More gain yielding stocks doesn't provide dividend. More dividend giving stocks doesn't
yield high gain. But at the same time much more gain and dividend giving stocks are also present.
Investing in Highest dividend yielding stocks with Long term pattern may reduce the risk taken considerably. Those stock prices rising and lowering need not be bothered by us. Reason for our investment , like Interest, Dividend may be continuously obtained.
What is Dividend ?
An Organization sharing a part of gain, profits (yielding) with shareholders is called
“ DIVIDEND ”. A dividend payment made in the form of additional shares, rather than a cash payout.
Companies may decide to distribute stock to shareholders of record if the company's availability of liquid cash is in short supply. These distributions are generally acknowledged in the form of fractions paid per existing share.
An example would be a company issuing a stock dividend of 0.05 shares for each single share held. A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly.
Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth.
Companies are not required to pay dividends. The companies that offer dividends are most often companies that have progressed beyond the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay them out to their shareholders also called payout.
How do corporations pay out their excess cash ( excess capital ) to stockholders?
1. Dividends
2. Share Repurchases
Dividend changes are typically viewed as a stronger management signal about future cash flow (since firms are very reluctant to reduce dividends). However, each method of distributing cash results in cash being paid out. The value of a firm’s common stock should always be the Present Value of all the future FCFEs that are expected to be paid out to the stockholders how the cash is paid out should be irrelevant.
Why dividend is given ?
A Tree planted, watered, fertilized and grown for what purpose? To get good fruits, and enjoy the Breeze, shade. Likewise the same story is happening here also.
One of the simplest ways for companies to communicate financial well-being and shareholder value is to say "the dividend check is in the mail." Dividends, those cash distributions that many companies pay out regularly to shareholders from earnings, send a clear, powerful message about future prospects and performance.
A company's willingness and ability to pay steady dividends over time - and its power to increase them - provide good clues about its fundamentals.
Dividends Signal Fundamentals
Before corporations were required by law to disclose financial information in the 1930s, a company's ability to pay dividends was one of the few signs of its financial health.
Despite the Securities and Exchange Act of 1934 and the increased transparency it brought to the industry, dividends still remain a worthwhile yardstick of a company's prospects.
Typically, mature, profitable companies pay dividends. However, companies that do not pay dividends are not necessarily without profits.
If a company thinks that its own growth opportunities are better than investment opportunities available to shareholders elsewhere, the company should keep the profits and reinvest them into the business.
For these reasons, few " growth " companies pay dividends. But even mature companies, while much of their profits may be distributed as dividends, still need to retain enough cash to fund business activity and handle contingencies.
The progression of Microsoft through its life cycle demonstrates the relationship between dividends and growth. When Bill Gates' brainchild was a high-flying growth company, it paid no dividends, but reinvested all earnings to fuel further growth.
Eventually, this 800-pound software "gorilla" reached a point where it could no longer grow at the unprecedented rate it had maintained for so long. So, instead of rewarding shareholders through capital appreciation, the company began to use dividends and share buybacks as a way of keeping investors interested.
The plan was announced in July 2004, nearly 18 years after the company's I.P.O. The cash distribution plan put nearly $75 billion worth of value into the pockets of investors through a new 8 cent quarterly dividend, a special $3 one-time dividend, and a $30 billion share buyback program spanning four years. In 2010, the company is still paying dividends of 1.8%
Characteristics :-
Income, gain, Yearly ! For many people this is the main criteria of hopefulness for Investment. Nothing surprise in this fact. Any organizations stock prices rising , lowering and the performance of next year can’t be predefined. But the gains acquired , being shared with shareholders cannot be said like that. It can be presumed.
An Organization’s aim is to run profitably to ( for ) the Owners ( Promoters) , that aim’s identity can be said as dividing the gain in the form of Dividend to the share holders. A part of this gain is required for Re-Investment. Balance amount alone can be given as Dividend.
Best four characteristics of Good stock !
Dividend provide investors with a return on investment even when markets are down. As a result investors get paid to hold their stocks through thick and thin. It is important however to pick a stock selection strategy that fits with your financial goals. A good entry strategy is just the beginning however. Investors should also be following the strategy at all times in order to be successful.
