With a slew of decent yields available to investors in this market, picking companies which meet an investor's risk tolerance can be a difficult task. For investors with a more conservative investing approach, buying one of the slow-and-steady Canadian Big 5 banks may be the way to go for a decent yield with strong capital appreciation potential over time.
One strategy which has performed very well in this sector, and in others with a few players making up the vast majority of a defined market, is a "Dogs of the Dow" strategy. By buying the worst performer in a previous year, investors have access to the potential reversion toward the mean that should drive all companies toward some sort of level over time.
This strategy assumes two things - that the capital depreciation of a given stock over a period of the previous year is likely to revert toward a gain in the current year, and the correspondingly high yield will provide much of the higher-than average gain during the current year.
This "Dog of the Big 5" strategy is one investors interested in the Canadian banks will note will result in an investment in Bank of Montreal (TSX:BMO)(NYSE:BMO) or Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), two banks which I believe are excellent value and yield plays in this current market.
Looking for value among dividend companies is always a good thing - finding companies with artificially high yields due to lower than average price appreciation (or declines) is an excellent way to attempt to have higher than average returns over time.
Invest wisely, my friends.
