current P/S Ratio is lower than the 10 year median dividend yield. In stocks that I follow, I give the 10 year median dividend yield. If you do a quote for a stock on Morningstar you can get the current P/S Ratio for this comparison.

On my other blog I wrote yesterday about HLS Therapeutics Inc (TSX-HLS, OTC-HLTRF) ... learn more. Next, I will write about Reitmans (Canada) Ltd (TSX-RET.A, OTC-RTMAF) ... learn more on Friday, May 28, 2021 around 5 pm.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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