The Ultimate Guide to Dividend Stocks

The stock of companies that pay out a portion of their earnings to a class of shareholders on a regular basis are known as Dividend Stocks. Dividend investing provides investors with steady cash flow over the long term. Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend.  

Larger, established companies with predictable profits are often the best dividend payers and industry sectors such as Basic Materials, Oil & Gas, Banks & Financial, Health Care and Utilities maintain a regular record of dividend payments. However, Start-ups may not offer regular payments as these companies are in their earlier stages and retain earnings for R&D.  

In this article, we will summarise the key concept an investor needs to understand before investing and evaluating the best dividend stocks for their portfolio. 

Analysing Dividend Stocks 

3 ratios are used particularly to analyse dividend stocks. 

• Dividend yield. This is another percentage figure representing a stock’s annual dividend amount divided by its current price per share. Dividend yield gives investors an idea of how much a stock pays in annual dividends relative to its price. 

• Dividend Pay-out Ratio. The DPR measures how much of a company’s earnings are paid out to shareholders. Investors calculate the ratio by dividing total dividends by net income. 

• Dividend Coverage Ratio. This ratio measures the number of times a company can pay dividends to its shareholders. Investors calculate the dividend coverage ratio by dividing a company’s annual earnings per share (EPS) by its annual dividend per share. 

Dividend Dates 

• Announcement date: Dividends are announced by company management on the announcement date (or declaration date) and must be approved by the shareholders before they can be paid. 

• Ex-dividend date: The date on which the dividend eligibility expires is called the ex-dividend date or simply the ex-date.  

 For instance, if a stock has an ex-date of Monday, May 5 then shareholders who buy the stock on or after that day will NOT qualify to receive the dividend. 

• Record date: The record date is the cut-off date, established by the company to determine which shareholders are eligible to receive a dividend or distribution. 

• Payment date: The company issues the payment of the dividend on the payment date, which is when the money gets credited to investors’ accounts. 

Advantages of Dividend Stocks 

Two key advantages of investing in dividend stocks includes generating a passive income and reinvestment.  

• Passive Income: Companies that pay dividends typically issue them quarterly, creating a reliable stream of passive income that investors can spend. Dividends also have the added advantage of offsetting share price depreciation. 

• Dividend Reinvestment: Investors can reinvest dividends they receive back into the company to acquire more shares. This is called a dividend reinvestment plan (DRIP). Participating in a DRIP allows the investor to take advantage of compounding returns—a proven strategy to build long-term wealth. 

Dividend Stocks to consider for November 2022 

• Verizon Communications (VZ) 

Verizon Communications (VZ) is an American multinational      telecommunications conglomerate. The company is one of the largest telecommunication companies in the world. The current dividend yield as of November 1^st, 2022 is 6.93% and the current dividend TTM pay-out is $2.61.  

The company reported 3rd quarter 2022 earnings of $1.32 per share, along with revenue of $34.2 billion. This was compared with analysts’ consensus estimates which were earnings of $1.28 per share and revenue of $33.9 billion. 

• OneMain Holdings Inc. (OMF) 

OneMain Holdings Inc. is a consumer finance company that provides origination, underwriting, and servicing of personal loans, primarily to non-prime customers. The current TTM dividend pay-out for OneMain Holdings (OMF) as of October 17, 2022, is $3.80. The current dividend yield for OneMain Holdings as of October 17, 2022, is 11.60%. 

• Lumen Technologies Inc. (LUMN) 

Lumen Technologies is a technology and communications company that provides services to consumers and businesses worldwide. It provides an integrated platform that brings together network assets, cloud connectivity, security solutions, and voice and collaboration tools to help businesses use their data and adopt innovative technologies. 

The current TTM dividend pay-out for Lumen Technologies (LUMN) as of October 17, 2022, is $1.00. The current dividend yield for Lumen Technologies as of October 17, 2022, is 14.88%. 

Bottom Line 

Before investing in a Dividend Stock, always do a thorough research about the history of dividends, along with revenue and earnings growth. 

A pay-out ratio of 35% to 55% is considered healthy because a company that distributes up to half of its earnings as dividends is likely to be a good performer and an industry leader. Importantly, it is reinvesting a good share of its earnings back into itself for growth. 

Also look for solid market share and competitive advantages as these can help companies maintain their ability to be excellent performers. Dividend yield is one tool to use to screen for dividend stocks that are potentially worth owning. Overly high dividend yields may indicate that a company is struggling. Likewise, companies with extremely high pay-out ratios can also signal danger to investors. 

Before investing your money, invest some time in looking for companies that are financially healthy enough to sustain and potentially grow their dividends, and continue to offer an attractive dividend yield. 

Thanks for reading and stay tuned for more!