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The Archer Daniels Midland Company (NYSE:ADM) has offered its shareholders annual dividend hikes for the past 43 consecutive years and currently offers a 2.8% dividend yield.

The company has been distributing quarterly dividends since 1927 and made the distributions in the form of stock dividends for decades before switching to cash dividend distributions in 2001. ADM’s current 2.8% dividend yield is on the lower end of the acceptable scale for income-seeking investors. However, the long streak of consecutive annual dividend hikes and a moderate dividend yield are still enticing enough to interest investors looking for a steady dividend income.

Furthermore, the company’s 33% dividend payout ratio – which is nearly 20% lower than the company’s 41% average over the past four years — indicates that the company’s earnings cover the dividend payouts sufficiently to allow for the continuation of the annual dividend hike streak.

The company’s share price took a dive of more than 55% in the aftermath of the 2008 financial crisis but recovered fully by April 2014 and then continued to rise towards its all-time high of $53.42 by December that year. After peaking at the end of 2014, the share price reversed direction and declined 40% before the end of 2016, when the price reversed direction one more time and recovered more than 75% of its loses during its current uptrend.

Investors convinced that the share price might continue its rise after a minor correction during October 2018 should do their research and take a position prior to the company’s next ex-dividend date on November 21, 2018. Acting before that ex-date will ensure eligibility for the next round of dividend distributions on the December 14, 2018, pay date.

Dividend Yield

Archer Daniels Midland Company (NYSE:ADM)

Headquartered in Chicago, Illinois and founded in 1898, the Archer Daniels Midland Company procures, transports, stores, processes and merchandises agricultural commodities, products and ingredients. The company operates through four business segments – Carbohydrate Solutions, Nutrition, Oil Seeds and Origination. ADM is a world leader in the production of soy meal and oil, corn for ethanol and sweeteners as well as, wheat for bakery products. The company also makes such value-added products as specialty food ingredients and specialty feed ingredients. As of 2018, the company’s approximately 31,000 employees served customers in more than 170 countries. Additionally, ADM’s global value chain includes approximately 500 crop procurement locations, 270 food and feed ingredient manufacturing facilities, 44 innovation centers and a well-developed crop transportation network.

The company’s share price started its trailing 12-month period from the 52-week low of $38.96 on November 15, 2017 and ascended nearly 33% before reaching its 52-week high of $51.79 on October 8, 2018. After peaking in early October, the share price declined along with the overall market pullback more than 10% by the end of that month. However, the share price has been rising again since the last week of October and has already regained more than 30% of the most recent losses to close on November 13, 2018 at $48.02. While this closing price was still more than 7% below the 52-week high, it was nearly 21% higher than it was one year earlier, 23.3% above the 52-week low from last November and 15% higher than it was five years ago.

The company’s current $0.34 quarterly payout is 4.7% higher than the $0.32 distribution amount from the same period last year. This new quarterly payout converts to a $1.34 annualized distribution and corresponds to a 2.8% forward dividend yield, which is 3.4% higher than the company’s own 2.7% average dividend yield over the past five years.

In addition to outperforming its own five-year average, ADM’s current yield is also nearly 33% above the 2.1% average yield of the entire Consumer Goods sector, as well as 70% higher than the 1.64% average dividend yield of all the companies in the Major Diversified Food industry segment. Furthermore, the current 2.8% yield is also 2.2% higher than the 2.73% simple average yield of the segment’s only dividend-paying companies.

Over the past two decades, ADM enhanced its total annual dividend payout amount nearly eight-fold. This level of advancement corresponds to an average growth rate of 10.7% per year for the past 20 years. The annual dividend payout grew even faster over the past five with years – at an average annual growth rate of nearly 12%.

Over the past 12 months, Archer Daniels Midland’s capital gains and dividend distributions combined to rewards investors with a 24% total return. Because of the 40% share price drop in 2014, the five-year total return of 30% is below the 37.3% total return rate for the past three years.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

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Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

The Marathon Petroleum Corporation (NYSE:MPC) — the second-largest petroleum refiner in the United States — Delivered to its shareholders consecutive annual dividend hikes for the past seven years and currently offers its shareholders a 2.8% dividend yield.

The overall market selloff and the oil price decline since the beginning of October 2018 pushed the share price into a steep downtrend. However, prior to the current deterioration, the company’s share price rose at a relatively steady pace and had just one significant correction since initiating dividend distributions in 2011. Following a correction of more than 40% in 2015, the share price reversed course and nearly tripled before reaching its all-time high in early October 2018.

Despite the current share price decline, the company still managed a total return of 9% for the trailing 12 months. Regardless of the current performance, Marathon might have potential as a long-term investment option. MPC might see a boost in profits once the company fully integrates the additional revenues from the recently acquired Andeavor (NYSE: ANDV) and optimizes shared costs. This acquisition should add an additional 3,100 gas station/convenience store locations to the company’s Marathon brand.

Furthermore, the company’s current 22% dividend payout ratio is 35% lower than the company’s own 34% average payout ratio over the past five years. The payout ratio of just 22% indicates that the company’s present earnings are more than sufficient to cover current and upcoming dividend distributions, as well as support future dividend hikes.

Investors convinced that the Marathon Petroleum Corporation’s share price will recover in the near term and see the current price drop as a buying opportunity, should act quickly. Taking a long position in Marathon’s stock prior to the next ex-dividend date on November 20, 2018, will ensure eligibility for the next round of dividend distributions on the December 10, 2018, pay date.

Dividend Hikes

Marathon Petroleum Corporation (NYSE:MPC)

Headquartered in Findlay, Ohio, and incorporated in 2009, the Marathon Petroleum Corporation engages in refining, marketing, retailing and transporting of petroleum products. The company operates six refineries in the Gulf Coast and Midwest regions to refine crude oil into gasoline, distillates, propane, heavy fuel oil and asphalt. As of December 31, 2017, the company owned and operated 18 asphalt terminals, 61 light products terminals and more than 10,000 miles of various product transportation and distribution pipelines. Additionally, the company sells its Marathon brand gasoline through approximately 5,600 independently owned retail outlets — excluding the 3,100 additional locations pending the Andeavor acquisition — across 20 states and the District of Columbia. The company’s Speedway LLC subsidiary owns and operates the nation’s second-largest convenience store chain, with approximately 2,740 convenience stores in 21 states.