Four important characteristics of successful dividend portfolios include
a) Entry and exit criteria,
b) Diversification,
c) Dollar cost averaging and
d) Selective dividend reinvestment.
a) Entry / Exit Criteria
Under my current entry criteria I am looking for companies which have consistently boosted annual distributions for at least one decade. The next step is screening whether the dividend is adequately covered, and that the dividend payout ratio does not exceed 50%.
The only exception to this rule is for certain special investment vehicles such as Master Limited Partnerships, Real Estate Investment Trusts or Utilities, where I look at the trend of the dividend payout ratio.
I also check to see whether there is earnings growth over the past decade and whether the company has any sustainable competitive advantage. Once the company yields more than 2.50%, has a price earnings ratio of less than 20 and has a dividend payout ratio of less than 50%, I initiate my position in the stock.
I would hold on to the stock as long as dividend payments keep getting increased regularly and would add to the position on dips. An example of an attractively valued dividend stock is Johnson & Johnson (JNJ).
I would only consider selling if the dividend is cut for whatever reason. If the company stops raising the dividend I hold onto the stock, but I stop contributing new money.
Currently the three stocks I have stopped contributing new money include M&T Bank (MTB), British Petroleum PLC (BP) and National Retail Properties (NNN). The three companies have failed to raise distributions for more than 4 consecutive quarters, which makes them a hold.
An example of stocks I sold due to a dividend cut include American Capital (ACAS), which was sold in 2008 when it announced that it would no longer pay a quarterly distribution.
b) Diversification
Traditional dividend stocks included high yielding utility stocks and financials. Most financial stocks cut or completely eliminated dividends over the past two years. If investors should learn one lesson from the financial crisis of 2007 -2009, it should be to diversify your portfolio, in order to generate sustainable dividend income.
Canadian Income Trust investors also learned a similar lesson in 2006, after the government decided to phase out the royalty trust corporate structure in 2011, sending stock prices and distributions per unit nose-diving.
It is also important to own more than 30 stocks from as many sectors as possible, in order to prevent an unfortunate downturn in one sector or a few stocks from destroying your chances of generating sustainable dividend income.
Owning more than 30 stocks makes your dividend portfolio less exposed to individual company risks, although you will still be exposed to overall market risk.
c) Dollar Cost Averaging
After selecting the stocks to include in your portfolio, it is important to spread your purchases as a precaution to avoid paying too high prices. Few if any investors could time successfully the exact highs and lows in the stock market, which is why having a consistent strategy of making prudent purchases every so often would be a good idea.
Even high quality dividend stocks such as Procter & Gamble (PG) are not immune from market fluctuations. Dollar cost averaging would have been very beneficial to investors in 2007 and 2008, although a lump sum investment in 2009 would have been better.
d) Selective Dividend reinvestment
Dividends could be either sitting there or get reinvested. The beauty of dividends is that it is under the discretion of the individual investor to purchase more stock, buy equity in a different company / investment or spend it another way.
I do re-invest only a portion of my stocks directly; most other times however I let my dividends accumulate and I either re-invest in the same stocks or in new stocks that have been on my watch list.
Dividends
The Board of Directors must authorize all dividends. A dividend may distribute cash, assets, or the corporation's own stock to its stockholders. Distribution of assets, also called property dividends, will not be discussed here.
Before authorizing a dividend, a company must have sufficient retained earnings and cash (cash dividend) or sufficient authorized stock (stock dividend). Three dates are relevant when accounting for dividends:
# Date of declaration.
# Date of record.
# Date of payment or distribution.
The date of declaration is the date the Board of Directors formally authorizes for the payment of a cash dividend or issuance of shares of stock. This date establishes the liability of the company. On this date, the value of the dividend to be paid or distributed is deducted from retained earnings.
The date of record does not require a formal accounting entry. It establishes who will receive the dividend.
The date of payment or distribution is when the dividend is given to the stockholders of record.
