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In the past six months or so, a term has started to become very popular.

High Dividends.

The so-called high dividends refer to the annual dividend payout that can reach more than 3%, and some can even exceed 5%.

These companies have relatively stable earnings and can provide long-term stable dividend payments.

In fact, in the last 1-2 years, the overall trend of high dividend stocks has been very good, which can be described as a steady rise, with a steady increase.

The main representative indices.

Such as, the CSI Dividend, banking, coal, and oil, have all taken a slow bull pattern.

Stable and considerable returns, isn't that what retail investors are pursuing?

As a result, a large number of retail investors have recently laid out in the direction of high dividends.

Most of them have decided to close their accounts and wait quietly for dividends.Of course, in addition to dividends, there will be a certain degree of stock price increase.

It can be said that the heart is sweet.

But when they waited for two or three months, and finally opened the account, they found that the total market value of the account did not steadily rise, but instead declined a bit.

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That is to say, the stocks with high dividends recently have generally weakened and have fallen to a certain extent.

The key point is that, from a technical perspective, these stocks have a clear trend of building a top.

This seems to be completely different from the previous phased adjustments of fluctuating upwards.

How does this slow bull pattern stop being a bull after it is taken over by retail investors?

If we want to analyze the deep-seated reasons, there are mainly three points.

1. The price is too high, and the dividend rate is decreasing.

If you have been paying attention to high dividends earlier, you will know how exaggerated the high dividends were at the end of 2022.At that time, there were many stocks, such as bank stocks, with dividend yields breaking through 5%, and the four major banks had dividend yields of about 7%.

Take the Agricultural Bank of China as an example, the adjusted stock price has nearly doubled in the past year or so.

The lowest stock price of the Agricultural Bank at that time was 2.7 yuan, and the dividend for that year was 2.222 yuan per 10 shares, with a dividend yield of 7.93%, which is quite exaggerated.

The current price of the Agricultural Bank is more than 4 yuan, with a dividend of 2.309, and the dividend yield is only 5%. The highest price is 4.62, and the corresponding dividend yield has fallen below 5%.

Therefore, after the market speculates on these high dividend stocks, the dividend yield will gradually decrease.

Once the dividend yield decreases, the attractiveness to capital naturally weakens, and the number of people willing to take over at high prices naturally decreases.

Perhaps retail investors think that having a 5% dividend yield and long-term stability is also a good return, then from a long-term perspective, buying at this price is not a problem.

But capital will definitely not stand at this position, choose to sell, and the stock price naturally falls accordingly.

The logic of the entire high dividend is almost the same, coal, oil, and electricity are all the same.

2. Retail investors enter, and capital avoids in the short term.Next, at this location, there has suddenly been a large influx of retail investors.

This can be clearly detected from the number of shareholders announced by high dividend-paying stocks.

Take Yangtze Power as an example, at the end of last year, the number of shareholders was 200,000 people, and by the end of the first quarter of this year, it had surged to 260,000 people.

In just one quarter, there was an increase of 60,000 retail investors entering the market.

In theory, the rise in stock prices should be the behavior of the main force, and the number of shareholders should decrease.

But in reality, a large number of retail investors have flocked to this direction, and everyone is hugging together for high dividends.

Indeed, the stock price is still rising, but the influx of a large number of retail investors is bound to trigger a short-term adjustment in the stock price.

It is normal for funds to take advantage of the presence of buyers to sell, and it is also normal for stocks with many retail investors to be lukewarm.

3. Oscillating upward, long cycle and short cycle.

In the direction of high dividends, from a long-term perspective, it is indeed continuously moving upwards.But this long-term perspective is actually observed from the monthly and annual lines, not the several months that retail investors consider as long-term.

Investing in high dividend stocks requires patience, as there will inevitably be adjustments along the way.

These adjustments include both short and long cycles.

The so-called short cycle refers to a pullback of 1-2 weeks, sometimes it's just a decline for 2-3 days and then it ends.

Short cycle adjustments stem from minor disagreements in capital, which can easily be unified.

However, there are also long cycle adjustments, which can last for several months, or even half a year or a year.

Long cycle adjustments are mainly characterized by a long period of adjustment, rather than a deep degree of adjustment.

High dividends have the concept of exchanging time for space, because the annual dividends continue to accumulate, and the stock price will not keep discounting through rights issues, and there will be the so-called rights filling and repair.

After a long cycle adjustment, what follows is a corrective rise.

And after a major rise, it either starts to oscillate or enters the next long cycle, and so on.If one delves deeper, there is another key point to consider.

The high dividend strategy is good, but rapid price increases can easily deplete the dividends.

For instance, if the dividend yield is 5% and the stock price also rises by 5%, the cumulative return is 10%, which is quite in line with the net profit growth of some listed companies.

Under such dividend and stock price return conditions, at least the overall price-to-earnings ratio remains stable.

However, if within half a year, the stock price increases by 30% or even 50%, the situation will change.

Originally, investment institutions needed to patiently hold for 3-5 years to obtain the return, but it was realized within half a year.

They would consider the valuation to be too high, or the expected future returns to be reduced, so they would first reduce their positions to wait and see.

That is, the upward movement of the stock price may deplete the returns of the high dividend strategy, leading to a short-term peak and a certain degree of adjustment.

This is actually in line with the previous large and small cycle adjustments.The small cycle is just a divergence, while the large cycle is the valuation repair after overdrawing.

The characteristic of A-shares is the speculation of funds, overdrawing the future in the short term, without long-term sustainability.

Even in the direction of high dividends, the overall market's approach is roughly the same.

When the market finds that retail investors are also very optimistic about this strategy, it will significantly raise the stock price in the short term to attract followers, and then distribute at a high position.

High dividends, like the white horse stocks at the time, do not have to worry about no one to take over, because the market has been completely brainwashed.

Of course, this does not mean that there is a problem with this strategy, and this direction will not rise in the future.

Instead, it requires a long time to digest the valuation and digest so many chips.

The essence of the short bull and long bear is also the same, the short-term profit effect requires a long cycle to digest.

This is like the four major banks from 2018 to 2022, which is a long-term horizontal shock pattern, digesting the rise from 2016 to 2017.

The stock market is about cycles and reincarnation, even if it rises, it is also advancing in the fluctuation of shocks.You can choose to hold long-term, directly ignore the fluctuations up and down, and believe that looking at three to five years, the high dividend strategy will definitely be right.

But if you hope to obtain a certain excess return, or buy at a reasonable price, then you need to wait.

No direction will keep rising, there is always a time for adjustment, and there is always an opportunity for you to get on board.

It can be poison, or it can be an antidote, depending on how you look at it.