After two dividend hikes since January 2017, the company’s current $0.46 quarterly dividend distribution is 15% higher than the $0.40 payout from the same period last year and has advanced nearly 28% higher over the past two years. This $0.46 quarterly dividend converts to a $1.84 annualized payout and a 2.8% forward dividend yield.

The current yield is nearly 18% higher than the company’s own 2.4% average yield over the past five years. Furthermore, while trailing per averages in the Oil & Gas Refining & Marketing industry segment, Marathon’s current yield is 13% above the 2.5% simple average of the entire Basic Materials market sector.

Since beginning its dividend distributions in 2011, the company delivered to its shareholders seven consecutive annual dividend hikes. During his streak the company enhanced its total annual dividend payout more than four-fold and managed to maintain and average growth rate 23.3% per year.

The share price reached its 52-week low of $64.40 very early in the trailing 12-month period. However, after bottoming out on November 29, 2017, the share price gave back nearly all its gains and closed on November 15, 2018, at $65.36. This closing price was still 6.4% above the 52-week high from one year earlier, as well as 63% higher than it was five years ago.

While continuing its streak of consecutive annual dividend hike and despite the share price pullback, the company still managed to deliver to its shareholders a total return of 5% over the past 12 months. The three-year total return was 28% and shareholders received an 80% total return on their investment over the past five years.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

The Hershey Company (NYSE:HSY) has managed to boost its annual dividend every year but one since 1998 and currently offers its shareholders a dividend yield of 2.7%.

While many companies were forced to reduce or eliminate their dividend distributions during the 2008 financial crisis, the Hershey company managed to avoid dividend cuts, paid a flat annual dividend in 2009 and resumed rising dividends in 2010. Since skipping the boost in 2009, the company has increased its annual dividend payout for the past eight consecutive years.

The company’s share price fought against moderate volatility over the past few years and is currently trading within 2% of the price level from one year ago. After a decline in the first half of the trailing 12 months, the share price has recovered its losses and technical indicators suggest that the current uptrend might have a little more room on the upside.

The 50-day moving average (MA) has been rising steadily since June 2018 and broke above the 200-day MA in late September. The 50-day MA continues to rise and is currently almost 7% above the 200-day MA. Furthermore, the share price has remained above both moving averages since the beginning of September, with the exception of just two trading sessions when the price dipped marginally below the 50-day MA in late October 2018.

Investors convinced that the share price might continue its current uptrend should consider acting prior to the company’s next ex-dividend date on November 20, 2018, to ensure eligibility for the next round of dividend distributions on the December 14, 2018, pay date.

Dividend Yield

The Hershey Company (NYSE:HSY)

Founded in 1894 in Hershey, Pennsylvania, The Hershey Company manufactures and sells confectionery products. The company operates through two segments, North America and International and Other. Among the company’s product offerings are chocolate and non-chocolate confectionery products, gum and mint refreshment products that include chewing gums, bubble gums, hard and soft fruit candy, lollipops and flavored soda. Additionally, the company manufactures pantry and snack items, including toppings, beverages, sundae syrups, spreads, meat snacks, bars and snack bites. The company provides its products primarily under the Hershey’s, Reese’s, Kisses, Jolly Rancher, Almond Joy, Brookside, Cadbury, Good & Plenty, Kit Kat, Payday, Rolo, Twizzlers, Whoppers, York, Ice Breakers, Breathsavers, Bubble Yum and Heath brands. In addition to its confectionery operations, the Hershey Company operates an entertainment complex in Hershey that includes Hersheypark theme park, Hersheypark Stadium, Hersheypark Arena, Hershey Museum and the Giant Center arena.

After a short 5% spurt at the beginning of the trailing 12 months, the share price peaked on December 19, 2017 at $115.45. However, the immediate direction change sent the price down 22.4% towards its 52-week low of $89.54 by May 2, 2018. Fortunately, the low did not last too long. The price embarked on an uptrend and gained 20.5% above the May low to close on November 14, 2018, at $17.94, which was 6.5% short of the peak from December 2017, 1.7% lower than it was last year and 12% higher than it was five years ago.

The company’s current $0.722 quarterly dividend distribution is 10% higher than the $0.656 payout from the same period last year. This new distribution amount is equivalent to a $2.888 annualized payout and converts to a 2.7% forward dividend yield. This current yield is approximately 11% higher than the company’s own 2.4% average dividend yield over the past five years.

Furthermore, Hershey’s current 2.7% dividend yield outperformed average yields of Hershey’s industry peers. The current 2.8% dividend yield is 27% above the 2.1% yield average of the overall Consumer Goods sector. Additionally, Hershey’s current yield is also 2% higher than the 2.62% simple average yield of the Confectioners industry segment.

Over the past two decades, the Hershey company failed to boost its annual dividend payout only once. Even with the missed dividend hike in 2009, the company has enhanced its total annual payout six-fold since 1998, which is equivalent to an average growth rate of 9.4% per year.

Additionally, the current streak of eight consecutive annual dividend boosts advanced the annual distribution amount more than 140%. This advancement corresponds to a 10.4% average annual growth rate.

Because the share price still has not fully recovered from the mid-year decline, the total return for the past 12 months was limited to 3%. While the Hershey Company provided a steadily rising dividend income distributions, the share price encountered moderate volatility over the past several years. Therefore the five-year total return of 24% is lower than the total return of 40% over the past three years.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

Featured image source: Company websites. Logos are registered trademarks of the respective companies. 

In line with its tradition, Baron Capital Management invited the chief executive officers of four public companies, including two dividend payers, to present to more than 5,000 shareholders at the 2018 Baron Investment Conference in New York.

Portfolio managers at Baron Funds consider these four companies as investments with potentially high returns on capital over the next three to five years. The four CEOs each presented a brief summary at the 2018 Baron Investment Conference about their respective companies, as well as the potential operational and financial advantages that make investing in them a good strategy.

 

2018 Baron Investment Conference Features 2U, Inc. (NASDAQ:TWOU)

Chip Paucek, CEO and co-founder of 2U, Inc., explained his company’s innovative approach to facilitating quality online education by partnering with prestigious universities.

Headquartered in Lanham, Maryland, and founded in 2008, the company grew its revenues at nearly 40% per year between 2014 and 2017. Currently, the company has partnerships with more than 30 universities around the world, including Harvard University, Yale, University of Oxford, The London School of Economics and Political Science, The University of Cambridge and New York University.