If a company has both preferred and common stockholders, the preferred stockholders receive a preference if any dividend is declared. Having the preference does not guarantee preferred stockholders a dividend, it just puts them first in line if a dividend is paid.
Preferred stock usually specifies a dividend percentage or a flat dollar amount. For example, preferred stock with a $100 par value has a 5% or $5 dividend rate. Five percent is the $5 dividend divided by the $100 par value. This means all preferred stockholders will receive a $5 per share dividend before any dividend is paid to common stockholders. Some shares of preferred stock have special dividend features such as cumulative dividend or participating dividend.
A cumulative dividend means if dividends are declared, preferred stockholders will receive their current-year dividend plus any dividends not paid in prior years before the common stockholders receive a dividend.
Owning a share of preferred stock that includes a cumulative dividend still does not guarantee the preferred stockholder a dividend because the company is not liable to pay dividends until they are declared.
Having cumulative preferred stock simply reinforces the preference preferred stockholders receive when a dividend is declared. If a company has issued cumulative preferred stock and does not declare a dividend, the company has dividends in arrears. Although not a liability, the amount of any dividends in arrears must be disclosed in the financial statements.
The participating dividend feature provides the opportunity for the preferred stockholders to receive dividends above the stated rate. It occurs only after the common stockholders have received the same rate of return on their shares as the preferred stockholders.
For example, say the preferred dividend rate is 5% and the preferred stock has a participating feature. This means that the preferred stockholders will receive a larger dividend if the authorized dividend exceeds the total of the 5% dividend for the preferred stockholder and a 5% dividend to the common stockholders.
Who decides the Dividend distribution to the share holders ?
The Board of Directors formed by the Owners, promoters, recommend a dividend value, affordable by the Promoters Vs Organization. Also Top level Officials thinking will be kept in mind while recommending.
When a publicly traded company achieves profitability, it can decide to use those earnings to reward shareholders with a cash dividend. If a cash dividend does not make fiscal sense, however, the company may instead choose to issue stock dividends to investors.
Board Approval
Before a company can reward investors with any dividend distributions, either cash or stock, the decision must be approved by the board of directors. If the board decides a stock distribution which is in the best interest of shareholders and the company, it will vote to approve the suggested payout or an amount it considers appropriate.
Declaration Date
Stock dividend payments are typically announced on a quarterly basis, in sync with when a company files its earnings report with a regulatory body in a region.
This is known as the declaration date, and it is followed by a series of other dates that determine which shareholders are eligible for the distribution.
Number of Shares Increases
When a company issues a dividend distribution, it grants investors additional shares, but it also increases additional shares in the stock market.
This means that the amount of stock held by investors becomes diluted as the share price drops because there is a greater number of shares outstanding.
When Dividend ?
Dividend distribution if approved, then the next question is when it can be given. In each Organization to register and to maintain the stock records a person named “REGISTRAR” will be found. In his records on a particular day, the owners of all the stock holders, obtained are only eligible for Dividend. That date can be called as Registration date (or ) Record date.
Supposing if we are buying stocks on record date, can we get Dividend. Certainly no. Stocks purchased from a Owner, must be informed to the Registrar. After 1 or 2 days his registration will be renewed. So before registration date ( say 1 or 2 days ) Ex-Date will be decided. This decision will be taken by Stock market and not the said Organization.
Stocks purchased before Ex-Date, that business will be recorded before record date. Stocks purchased after Ex-Date dividend may not be available. So that the Business before Ex-date can be called as cum Dividend and after Ex-Date can be called as Ex-Dividend.
The above Record date, Ex-date, matters for dividend signifies others also such as Bonus, Split, Rights shares ( rights ) and all types of Benefits.
Let us imagine 2 Companies A and B
Company stock price Dividend Yield
A Rs.100 5
B Rs.100 1
Dividend yield of those 2 companies A and B are 5 and 1 %. After 5 years let us consider the stock prices of A as 100 and B as 1500. The same 5 and 1 % dividend is given. Now Rs.5 /- for A and for company B Rs.15 /- will be obtained as Dividend.
