Stock price and dividend yields have an inverse relationship. But before this inverse relationship kicks in, there is a level of equilibrium. Now this equilibrium level is subjective, and moves in tandem with the risk-free interest rate which an FD provides. Now, there is another equilibrium level which mathematical equations don't solve. Consider stocks with a reasonable probability of outperforming in a bearish market. The use of the word reasonable brings in the subjective element. With interest rates on FDs hovering above 7%, buying a stock with a 7-8% dividend yield may not appear the best decision. Investing in stocks where the yield is not even 5% would seem foolish. But, if a dividend of 4-5% percent is combined with a reasonable probability of outperformance in a volatile market, it may be worthwhile to have these stocks on a watchlist.