Over the past decade since its foundation, the company has more than 16,000 graduates from 64 different programs and also has offered more than 80 short courses that were taken by more than 42,000 students. The company’s share price advanced more than seven-fold between the $13 price level at its initial public offering in March 2014 and the all-time high of nearly $100 in early May 2018.

After peaking in early May, the share price reversed direction and gave back 46% of its value to close on November 13, 2018, at $52.34. Three consecutive quarters of earnings losses were main drivers of the share-price decline. However, the losses in the quarters were lower than analysts’ loss estimates. In the most recent period, the $0.01 loss per share was two-thirds lower than the estimated $0.03 loss.

The Wall Street analysts’ consensus earnings estimate for the fourth quarter of 2018 is $0.21 per share, which is 50% higher than the actual $0.14 per share result from the same period last year. The analysts’ current average target price is more than 50% above the current share price, which indicates that the price should have plenty of room on the upside if it reverses direction again and embarks on an uptrend.

With less than $300 million in total revenue for 2017, the company has plenty of room to continue its growth in the large education markets. In 2016, the total graduate education market in the United States exceeded $80 billion with the total higher education market topping the $550 billion mark. Additionally, the global market for higher education is approaching $2 trillion, which offers substantial room for growth.

 

2018 Baron Investment Conference Features Iridium Communications Inc. (NASDAQ:IRDM)

Headquartered in McLean, Virginia, and founded in 2000 using assets from a similarly named company that went bankrupt, Iridium Communications, Inc. provides mobile voice and data communications services through satellite to businesses, to the U.S. and foreign governments, non-governmental organizations and consumers worldwide.

Originally created in 1998 as a subsidiary of the Motorola company, Iridium invested more than $6 billion into establishing the necessary satellite ground and in-orbit infrastructure. However, the company had difficulty attracting enough subscribers to offset the massive capital expenditures and declared bankruptcy in August 1999.

After re-emerging in 2000, the company embarked on a long-term initiative to de-orbit its old system of 66 satellites and launch a network comprising as equal number of Iridium NEXT spacecraft – an updated second-generation technology. The company is on schedule to complete the entire $3 billion upgrade by the end of 2018 and expects the new generation of satellites to last at least 15 to 20 years without any major capital expenditures.

Therefore, the company plans to take the advantage of the 10-year “capital expenditures holiday” to focus on expanding its subscriber base and service offering, as well as maximize shareholders’ return on investment. The company’s share price has more than tripled over the past five years and gained more than 75% over the trailing 12 months.

You can find a more detailed coverage of Iridium Communications Inc. by Paul Dykewicz, who explained why the company ultimately may become a dividend payer, in his investment column posted on StockInvestor.com.

 

2018 Baron Investment Conference Features Choice Hotels International, Inc. (NYSE:CHH)

Based in Rockville, Maryland, and founded in 1939, Choice Hotels International, Inc. operates as a hotel franchisor worldwide for multiple brands. As of October 31, 2018, the company had more than 6,800 franchised hotels with 550,000 rooms in approximately 40 countries and territories. In addition to its hospitality and franchising business, the company also developed and currently markets cloud-based technology products for the hospitality industry. This technology offers solutions for inventory management, pricing and connectivity to third party channels and hoteliers.

President and CEO Patrick Pacious highlighted the company’s performance over the past decade, during which Choice Hotels increased its market share by 10%, doubled its profit margins and more than tripled the membership in its loyalty program.

The company’s share price advanced more than 10% between the onset of the trailing 12-month period and its 52-week high price of $84.30 at the end of September 2018. However, the price was caught up in the overall market sell-off during early October 2018, gave back all year-to-date gains and continued to drop before bottoming out below the $70 mark on October 24, 2018. However, the share price recovered its losses by the end of the month and closed on November 13, 2018, marginally higher than it was one year earlier.

In addition to share-price growth over the past several years, the company also has distributed quarterly dividends since 2004. The current $0.215 quarterly payout is equivalent to an $0.86 annualized dividend payout and corresponds to a 1.1% dividend yield.

While failing to hike its regular annual dividend distributions for four consecutive years from 2010 to 2013, the company doubled its annual dividend amount since 2004, which corresponds to an average growth rate of 5.4% per year. The steady dividend distributions – including a $10.41 special, one-time dividend payout in 2012 – combined with the relatively consistent asset appreciation to reward the company’s shareholders with a 5.7% total return over the past 12 months. The three-year total return came in at 51.5% and the total return over the past five years was nearly 80%.

 

2018 Baron Investment Conference Features Moelis & Company (NYSE:MC)

Headquartered in New York, New York, and founded in 2007, Moelis & Company – a global independent investment bank – offers advisory services to leading businesses and governments. The firm’s main focus is mergers, acquisitions, recapitalization and restructuring. Moelis & Company supports its clients from 19 geographic locations in the Americas, Europe, the Middle East, Asia and Australia through all phases of the business cycle.

Ken Moelis, its chairman and CEO, indicated that Moelis & Company has adopted a business model similar to disruptors in other industries. Like Uber Technologies Inc. – the largest car company that does not own any cars – or A‌i‌r‌b‌n‌b‌, Inc. – the largest hospitality company that does not own any hotels – Moelis & Company is one of the most important investment banks that does not own any assets. Therefore, while Moelis said most other banking organizations struggle to achieve 5% or 6% return on equity (ROE), Moelis & Company’s current return on equity (ROE) exceeds 43%.

Since its initial public offering in 2014, the company nearly doubled its revenues – which corresponds to a compounded average growth rate of 17% per year – and achieved a total return of more than 200%. The company’s current $0.47 quarterly dividend corresponds to a $1.88 regular dividend for the year and a 4.65% yield.

After tripling over the two years prior to its all-time high of nearly $66 in June 2018, the share price declined nearly 40% and closed just above $40 on November 13, 2018. The company’s dividend payouts offset a portion of the share price decline and delivered a 2.2% total return over the last 12 months and 83% over the past three years.

 

Like the previous events, the 2018 Baron Investment Conference featured four companies which the Baron’s portfolio managers believe fit well with the Baron Funds strategy of investing in well-managed companies with differentiated services or products offering and a strong outlook for the long run.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 


dividend yield        ex-dividend date                     dividend payout ratio                             dividend

The Arbor Realty Trust, Inc. (NYSE:ABR) offers investors a textbook opportunity of an investments with balanced returns from a rising dividend income and steady asset appreciation.

