Don't Let These 3 Metrics Mislead You on Stocks
You can use different metrics to get different insights into a company and its finances. While every metric has its place in a company's financial storytelling, some by themselves can be a bit misleading and might not give the full picture needed before making an informed investing decision. Here are three to watch out for.
For stocks that pay out dividends, the dividend yield is one of the most advertised metrics. The problem with just the dividend yield, however, is that it fluctuates with a stock's price. Companies set their yearly dividends as a dollar amount broken down into four quarterly payments. If a company's yearly dividend is $2 and its stock price is $100, the dividend yield is 2%. If the stock price drops to $50, the dividend yield is now 4%.
From the outside looking in, a 4% dividend yield looks pretty lucrative, especially if you're unaware that the reason it's that high is because the stock dropped 50%. Something could've fundamentally changed with the company that now makes it a bad investment, but if you only looked at dividend yield without knowing (or considering) that, you could put yourself in a position to lose money.
Source Fool.com
