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Thursday, December 10, 2020

Revisiting Yield Channel Charts

First introduced in August 2017, Yield Channel Charts provide a way to assess market valuation relative to historical yield patterns.

We finally have a fully automated implementation using broker-grade data! We can easily create Yield Channels Charts and screen for undervalued or overvalued dividend growth stocks. 

This article explains how we create and use Yield Channel Charts. 
We demonstrate their practical application by analyzing one overvalued and one undervalued dividend growth stock.

This article was co-produced with James Marino Sr. of Portfolio Insight.

In August 2017, we introduced yield channel charts as a tool for dividend growth investors. 

These charts provide a visual representation of a stock’s market valuation relative to historical yield patterns.

If a stock’s price is within the yield channel, the stock is considered fairly valued relative to historical yields. 

Once the stock price moves outside the yield channel, the stock is either undervalued (below the channel) or overvalued (above the channel) relative to historical yields. We consider daily dividend yields over a 10-year time frame when creating yield channel charts. 

We now have a robust, automated way to create yield channel charts. Our implementation uses the same broker-grade data platform that Dividend Radar is built on. The platform ingests and processes market data daily, including stock splits and dividend changes. All metrics such as average yields are calculated in real-time, so the yield channel charts and screening results are always up-to-date.

In this article on Seeking Alpha, we revisit yield channel charts and explain how we create and use them. We demonstrate their practical application by identifying and analyzing an overvalued stock (a potential sell signal) and an undervalued stock (a potential buy signal).

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