The share price rose nearly 43% over the past 12 months. Furthermore the current 8% quarterly dividend hike is the third payout boost in 2018 and sixth in the past two years. Additionally, the company’s current quarterly dividend hike ends the sixth consecutive year in which the company rewarded its shareholders with a dividend hike.

Even despite a 43% share price enhancement, the company managed to maintain a high dividend yield. The current 8.9% yield is higher than the company’s own five-year average yield, as well as higher than the average yield of its industry peers.

In addition to the share-price growth over the past year and six consecutive years of rising dividend distributions, the Arbor Realty Trust has rewarded its shareholders with total returns of more than 50% over the past 12 months and more than 100% over the past three years. The ex-date dividend will occur on November 14, 2018, and the pay date follows just two weeks later on November 30, 2018.Quarterly Dividend

Arbor Realty Trust, Inc. (NYSE:ABR)

Arbor Realty Trust (NYSE:ABR) is a real estate investment trust (REIT) that invests in real estate-related bridge and mezzanine loans, preferred equity notes, discounted mortgage notes and other real estate-related assets. The REIT’s objective is to maximize the difference between the yield on its investments and the cost of financing these investments to generate cash for distribution, to facilitate capital appreciation and to maximize total return to its stockholders. Founded in 2003, the company’s headquarters are in Uniondale, New York.

The REIT boosted its quarterly dividend distribution 8% from $0.25 in the previous quarter to the current $0.27 payout in the last quarter of 2018. However, since the company hiked its quarterly dividend already twice in 2018, the current quarterly dividend payout is more than 42% higher than the $0.19 distribution amount from the same period last year. The $0.27 quarterly dividend payout converts to an annualized payout of $1.08, which is equivalent to an 8.9% dividend yield. While slightly lower than last year due to the rapid asset appreciation, this current yield is still nearly 10% higher than the trust’s 8.1% average yield over the past five years.

The company’s dividend and share price took heavy losses between 2007 and 2009 during the financial crisis because the trust’s core business – real estate-related loans, mortgage notes and other real estate-related assets – were impacted heavily by the bursting of the housing bubble. The company was forced reduce its annual dividend a total of 20% during 2007 and 2008. Still, the reduction was insufficient, and the Arbor Realty Trust eliminated its dividend payouts completely for 2009. The trust resumed its quarterly dividend distributions in the second quarter of 2012. Since reinstituting the dividend distributions in 2012, the REIT tripled its annual dividend payout amount, which is equivalent to an average growth rate of more then 20% per year.

In addition to outperforming its own five-year average yield by nearly 10 %, the trust’s current dividend yield also outperformed the 3.3% average yield of the entire Financial sector by almost 170%. Additionally, the REIT’s current yield is also nearly 85% above the 4.8% simple average yield of all the companies in the Diversified REITs industry segment and nearly 11% higher than the average yield of the segments only dividend-paying companies.

After crashing from above $34 to less than $0.60 during the 2008 financial crisis, the share price has been on a steady uptrend since March 2009. The share price pulled back 6.3% at the onset of the trailing 12-month period and reached its 52-week low of $7.97 on February 5, 2018. However, since bottoming out in early February 2018, the share price roared almost 54% higher before reaching the 52-week high of $12.26 on August 31, 2018.

After peaking at the end of August, the share price declined throughout most of September, but reversed direction at the end of the month and has been rising since then despite the market volatility in October. By November 5, 2018, the share price pulled back to within 1% of its August peak and closed at $12.14. This closing price on November 5, 2018 was 42.7% higher than it was one year earlier, 52% above the February low and 77% higher than it was five years ago.

The robust asset appreciation and dividend growth combined for a 56% total return over the past 12 months and a 130% total return over the past three years.

 

 

 

 

 

 

 

 

 

 


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

CenterPoint Energy, Inc. (NYSE:CNP) – a domestic energy delivery company – offers its shareholders a 4% dividend yield after boosting its dividend payout every year for more than a decade.

Unfortunately and unlike the company’s steady and reliable dividend income distribution, the company’s share price struggled in the first half of the trailing twelve months. However, the share price stopped the decline in late April, resumed its recent uptrend and recovered nearly 60% of its losses by early November 2018. As of the end of trading on November 6, 2018, the current share price was still almost 6.5% below the analysts’ average target.

Investors convinced that the share price’s current uptrend might continue a little longer should do their research and act prior to the company’s next ex-dividend date on November 14, 2018. Taking a position in CenterPoint Energy’s stock before that ex-dividend date, will ensure eligibility for the next round of dividend distributions on the December 13, 2018, pay date.

Dividend Yield

CenterPoint Energy, Inc. (NYSE:CNP)

Founded in 1882 and based in Houston, Texas, CenterPoint Energy, Inc. is a domestic energy delivery company that includes electric transmission & distribution, natural gas distribution and energy services operations. As of September 2018, the company served more than five million metered customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. The company owned more than 30,000 miles of overhead distribution and transmission lines, 24,000 miles of underground distribution and transmission lines, as well as more than 230 substations. Additionally, the company also has a 54.1% limited partner interest in the Enable Midstream Partners master limited partnership (MLP) with the OGE Energy Corporation (NYSE:OGE). The MLP operates and develops natural gas and crude oil infrastructure assets.

The company’s current $0.2775 dividend payout for the last quarter of 2018 is 3.7% above the $0.2675 distribution amount from the same period last year. This current $0.2775 amount converts to a $1.11 annualized dividend distribution, which is equivalent to a 4% forward dividend yield at current share price levels. While slightly below the company’s own five-year average yield of 4.2%, CenterPoint Energy’s current dividend yield is nearly 60% higher than the 2.5% yield of the entire Utilities sector. Furthermore, the current yield has also outperformed the 3.4% simple average yield of all the companies in the Diversified Utilities industry segment by more than 17%, as well as bested the 3.89% average yield of the segment’s only dividend-paying companies by 2.6%.

While distributing dividends to its shareholders since 1922, the company managed to avoid annual dividend reductions over the past two decades and boosted its annual distribution amount 90% of the time. Since 2002, the company failed to raise its annual dividend only twice and distributed the same $0.40 annual payout for 2004 and 2005 as it did in 2003. However, since starting its current consecutive annual dividend hikes streak in 2006, the company has nearly tripled its total annual dividend amount, which corresponds to an average growth rate of 8.2% per year for the past 13 consecutive years.

