Generation Y Investor » Dividends

Ahh I Love Dividends

Stephen Kline — Fri, 17 Apr 2009 00:42:14 +0000

I checked my brokerage account this morning and saw that my quarterly dividends from Philip Morris, Heinz and Diageo hit my account in the past week. To me there’s something great about receiving dividends… I think it’s the fact that I didn’t have to work for any of this money that makes it so special.

Also, Procter & Gamble another one of my holdings, announced that it would be raising its quarterly dividend by 10%. Who said no one was getting raises in this economy?

The Importance of Dividends

Stephen Kline — Wed, 04 Mar 2009 00:28:55 +0000

In the past I’ve posted a couple of times about the importance of dividends. Here’s an interesting article that illustrates their importance with a great chart. The chart shows total stock returns by decade and then breaks down the returns between capital gains and dividends. The data is clear… ignore dividends at your own risk.

(Please keep in mind the article was written last year so the 2000’s data in the chart is probably not 100% accurate)

Yield Wealth Through Dividends

Stephen Kline — Fri, 05 Dec 2008 03:31:06 +0000

In my previous post I discussed the basics on dividends. I left off telling you that the large majority of stock market returns over the past century have resulted from the reinvestment of dividends. In this post I’ll tell you why dividend paying stocks outperform their non-dividend paying counterparts, and how you can begin yielding wealth through dividend investing.

Why Dividend Paying Stocks Outperform

1. Strong Financials - Companies that pay dividends tend to be more financially stable than non-dividend payers. In order to payout dividends, a business must have the free cash flow and financial strength to support the payments. This means that dividend payers usually have robust profits and manageable debt levels. A long history of consistent dividend payment is a good sign that a business is fiscally fit. Likewise, watch out for companies that have stopped or reduced their dividends; as this is a sign of financial distress.

2. Shareholder Friendly Management – When making an investment in a stock, it’s important to remember that the quality of the company’s management is almost as important as the business itself. Decisions by management have an enormous effect on the value of your stock. This is why it’s vital that the firm’s executives have it’s shareholder’s best interest at heart. Executives that squander cash on frivolous spending and unwise acquisitions do a disservice for shareholders. While, companies that distribute a portion of their cash flow in the form of dividends are constantly rewarding their shareholders. Dividend payments (especially increasing ones) are a good sign that your company has a shareholder friendly management team.

3. Buffer In Bear Markets – Dividend paying stocks tend to outperform non-payers even more during bear markets. The reason for this is because as the price of a stock falls, it’s dividend yield increases. This effectively increases the stock’s attractiveness to investors. For example, a $50 stock paying $2 per share in dividends yields 4%. If the price of the stock falls to $40 than the stock is now yielding 5%. During market selloffs there comes a point where investors looking for income will begin buying up shares in high yielding stocks. As a result, dividend payers tend to fall less than non-dividend payers in bear markets.

4. Dividend Growth – Many companies that pay dividends are the market leaders in their industries. This allows them to grow revenues and profits year after year. As their profits grow, the amount of dividends they payout per share tend to increase as well. Investors holding shares for many years benefit from this because the yield on their investment increases and compounds.

For instance, let’s say you purchased 100 shares of Procter & Gamble (PG) at $61.25. In the first year you would be paid $1.60 per share for a yield of 2.6%. Now lets assume that over the next decade PG increases it’s dividend by 9% per year. (PG is famous for increasing their dividend annually so this is reasonable). In 10 years the dividend would have more than doubled to $3.79 per share and your investment would be yielding you more than 6% each year. Keep in mind that this is only a simple example of the power of dividend growth. Here’s another great example.

Begin Yielding Wealth

Now that you know the advantages of dividend investing, you can begin using it as part of your investing arsenal. Start looking for companies with long histories of increasing their dividends. Also make sure any company your buying into has the cash to keep paying it’s dividend in good times and bad. You can ensure this by researching the stock’s dividend payout ratio.

To get you started you may want to check out the S&P 500 Dividend Aristocrats. These are the top dividend paying stocks that have increased their dividends annually for the past 25 years. As for my recommendations, I personally own the following dividend payers… Diageo (DEO), Philip Morris International (PM), Heinz (HNZ), Procter & Gamble (PG), and Nike (NKE). As always, remember to do your own research before investing.

The Low Down On Dividends

Stephen Kline — Sat, 22 Nov 2008 22:40:02 +0000

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
- John D. Rockefeller

What Are Dividends?

Today I wanted to take some time to talk about dividends. For those of you new to investing, dividends are cash distributions that companies pay directly to their shareholders. When a company earns a profit the money can either be re-invested in the business (retained earnings) or paid out to shareholders in the form of dividends. These cash payments are usually paid out on a quarterly basis, although some are paid out annually or semi-annually. For example, Nike (NKE) pays a quarterly dividend of 25 cents a share ($1 per year).

Important Dates

When it comes to investing in dividend paying stocks there are a few important dates to keep in mind…

Declaration Date – This is the date the company’s board of directors sets and announces amount of the next dividend. Now the company is legally obligated to pay the dividend to shareholders. Here is Nike’s recent dividend declaration for the next quarter…

“NIKE, Inc. (NYSE: NKE - News) announced today that its Board of Directors has declared a regular quarterly cash dividend of $0.25 per share on the company’s outstanding Class A and Class B Common Stock. On an annual basis, this is an indicated rate of $1.00. The $0.25 quarterly dividend, which represents a nine percent increase over the previous quarterly rate of $0.23 per share, is payable on January 5, 2009 to shareholders of record at the close of business on December 8, 2008.”

Ex-Dividend Date – On this date all shares bought and sold no longer come with the right to receive the next quarterly dividend. Anyone purchasing shares who wants to receive the next dividend need to purchase them before the ex-dividend date. Similarly all shareholders who wish to sell their shares and still collect their final dividend need to sell them after the ex-dividend date.

Record Date – All shareholders who properly register their ownership on or before this date will receive the dividend. Since your shares are normally held in a brokerage account you don’t have to worry about doing anything. Your broker will take care of everything for you.

Payment Date – This is the day you’ve been waiting for. It’s the day your dividend check is mailed or your brokerage account is credited. In the case Nike, shareholders will receive 25 cents for every share they own.

Dividend Re-Investment Plans

Dividend Re-Investment Plans or DRIPs allow shareholders to systematically buy small amounts of stock each quarter with their dividend proceeds. Usually these plans don’t charge commissions so they are ideal for investors with smaller amounts of money. Over time DRIP investors can achieve great returns as their dividends and shares compound. Some well known companies that offer DRIPs include Coke (KO), Procter & Gamble (PG), and McDonalds (MCD).

Now that you know the basics about dividends, stay tuned for my next post on how you can yield wealth through dividends. Here’s a hint… from 1872 to 2003, 97% of the stock market’s returns came from re-investing dividends according to Wharton’s Jeremy Siegel.