12% yield?

I see it every day. An investor finds a stock yielding 12% on a screener and thinks they have discovered a "secret" gold mine.

The reality? They usually just found a sinking ship. To build a true Passive Income Generator, you have to understand exactly how that 12% number is made. Most people don't realize that a high yield is often an SOS signal from the market.

The Math of a Trap 📉

Dividend Yield is a simple fraction: Annual Dividend / Stock Price. Because the Stock Price is the "denominator" (the bottom number), the yield moves in the opposite direction of the price.

• If the stock price goes UP, the yield goes DOWN.

• If the stock price CRASHES, the yield SPIKES.

When you see a yield that looks "too good to be true," it is usually because the market is dumping the stock. That "12% yield" you see today is a lagging number. It is based on last year’s dividend and today’s crashed price.

The Sinking Ship Scenario 🆘

Let's look at the math. Imagine a company was paying a $1.00 dividend when the stock was $20. That is a solid 5% yield. 

But then, the business runs into trouble. Profits dry up. Debt piles up. The market smells blood and the stock crashes to $8. Suddenly, that same $1.00 dividend shows up on your screener as a 12.5% yield. 

It looks like a bargain, but the market is screaming at you that the business is failing. Very soon, management will realize they cannot afford to pay that $1.00 anymore. They will slash the dividend to $0.20 to save the company.

Overnight, your "12% yield" turns into a 2.5% yield; and you are left sitting on a 60% capital loss. 

The Pete Rule of Thumb🚩 Never buy a yield that is spiking because the price is cratering. In my brand new course, Dividend Market Genius, I am going to teach you how to identify "Quality Yield." This is where the yield is high because the company is a cash flow machine and the market is simply mispricing it; not because the stock is in a death spiral.

If you want to learn how to distinguish between a "Value Play" and a "Yield Trap," you need to get on the waitlist. I am sharing my full "Trap Detector" framework with waitlist members first and it’s free.

Let’s protect your capital first and grow your income second. 🥂

I am still crafting the course so join the Dividend Market Genius Waitlist here if you want to gain priority access and enjoy a huge discount.

👇 Join the Dividend Market Genius Waitlist here: 👉 https://rebrand.ly/dmgwaitlist

Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.