Achieving High Yields with Penny Stocks and Dividends
Only a small number of penny stocks pay dividends, so a high-yield penny stock strategy means screening for the few low-priced companies with real payouts and then checking that the payout is covered by earnings or cash flow. Penny stocks carry high risk: thin trading, limited disclosure, and exposure to pump-and-dump schemes. A high yield on a penny stock can also be a warning sign that the price has collapsed. This article is educational, not investment advice.
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What are Penny Stocks?
Penny stocks are shares that trade below $5, the threshold the SEC uses. Most are micro-cap companies, and many trade over the counter instead of on a major exchange. Analysts cover few of them, and the low share price lets individual investors buy large quantities of shares.
The Benefits of Investing in Penny Stocks
The main draw of penny stocks is the low share price. Some trade for less than a dollar, so investors can buy large blocks of shares with little capital. Penny stocks can also move quickly in either direction, which creates the chance of large gains and the same chance of large losses. A low share price does not mean a stock is cheap relative to its earnings or assets.
Ways to Achieve High Yields with Penny Stocks
The main way to earn yield from penny stocks is to buy the few that pay dividends. Dividends are cash payments a company makes to shareholders out of its profits. The appeal is income that continues while the share price moves, but only if the company keeps paying. Check the payout ratio and cash flow before trusting a high yield from a small company. For sector examples, see Pharma Penny Stocks.
A second approach is options income, such as selling covered calls. An option gives the buyer the right to buy or sell shares at a set strike price before expiration, and the seller collects a premium for taking the other side. Many penny stocks have no listed options, or options with very wide bid-ask spreads, so this only works on the more liquid names. Tracking and Managing Income from Options Trading in Excel shows how to record that income.
The Risks of Investing in Penny Stocks
Penny stocks come with an enormous amount of risk. With the majority of these stocks traded in the OTCBB market, there’s limited information about the stocks and their associated companies. This can make it difficult for investors to ascertain the company’s value and make an educated investment decision.
In addition, since many penny stocks are illiquid, they are highly susceptible to pump and dump schemes. These schemes involve a stock being heavily hyped, only to be quickly sold off when prices reach a certain level. The price then collapses and late buyers take the losses. For this reason, it’s important to do your research before investing any money in penny stocks.
MarketXLS Helps Achieve High Yields with Penny Stocks and Dividends
MarketXLS is an Excel add-in that pulls stock prices, dividend data, and fundamentals into a spreadsheet with formulas such as =Last("AAPL"), =DividendYield("AAPL"), and =PayoutRatio("AAPL"). For penny stock research, you can list candidate tickers in a column, pull price, dividend yield, payout ratio, and market cap next to each one, and filter out names with uncovered payouts or tiny market caps. MarketXLS does not remove the risk of penny stocks; it makes the checks faster to run and repeat.
Penny stocks carry high risk along with the possibility of high returns. Research each company, confirm that its dividend is covered, and size positions so that a single failure does not damage your portfolio.
Relevant blogs that you can read to learn more about the topic
An Overview Of Gold Penny Stocks (Find It With Marketxls)
Top Pharma Penny Stocks-2021
Dividend Paying Penny Stocks-Marketxls
Top 5G Penny Stocks-2021
Tech Penny Stocks – Analyzing Using Marketxls