Picking a dividend stock is more complicated than simply comparing the yields across a set of stocks:
I’ve also learned that a dividend payout doesn’t tell you a thing about a company on its own. A fat payout figure can even be a bad sign if it’s the result of a stock price that’s hit the skids, or if an examination of the company’s cash flows indicates that its payout is unsustainable.
The Motley Fool reports that dividends paid by stocks in the S&P 500 are still quite significant:
But there’s more to know about dividends and the S&P 500. For one thing, dividend payments, in absolute value, have been rising lately. The folks at Standard & Poor’s have noted that dividend payments in 2007 totaled $27.73, up 11.5% over 2006. In the big picture, total dividend payments for S&P 500 companies came to $246 billion.
In 2003, Bush signed into law a cut in the tax rate on ordinary dividends to 15% (down from 35%). In 2010, the law expires. What will happen? Todd Wenning and James Early at the Motley Fool are worried:
As you can see, JGTRRA’s lower tax saved dividend investors quite a bit of money in a short period of time ($225 for the Progress Energy investor!). Over 10 years or more, the difference in after-tax dollars would be even wider.
They point out that since the law went into effect, the number of stocks paying dividends increased dramatically, while the returns on those stocks continue to be above-average:
Companies that choose to pay dividends are often out ahead in terms of corporate responsibility — and stability. In fact, numerous academic studies have shown that dividend-paying stocks beat those that don’t pay out anything. So, politics or not, they’re a smart place to be.
As the stock market appears to be on the downturn, dividends stocks look more appealing. Moreover, the value of such stocks regardless of market conditions has improved since 2000. John Gin writes:
Since the dividend resurgence started early in the new millennium, stocks that pay dividends have steadily overcome their reputation as lackluster performers. In fact, according to Standard & Poor’s, dividend-paying companies returned 18.4 percent in 2006, compared with 13.7 percent for stocks of companies not paying dividends. That means, dividend-paying investments are not only offering the potential for steady income, capital gains have become an added bonus.
According to Merrill Lynch in Europe, the current world economic cycle suggests that one of the best asset classes to be invested in are dividend-paying stocks:
Money can still be made as the cycle turns, chiefly by rotating into short-term cash deposits and quality stocks with good dividend yields such as AstraZeneca, Barratt Developments, Sweden’s retailer H&M, or Spain’s Banco Popular Espanol - along with a few bars of gold bullion.
Stay tuned to this site for dividend stock choice to weather any upcoming economic storm.
Sitting on a load of cash from selling many of its assets, CBS increased its dividend again:
Media company CBS Corp. said Monday its board approved an 11 percent dividend increase, marking it the third boost since the stock’s debut in January.
CBS, which operates its namesake broadcast television network and radio stations, said it will pay a quarterly dividend of 20 cents per share — up from 18 cents — on Oct. 1 to shareholders of record on Aug. 31.
Dividend stocks are most likely to make real products and provide real services that create real cash flow. They then pay some of this real cash flow out to real shareholders in the form of real dollars. You can then choose to reinvest those real dollars into additional shares of real company stock, or take them down to the grocery store to buy a carton of eggs and make yourself a real omelet, or go on a vacation and get yourself a real sunburn.
Fool.com highlights four stocks that recently raised their dividends:
Show me a company that is propping up its dividend and I’ll show you a company worth watching. It’s not about the extra money; it’s about a company confident enough in its future earnings potential to be a bit more generous today.
The stocks are:
In 2003, the Bush adminstration lowered the tax rate on dividends. I looked a little deeper into the bill:
Soon after, the Congress passed the a bill which included some of the cuts Bush requested and which he signed into law on May 28, 2003. Under the new law dividends are taxed at a 15% rate for most individual taxpayers. Dividends received by low income individuals are taxed at a 5% rate until December 31, 2007 and become fully untaxed in 2008. These provisions are set to expire on January 1, 2011.
Also, the bill explicitly encourages longer-term investing:
The lower rates apply to assets held for more than one year.
Stocks on average have higher dividend payouts then they did this time last year. Shirley Lazo writes:
Dividend boosts and extra payouts both increased in the first quarter of 2006.
By Standard & Poor’s reckoning, 626 companies, among the approximately 7,000 publicly owned corporations that report distributions to its Dividend Record, hiked their payouts. That represented a 5.4% gain over the 594 enhancements in January-March 2005 and a 23.2% gain over the 508 in the comparable 2004 span.
Bonus payouts jumped 12%, to 103 from 92. This number includes payments from companies that might have raised their regular dividends, but because of considerable cash could pay an extra, as well. It also includes companies that regard an extra as a safer bet for their image and stock price than a commitment to a higher dividend that they’re not confident of sustaining.
S&P counted a total of seven resumed dividends in the quarter, against nine a year ago.