After rising steadily for nearly two years, the company’s share price reversed direction in September 2017 and started declining. The share price passed through its 52-week high of $30.01 on November 30, 2017 before declining 17% on its way to the 52-week low of $24.92 on April 26, 2018. However, after bottoming out in late April 2018, the share price reversed direction again and jumped on its current uptrend. By the end of trading on November 6, 2018, the share price recovered nearly 60% of its losses and closed at $27.80. This closing price was still 6.5% lower than it was one year earlier but 11.6% higher than the 52-week low from April 2018 and 11% higher than it was five years ago.

Unfortunately, the company’s above-average dividend yield was not sufficient to offset the share price decline in the first half of the trailing 12 months. The company delivered to its shareholders a 2.4% total loss over the past 12 months. Additionally, a share price drop of more than 37% in 2015 limited the five-year total return to slightly less than 35%. However, the shareprice and dividend payouts growth over the past three years, delivered a 66% total return on shareholders’ investment.

Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

In a tough mining sector that has been declining for more than a decade, SunCoke Energy Partners LP (NYSE:SXCP) currently offers investors a best-in-class dividend yield of 11.3%.

Unfortunately, while the dividend yield paints a positive picture, the company has been facing some headwinds recently. Despite having the highest dividend yield among its peers, the current yield is actually more than 15% below the company’s own 13.4% dividend yield average over the past five years.

After initiating distributions in May 2013, SunCoke Energy Partners boosted its payout amount for 10 consecutive quarters before starting to distribute a flat $0.594 quarterly distributions for the subsequent 10 periods. However, the company reduced its quarterly distribution for the second quarter of 2018 to the current $0.40 distribution amount.

While the payout amount reduction lowered the dividend yield, a unit price decline of 22% over the past year counteracted some of that reduction and helped maintain the dividend yield level. A distribution payout cut and a declining unit price are not generally indicators that investors seek out when looking for potential investments.

However, while the company fell slightly short of analysts’ earnings consensus estimate for the third quarter, it took unforeseen losses due to higher-than-expected outage costs from a machinery fire at one of its facilities, as well as higher depreciation expenses due to revisions in estimated useful lives of certain assets in the Domestic Coke segment.

Because of these additional expenses and lower output, the company has already lowered its adjusted earnings for the entire 2018 by approximately 2.4%, which should already be reflected in the current price. Therefore, investors who believe that the unit price is near a bottom might decide to take advantage of the current discounted price.

During the third-quarter results call, Mike Rippey, President and CEO of SunCoke Energy Partners, L.P., commented, “We continue to be pleased with strong operating performance at CMT [Convent Marine Terminal] as our customers continue to leverage our unique capabilities to capitalize on the attractive export market and our Middletown and Haverhill coke facilities continue to perform in line with our expectations.”

The partnership will make its next round of distributions on the December 3, 2018, pay date to all its shareholders of record prior to the November 14, 2018, ex-dividend date.

Dividend Yield

SunCoke Energy Partners LP(NYSE: SXCP)

Headquartered in Lisle, Illinois, and founded in 2012, SunCoke Energy Partners, L.P. primarily produces coke used in the blast furnace production of steel and also provides handling and mixing services of coal and other aggregates through two business segments — Domestic Coke and Logistics. Additionally, the company captures the excessive amounts of heat generated as a byproduct of the coke manufacturing process and uses that heat to generate steam and electricity, which it then sells to contracted industrial and municipal customers. Furthermore, the firm’s logistics business has terminals that can mix and transload more than 40 million tons of coal annually and also has a total storage capacity of approximately 3 million tons. Currently, the company owns two coke-making and heat recovery operations in Ohio and one in Illinois. Also, the logistics business segment has two handling and mixing facilities in West Virginia, with one additional facility each in Louisiana and Indiana.

The partnership’s unit price spiked 23% between the beginning of the trailing 12-month period and its 52-week high of 21.70 on January 26, 2018. After this brief spike, the price reversed direction and declined 36% before bottoming out on October 31, 2018, at $13.84. The unit price gained 2.4% over the subsequent two trading sessions to close on November 2, 2018, at $14.06.

The current $0.40 quarterly distribution corresponds to a $1.60 annualized payout and an 11.3% forward dividend yield. While lower than the partnership’s own five-year average, SXCP has the highest current dividend yield in the Nonmetallic Mineral Mining industry segment. Additionally, SXCP’s current yield is more than 50% above the average yield of the segment’s dividend-paying companies and nearly five times the average yield of the entire Basic Materials sector.

While delivering an overall total loss of 7.5% for the trailing 12 months, the partnership’s unitholders nearly doubled their investment over the past three years with a total return rate of almost 90%.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

Professional and institutional exchange-traded fund (ETF) investors can afford the time and resources to perform their own analysis in search of best dividend ETFs. However, many part-time investors will look for a shortcut and just select the best dividend ETFs for their own portfolio offered by their banking institution or brokerage.

This strategy might have been suboptimal 30 years ago when ETFs first emerged, and investors had a slim selection of only a few funds from which to choose. However, the availability of diverse ETFs has expanded rapidly. Today, even a single provider can have hundreds of available ETFs, which offers investors the diversification they need even when limiting their choices to a single provider.

The list below includes the five best dividend ETFs from Fidelity Investments in terms of yield and total return over the past year.

 

Fidelity’s 5 Best Dividend ETFs

Professional and institutional exchange-traded fund (ETF) investors can afford the time and resources to perform their own analysis in search of best dividendETFs. However, many part-time investors will look for a shortcut and just select the best dividend ETFs for their own portfolio offered by their banking institution or brokerage.

This strategy might have been suboptimal 30 years ago when ETFs first emerged, and investors had a slim selection of only a few funds from which to choose. However, the availability of diverse ETFs has expanded rapidly. Today, even a single provider can have hundreds of available ETFs, which offers investors the diversification they need even when limiting their choices to a single provider.

The list below includes the five best dividend ETFs from Fidelity Investments in terms of yield and total return over the past year.