If merely watching the percentage of dividend yield, we would have lost the entire benefits and also the joy of stock price hike in investment.
yield high gain. But at the same time much more gain and dividend giving stocks are also present.
Investing in Highest dividend yielding stocks with Long term pattern may reduce the risk taken considerably. Those stock prices rising and lowering need not be bothered by us. Reason for our investment , like Interest, Dividend may be continuously obtained.
What is Dividend ?
An Organization sharing a part of gain, profits (yielding) with shareholders is called
“ DIVIDEND ”. A dividend payment made in the form of additional shares, rather than a cash payout.
Companies may decide to distribute stock to shareholders of record if the company's availability of liquid cash is in short supply. These distributions are generally acknowledged in the form of fractions paid per existing share.
An example would be a company issuing a stock dividend of 0.05 shares for each single share held. A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly.
Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth.
Companies are not required to pay dividends. The companies that offer dividends are most often companies that have progressed beyond the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay them out to their shareholders also called payout.
How do corporations pay out their excess cash ( excess capital ) to stockholders?
1. Dividends
2. Share Repurchases
Dividend changes are typically viewed as a stronger management signal about future cash flow (since firms are very reluctant to reduce dividends). However, each method of distributing cash results in cash being paid out. The value of a firm’s common stock should always be the Present Value of all the future FCFEs that are expected to be paid out to the stockholders how the cash is paid out should be irrelevant.
Why dividend is given ?
A Tree planted, watered, fertilized and grown for what purpose? To get good fruits, and enjoy the Breeze, shade. Likewise the same story is happening here also.
One of the simplest ways for companies to communicate financial well-being and shareholder value is to say "the dividend check is in the mail." Dividends, those cash distributions that many companies pay out regularly to shareholders from earnings, send a clear, powerful message about future prospects and performance.
A company's willingness and ability to pay steady dividends over time - and its power to increase them - provide good clues about its fundamentals.
Dividends Signal Fundamentals
Before corporations were required by law to disclose financial information in the 1930s, a company's ability to pay dividends was one of the few signs of its financial health.
Despite the Securities and Exchange Act of 1934 and the increased transparency it brought to the industry, dividends still remain a worthwhile yardstick of a company's prospects.
Typically, mature, profitable companies pay dividends. However, companies that do not pay dividends are not necessarily without profits.
If a company thinks that its own growth opportunities are better than investment opportunities available to shareholders elsewhere, the company should keep the profits and reinvest them into the business.
For these reasons, few " growth " companies pay dividends. But even mature companies, while much of their profits may be distributed as dividends, still need to retain enough cash to fund business activity and handle contingencies.
The progression of Microsoft through its life cycle demonstrates the relationship between dividends and growth. When Bill Gates' brainchild was a high-flying growth company, it paid no dividends, but reinvested all earnings to fuel further growth.
Eventually, this 800-pound software "gorilla" reached a point where it could no longer grow at the unprecedented rate it had maintained for so long. So, instead of rewarding shareholders through capital appreciation, the company began to use dividends and share buybacks as a way of keeping investors interested.
The plan was announced in July 2004, nearly 18 years after the company's I.P.O. The cash distribution plan put nearly $75 billion worth of value into the pockets of investors through a new 8 cent quarterly dividend, a special $3 one-time dividend, and a $30 billion share buyback program spanning four years. In 2010, the company is still paying dividends of 1.8%
Characteristics :-
Income, gain, Yearly ! For many people this is the main criteria of hopefulness for Investment. Nothing surprise in this fact. Any organizations stock prices rising , lowering and the performance of next year can’t be predefined. But the gains acquired , being shared with shareholders cannot be said like that. It can be presumed.
An Organization’s aim is to run profitably to ( for ) the Owners ( Promoters) , that aim’s identity can be said as dividing the gain in the form of Dividend to the share holders. A part of this gain is required for Re-Investment. Balance amount alone can be given as Dividend.
Best four characteristics of Good stock !
Dividend provide investors with a return on investment even when markets are down. As a result investors get paid to hold their stocks through thick and thin. It is important however to pick a stock selection strategy that fits with your financial goals. A good entry strategy is just the beginning however. Investors should also be following the strategy at all times in order to be successful.
Four important characteristics of successful dividend portfolios include
a) Entry and exit criteria,
b) Diversification,
c) Dollar cost averaging and
d) Selective dividend reinvestment.
a) Entry / Exit Criteria
Under my current entry criteria I am looking for companies which have consistently boosted annual distributions for at least one decade. The next step is screening whether the dividend is adequately covered, and that the dividend payout ratio does not exceed 50%.
The only exception to this rule is for certain special investment vehicles such as Master Limited Partnerships, Real Estate Investment Trusts or Utilities, where I look at the trend of the dividend payout ratio.
I also check to see whether there is earnings growth over the past decade and whether the company has any sustainable competitive advantage. Once the company yields more than 2.50%, has a price earnings ratio of less than 20 and has a dividend payout ratio of less than 50%, I initiate my position in the stock.
I would hold on to the stock as long as dividend payments keep getting increased regularly and would add to the position on dips. An example of an attractively valued dividend stock is Johnson & Johnson (JNJ).
I would only consider selling if the dividend is cut for whatever reason. If the company stops raising the dividend I hold onto the stock, but I stop contributing new money.
Currently the three stocks I have stopped contributing new money include M&T Bank (MTB), British Petroleum PLC (BP) and National Retail Properties (NNN). The three companies have failed to raise distributions for more than 4 consecutive quarters, which makes them a hold.
An example of stocks I sold due to a dividend cut include American Capital (ACAS), which was sold in 2008 when it announced that it would no longer pay a quarterly distribution.
b) Diversification
Traditional dividend stocks included high yielding utility stocks and financials. Most financial stocks cut or completely eliminated dividends over the past two years. If investors should learn one lesson from the financial crisis of 2007 -2009, it should be to diversify your portfolio, in order to generate sustainable dividend income.
Canadian Income Trust investors also learned a similar lesson in 2006, after the government decided to phase out the royalty trust corporate structure in 2011, sending stock prices and distributions per unit nose-diving.
It is also important to own more than 30 stocks from as many sectors as possible, in order to prevent an unfortunate downturn in one sector or a few stocks from destroying your chances of generating sustainable dividend income.
Owning more than 30 stocks makes your dividend portfolio less exposed to individual company risks, although you will still be exposed to overall market risk.
c) Dollar Cost Averaging
After selecting the stocks to include in your portfolio, it is important to spread your purchases as a precaution to avoid paying too high prices. Few if any investors could time successfully the exact highs and lows in the stock market, which is why having a consistent strategy of making prudent purchases every so often would be a good idea.
Even high quality dividend stocks such as Procter & Gamble (PG) are not immune from market fluctuations. Dollar cost averaging would have been very beneficial to investors in 2007 and 2008, although a lump sum investment in 2009 would have been better.
d) Selective Dividend reinvestment
Dividends could be either sitting there or get reinvested. The beauty of dividends is that it is under the discretion of the individual investor to purchase more stock, buy equity in a different company / investment or spend it another way.
I do re-invest only a portion of my stocks directly; most other times however I let my dividends accumulate and I either re-invest in the same stocks or in new stocks that have been on my watch list.
Dividends
The Board of Directors must authorize all dividends. A dividend may distribute cash, assets, or the corporation's own stock to its stockholders. Distribution of assets, also called property dividends, will not be discussed here.
Before authorizing a dividend, a company must have sufficient retained earnings and cash (cash dividend) or sufficient authorized stock (stock dividend). Three dates are relevant when accounting for dividends:
# Date of declaration.
# Date of record.
# Date of payment or distribution.
The date of declaration is the date the Board of Directors formally authorizes for the payment of a cash dividend or issuance of shares of stock. This date establishes the liability of the company. On this date, the value of the dividend to be paid or distributed is deducted from retained earnings.
The date of record does not require a formal accounting entry. It establishes who will receive the dividend.
The date of payment or distribution is when the dividend is given to the stockholders of record.
If a company has both preferred and common stockholders, the preferred stockholders receive a preference if any dividend is declared. Having the preference does not guarantee preferred stockholders a dividend, it just puts them first in line if a dividend is paid.