 

Fidelity’s 5 Best Dividend ETFs #5:

Fidelity MSCI Telecommunication Services ETF (NYSE:FCOM)

Based on the MSCI USA IMI Telecommunication Services 25/50 Index, this fund seeks investments in the telecommunication services sector in the U.S. equity market. As of October 30, 2018, the fund had 97% of its $180 million assets distributed across just 21 individual holdings and 3% in cash. Because of the small number of holdings, the top 10 equities account for more than 73% of total assets. Furthermore, just the top two holdings — Verizon Communications, Inc. (NASDAQ:VZ), 24.43% and AT&T, Inc. (NYSE:T), 21.38% — take up nearly 46% of total assets. United States-based companies take up 92.5% of assets, with Germany and Japan contributing the remaining shares.

The fund’s current annual distributions yield 2.9%. Additionally, the unit price recovered from a 10% mid-year drop to deliver a marginal gain of 1% over the trailing 12 months. The combined total return for the past year was nearly 4%, with longer-term total returns of 26% over the past three years and more than 38% over the last five years.

 

Fidelity’s 5 Best Dividend ETFs #4:

Fidelity MSCI Utilities Index ETF (NYSE:FUTY)

Using a representative sampling indexing strategy, the fund’s management invests at least 80% of the fund’s assets in securities included in the MSCI USA IMI Utilities Index. As of October 30, 2018, FUTY’s $425 million of net assets were invested in shares of 68 individual corporations, one limited partnership and cash.

The regional asset allocation exposure is almost exclusively to U.S. utility companies, with the Canada-based TerraForm Power, Inc. (NASDAQ:TERP) and U.K.-based AquaVenture Holdings, Ltd. (NYSE:WAAS) as the only foreign investments that combined for slightly more than 0.1% of total assets. Electric utilities account for more than 47% of total assets, with multi-utility companies accounting for an additional 30% share of assets. Independent Power and Renewable Electricity, Gas Utilities and Water Utilities account for the remaining 13% of asset allocations.

The top 10 holdings account for nearly half of total assets, with the top five — NextEra Energy, Inc. (NYSE:NEE), 9.71%; Duke Energy Corporation (NYSE:DUK), 6.97%; Dominion Energy, Inc. (NYSE:D), 5.64%; Southern Company (NYSE:SO), 5.50%; and Exelon Corporation (NYSE:EXC), 5.08% — contributing nearly a third of total assets.

The fund’s current distribution yields 3.1%. While nearly 13% higher than its 52-week low from February 2018, the unit price is down 2.2% for the trailing 12 months, which offset some of the dividend to deliver a 2.4% one-year total return. The total return over the past three years was significantly higher at 38% and the five-year total return exceeded 60%.

 

Fidelity’s 5 Best Dividend ETFs #3:

Fidelity Dividend ETF For Rising Rates (NASDAQ:FDRR)

Based on the Fidelity Dividend Index for Rising Rates, the FDRR fund seeks to invest at least 80% of its assets in securities and depository receipts representing securities included in the underlying index. As of October 30, 2018, the fund had more than $380 million in assets distributed over 108 individual holdings.

With a combined share of almost 55%, the Information Technology (25.4%), Financials (14.7%) and Health Care (14.4%) sectors dominate the fund’s share of total assets. The top five individual holdings — Apple, Inc. (NASDAQ:AAPL), 5.67%; Microsoft Corporation (NASDAQ:MSFT), 4.34%; Johnson & Johnson (NYSE:JNJ), 2.62%; Pfizer, Inc. (NYSE:PFE), 2.32%; and JPMorgan Chase & Company (NYSE:JPM), 2.19% — account for just 17% of total assets. More than 92.5% of assets remain invested in the United States, with the remaining assets allocated in Europe (4.7%), Asia (2.6%) and Latin America (0.1%)

Since its formation in 2015, the fund has returned 34% on invested assets. Over the past 12 months, FDRR’s distributions yielded 3.1% and combined with a unit piece growth for a total return on investment of more than 7.4%.

 

Fidelity’s 5 Best Dividend ETFs #2:

Fidelity High Dividend ETF (NASDAQ:FDVV)

This ETF seeks to provide investment returns that track the performance of the Fidelity Core Dividend Index. Under normal circumstances, the fund invests at least 80% of its assets in securities included in the underlying index. The index targets large- and mid-capitalization dividend-paying companies, which are projected to continue distributing and raising their dividends.

The fund’s nearly $220 million of total assets are spread across 98 equity holdings and less than 1% of assets is in cash. While the top 10 holdings account for nearly 30%, the top five companies — Apple, Inc. (NYSE:AAPL), 4.09%; Verizon Communications, Inc. (NYSE:VZ), 3.69%; Microsoft Corporation (NYSE:MSFT ), 3.13%; CenturyLink, Inc. (NYSE:CTL), 3.04% and the Exxon Mobil Corporation (NYSE:XOM), 2.88% — combine for less than 17% of the fund’s asset total. Additionally, the regional distribution of the fund’s assets is very homogeneous, with nearly 97% of assets invested in U.S. companies. Nearly 40% of the remaining assets are invested in three U.K. companies. One company from each Finland, Germany, Hong Kong, Ireland, Norway and Switzerland complete the fund’s investment portfolio. From a sector exposure aspect, three sectors — Financials (21.81%), Information Technology (18.29%) and Energy (12.27%) — constitute more than half of the total assets.

The fund’s distribution for 2018 yielded nearly 4% and combined with the one-year unit price increase for total return of 9% over the past 12 months.

 

Fidelity’s 5 Best Dividend ETFs #1:

Fidelity MSCI Real Estate Index ETF (NASDAQ:FREL)

This ETF tracks the performance of the MSCI USA IMI Real Estate Index and invests at least 80% of its asset in the underlying index. As of October 30, 2018, the fund’s 165 individual holdings combined for total assets of more than $550 million. The fund’s geographic exposure is almost exclusively to U.S. companies (99.54%). Only two holdings — Brookfield Property REIT, Inc. (NASDAQ:BPR) from Canada and Altisource Portfolio Solutions SA (NASDAQ:ASPS) from Luxembourg — are the exceptions, albeit with minimal share of assets.

The top five holdings by assets share — the American Tower Corporation (NYSE:AMT), 6.54%; Simon Property Group, Inc. (NYSE:SPG), 5.44%; Crown Castle International Corporation (NYSE:CCI), 4.27%; Prologis, Inc. (NYSE:PLD), 3.98%; and Public Storage (NYSE:PSA), 3.14% — account for nearly quarter of the fund’s total assets.

As a passively managed investment, this ETF has an annual turnover ratio of just 8%, which is 33% lower than the 12% median ratio of the entire asset class.

The fund’s current annual distribution yields 5.4% and the distribution growth rate over the past three years is nearly 30%. Despite an overall market pullback, this fund’s unit price advanced 4.5% during October 2018. While the unit price is down 3.3% for the 12 months, the distributions compensated and managed to deliver a marginal 0.8% total return over the past year. However, the total return over the past three years was 14.3%.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

Dividend yield is the most commonly used measurement that income-seeking investors use to gauge the level of potential dividend income when evaluating investment options.

The formula to calculate the dividend yield is not very complex. It is a simple ratio of the total annual dividend distribution amount per share and the equity’s share price. Most commonly, this ratio is multiplied by 100 to get the dividend yield expressed as a percentage.

However, to calculate the dividend yield, investors must be careful to use the correct parameters and accurately interpret the results. While it is easy to calculate the dividend yield and gain basic information on the amount of earnings distributed to shareholders, dividend yield can be misleading and should be used in conjunction with other financial metrics and indicators when choosing investments.

Dividend yield

As a financial indicator, the dividend yield shows the share of the equity’s earnings – or assets in some cases – that the equity returns to its investors as periodic dividend distributions. While the yield could be calculated using total earnings and total market capitalization, it is generally calculated using the dividend payout per share and the share price. Using this method, we calculate the dividend yield by dividing the total annual dividend amount by the company’s share price.

Dividend Yield

The resulting dividend yield is a ratio expressed as a decimal number. To express the dividend yield as percentage, we just multiply the entire expression by 100.

Dividend Yield

While both calculations are simple, here is a specific example to illustrate the calculations using real dividend data.

In 2018, AT&T, Inc. (NYSE:T) paid four quarterly dividends of $0.50 each. The total annual dividend distribution for 2018 was $2.00. At the end of trading on October 29, 2018, the share price closed at $29.64. Using these figures, we can calculate the current dividend yield as:

Dividend Yield = $2.00/$29.64 = 0.0675 x 100 = 6.75%

Trailing Dividend Yield

In addition to regular dividend distributions, equities occasionally distribute special dividends to dispense additional funds to their shareholders. These could be funds from dispositions of assets, legal settlements, divestitures, etc. Please note that these special dividends are not part of the dividend yield calculation. These special payments are not recurring and are not likely to be distributed the following year. Only regularly scheduled dividends factor into the formula to calculate the dividend yield.

The calculation for AT&T above used the total dividend payout from the previous year to calculate a trailing dividend yield. However, using the expected total dividend distribution for the upcoming 12-months, returns a forward dividend yield. To calculate the forward dividend yield, we first must calculate the annualized dividend payout based on the most recent quarterly distribution. There are few ways to do this calculation. If the dividend amount is the same for every period of the current year we can attempt to estimate the dividend hike for next year based on the equity’s specific dividend policy – if one exists – or extrapolate the potential increase based on the previous record.

Forward Dividend Yield

While AT&T paid the same quarterly $0.50 dividend throughout 2018, Texas Instruments, Inc. (NASDAQ:TXN) increased its dividend payout more than 24% for the last quarter.

Q1: $0.62

Q2: $0.62

Q3: $0.62

Q4: $0.77

Total 2018: $2.63 per share

Texas Instruments paid a $0.62 for the first three quarters and raised the quarterly payout to $0.72 for the last period of 2018. Using the dividend amount for the fourth quarter, we can calculate the annualized dividend amount:

Annualized dividend = Most recent period’s dividend x No. of periods per year

Or, per the Texas Instruments example, the annualized dividend is:

Annualized dividend = $0.72 x 4 = $2.88

The $2.88 total annualized dividend based on just the last period’s distribution is in this case 9.5% higher than the $2.63 actual distribution for 2018.

Using the $90.18 closing share price for Texas Instruments as of October 29, 2018, we can calculate the trailing and the forward dividend yields:

 

Forward Dividend Yield = $2.88/$90.18 = 0.0319 x 100 = 3.19%

Trailing Dividend Yield = $2.63/$90.18 = 0.0292 x 100 = 2.92%

The 3.19% forward yield is also 9.5% higher than the 2.92% trailing dividend yield.

 

Using Dividend Yield for Selecting Investments

While it is relatively easy to calculate the dividend yield, the result could be very misleading about the performance of the potential equity. Because of its simplicity, the dividend yield does not provide any information about the underlying reasons for high or rising dividend yields. The yield can increase because the equity continues to boost its annual dividend distributions. Since the total annual dividend figure goes in the numerator of the dividend yield calculation, the dividend yield increase is directly proportional to the total annual dividend payout growth, which is a positive correlation for potential investors.

However, the dividend yield is inversely proportional to the equity’s share price – which goes in the formula’s denominator. Therefore, a dividend boost will be inversely proportional to the share-price increase. While it might be possible that the increased income from a higher yield could offset capital losses due to the declining share price, that scenario is very rare. The share prices fluctuate on a higher magnitude than dividend payouts. Therefore, the return from the rising dividend income is seldom enough to offset the asset depreciation.

To compensate for this shortcoming of the dividend yield, investors use additional indicators, such as the total return. The total return is a combined return from capital gains and dividend income, expressed as a percentage. This indicator normalizes return on investments or assets regardless of the source — asset appreciation or dividend income distributions.

An investment that had a 4% asset appreciation over the previous year and 4% trailing dividend yield over the same period would have a total return of 8% for the year. However, another equity that had a lower dividend yield of only 2%, but whose capital gain was 6%, has the same 8% total return for the year.

Additional Considerations

The definition of an acceptable level of dividend yield depends on multiple factors. While investors looking for pure income might insist on double-digit yields, investors looking for a balanced income and capital gain strategy might accept a dividend yield of 3% to 5%. Also, different sectors and industries have varied levels of average yields, which also should factor into the decision-making process.

While an important factor and a good starting point for analysis, investors must use additional financial indicators along with the yield to evaluate potential investments. Additionally, high dividend yields accompanied by high payout ratios could indicate an equity’s earnings distribution share that is too high, which could cause a shortage of cash flow necessary to support strategic investment or operational activities.

This article indicates why there is more to picking dividend income investments than just learning to calculate the dividend yield and selecting the equities with the highest yield. In addition to the yield, investors must consider the total return, the dividend payout ratio, as well as how different types of dividends are taxed to maximize overall returns, execute their investment strategies and reach their specific investment portfolio goals. However, learning how to calculate the dividend yield is a necessary first step.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

While even the most inexperienced investors understand the basic concept of investing for asset appreciation, many are not sure how dividends work, why companies pay dividends or what are advantages of investing in dividend-paying securities.