Preferred stock usually specifies a dividend percentage or a flat dollar amount. For example, preferred stock with a $100 par value has a 5% or $5 dividend rate. Five percent is the $5 dividend divided by the $100 par value. This means all preferred stockholders will receive a $5 per share dividend before any dividend is paid to common stockholders. Some shares of preferred stock have special dividend features such as cumulative dividend or participating dividend.
A cumulative dividend means if dividends are declared, preferred stockholders will receive their current-year dividend plus any dividends not paid in prior years before the common stockholders receive a dividend.
Owning a share of preferred stock that includes a cumulative dividend still does not guarantee the preferred stockholder a dividend because the company is not liable to pay dividends until they are declared.
Having cumulative preferred stock simply reinforces the preference preferred stockholders receive when a dividend is declared. If a company has issued cumulative preferred stock and does not declare a dividend, the company has dividends in arrears. Although not a liability, the amount of any dividends in arrears must be disclosed in the financial statements.
The participating dividend feature provides the opportunity for the preferred stockholders to receive dividends above the stated rate. It occurs only after the common stockholders have received the same rate of return on their shares as the preferred stockholders.
For example, say the preferred dividend rate is 5% and the preferred stock has a participating feature. This means that the preferred stockholders will receive a larger dividend if the authorized dividend exceeds the total of the 5% dividend for the preferred stockholder and a 5% dividend to the common stockholders.
Who decides the Dividend distribution to the share holders ?
The Board of Directors formed by the Owners, promoters, recommend a dividend value, affordable by the Promoters Vs Organization. Also Top level Officials thinking will be kept in mind while recommending.
When a publicly traded company achieves profitability, it can decide to use those earnings to reward shareholders with a cash dividend. If a cash dividend does not make fiscal sense, however, the company may instead choose to issue stock dividends to investors.
Board Approval
Before a company can reward investors with any dividend distributions, either cash or stock, the decision must be approved by the board of directors. If the board decides a stock distribution which is in the best interest of shareholders and the company, it will vote to approve the suggested payout or an amount it considers appropriate.
Declaration Date
Stock dividend payments are typically announced on a quarterly basis, in sync with when a company files its earnings report with a regulatory body in a region.
This is known as the declaration date, and it is followed by a series of other dates that determine which shareholders are eligible for the distribution.
Number of Shares Increases
When a company issues a dividend distribution, it grants investors additional shares, but it also increases additional shares in the stock market.
This means that the amount of stock held by investors becomes diluted as the share price drops because there is a greater number of shares outstanding.
When Dividend ?
Dividend distribution if approved, then the next question is when it can be given. In each Organization to register and to maintain the stock records a person named “REGISTRAR” will be found. In his records on a particular day, the owners of all the stock holders, obtained are only eligible for Dividend. That date can be called as Registration date (or ) Record date.
Supposing if we are buying stocks on record date, can we get Dividend. Certainly no. Stocks purchased from a Owner, must be informed to the Registrar. After 1 or 2 days his registration will be renewed. So before registration date ( say 1 or 2 days ) Ex-Date will be decided. This decision will be taken by Stock market and not the said Organization.
Stocks purchased before Ex-Date, that business will be recorded before record date. Stocks purchased after Ex-Date dividend may not be available. So that the Business before Ex-date can be called as cum Dividend and after Ex-Date can be called as Ex-Dividend.
The above Record date, Ex-date, matters for dividend signifies others also such as Bonus, Split, Rights shares ( rights ) and all types of Benefits.
Let us imagine 2 Companies A and B
Company stock price Dividend Yield
A Rs.100 5
B Rs.100 1
Dividend yield of those 2 companies A and B are 5 and 1 %. After 5 years let us consider the stock prices of A as 100 and B as 1500. The same 5 and 1 % dividend is given. Now Rs.5 /- for A and for company B Rs.15 /- will be obtained as Dividend.
If merely watching the percentage of dividend yield, we would have lost the entire benefits and also the joy of stock price hike in investment.