As a primer for novices and as a refresher for more experienced investors, below is a list of seven basic things that every investor needs to know about how dividends work before embarking on the search for equities with the best potential to achieve a return on investment that matches an investor’s individual portfolio strategy.

 

How Dividends Work? – The 7 Things You Need to Know

#1 What are Dividends?

Dividends are a method for equities to distribute a portion of their earnings to their stakeholders. Sometime, all earnings payouts are referred to as dividends. However, the term dividends technically applies only to certain types of equities, such as C-Corporations or mutual funds. Other types of securities – such as S-Corporations, partnerships, limited liability corporations, trusts and estates – use the term distributions instead.

The main difference is that equities generally pay dividends from their earnings and distributions are payouts from equity. The Internal Revenue Service (IRS) treats the two types of payouts differently. While distributions will figure into an investor’s cost basis, dividends do not figure into the original cost basis of buying the stock.

The distinction between dividends and distributions is very important for tax management and other aspects of investment. However, since the concepts described below generally apply to both types, the term dividend will mean both dividends and distribution in the remainder of this article.

 

How Dividends Work? – The 7 Things You Need to Know

#2 Investors need more than just dividend yield to identify good investments

The dividend yield is the most basic metric for determining the rate of dividend payouts. This measure represents the ratio of the total annual payouts per share and the current share price. While the dividend yield is a necessary metric for estimating the potential dividend income in relation to the funds invested, it is not sufficient. A very high dividend yield might appear to indicate a good investment. However, investors must consider additional aspects of the equity’s performance. A rising dividend payout will result in a rising dividend yield, which is a positive indication for potential investors. However, because the dividend yield is inversely related to the equity’s share price, a declining share price also will result in a rising dividend yield. In addition to the dividend yield, investors must consider additional aspects to gain a more complete assessment of which securities are best matches for their investment portfolios.

 

How Dividends Work? – The 7 Things You Need to Know

#3 Investors must look for sustainable dividend distributions

The simplest indicator of dividend sustainability is the dividend payout ratio, which shows the share of earnings, or equity, dispensed to the shareholders as dividends. Certain securities — such as limited liability companies (LLCs) and C-corporations — have the liberty to distribute any share of their earnings as dividend distributions. This decision can be imbedded into the equities long-term dividend policy, or the equities board and officers can make that determination every period.

However, other types of equities — such as mutual funds or real estate investment trusts (REITs) — must distribute a minimum of their earnings or equities to retain their tax-favorable status. For instance, to remain eligible for reduced tax rates, REITs “must distribute at least 90 percent of their taxable income to shareholders annually.”

 

How Dividends Work? – The 7 Things You Need to Know

#4 For investors, the most important is the ex-dividend date

Among the four dividend dates, the ex-dividend date is most important to investors. While equities gather their lists of shareholders eligible to receive the next round of dividend distributions on the record date, the investors must purchase the equity’s shares before the ex-dividend date to achieve that eligibility. The reason for this is that the current settlement period for equity trading requires that all equity trades must be settled no later than two trading days after the trade is made.

Therefore, investors must purchase equity shares on the day prior to the ex-dividend date to gain the shareholder of record status at the end of the record date, which translates into eligibility to receive the subsequent round of dividend distributions. If a transaction occurs on the ex-dividend date, the seller is considered the owner of the equity and, therefore will receive the dividend payout in that period. The buyer of the equity on the ex-dividend date will have to wait until the following period to receive the dividend distribution.

 

How Dividends Work? – The 7 Things You Need to Know

#5 Types of dividend distributions

Equities can make their distributions as cash dividends or as in-kind distributions. In this case, the dividend versus distribution distinction matters more than for the other six “things” to know in this article. While dividends can be made in both forms, distributions are generally made in the form of cash.

Since they are much easier and simpler to implement, cash dividends are the most common type of dividend distributions. Usually, the equity mails dividend checks or transmits funds via electronic funds to the shareholders’ designated brokerage or investment account.

While the in-kind dividend distributions include property dividends, bonds of the company distributing dividends, bonds of a different corporation, government bonds, accounts receivables and promissory notes, stock dividends is the most frequently-used type of in-kind dividend distributions. Stock dividend distributions have advantages for the investor receiving the payout and the equity that makes the distributions.

The IRS treats stock dividends as stock splits. Therefore, the investor receiving this type of dividend is generally not liable for any income tax on these dividends in the year in which the payout occurs. Taxes are deferred to the year in which the investor sells the shares. Additionally, even at the time of sale, the stock dividends are subject to taxation at the capital gain tax rates, which are generally lower than ordinary income rates.

Alternatively, only a small portion of dividend payouts – qualified dividends – benefit from the lower capital gains rates. Ordinary dividends are taxed according to the higher ordinary income tax tables. The advantage of stock for the company distributing the dividends is that the company does not have to have cash on hand to distribute this type of dividend.

 

How Dividends Work? – The 7 Things You Need to Know

#6 Qualified dividends versus ordinary dividends

The distinction between qualified and ordinary dividends is in how the IRS treats the two dividend types for taxation. Unless specifically designated as qualified dividends and listed in box 1b of Form 1099-DIV, all dividends generally will be designated as ordinary and taxed at the ordinary income tax rates.

Alternatively, dividend distributions that meet specific IRS requirements are designated as qualified and are eligible to be taxed at the lower capital gains rates. One of the main requirements to attain the qualified dividend status set out in the IRS Publication 550 is that a U.S. corporation must distribute the dividends. However, even some foreign companies can obtain the “qualified” status for their dividend distributions

 

How Dividends Work? – The 7 Things You Need to Know

#7 Special Dividends

In addition to the regular dividend distributions that are paid out in regular intervals — monthly, quarterly, semiannually or annually — equities also occasionally distribute one-time dividends called special dividends. The function of these payouts is to distribute unplanned and extraordinary earnings or assets to the shareholders. The sources of funds for special dividends can be lawsuit awards, liquidation of investments, sales of business divisions, etc.

Since investing in dividend-paying equities can enhance total returns, understanding just a few basics about how dividends work, should give even novice investors the confidence to dive into dividend investing in pursuit of outsized returns on their investments.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


 

Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

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