The Dividend Payout Ratio represents the percentage of a company’s earnings/profits that they pay-out to shareholders in the form of dividends. Companies with higher dividend payout ratios tend to be older, more well-established corporations with long histories of dividend payments. Newer, more growth oriented companies will tend to take earnings and reinvest them in the company, whether via additional fixed investment, inventory expansions, hiring more people, or entering new markets. Continue reading...
A company may reinvest earnings instead of paying out dividends. These earnings do not necessarily sit in a retained earnings account, but are used to improve the business and make it more profitable. This could even include paying off debt. Retained earnings is found in the Shareholder’s Equity portion of a company’s balance sheet. Despite the fact that earnings have not been dispensed to them in the form of dividends or share buybacks, shareholders will see the value of their stock appreciate when earnings are retained and used to grow the business. Continue reading...
A dividend is an income-like payment to an investor who holds stock. Dividends tend to be paid by companies who are well established and are not retaining their earnings for capital projects. There are several kinds of dividends, but the most common is the cash dividend. You are not likely to see dividends paid by companies whose stocks are categorized as Growth stocks. Growing companies are going to be ploughing money back into their company for years. Well-established companies tend to distribute some of their profits as dividends because it allows them to retain loyal shareholders and keep the price of the stock fairly steady. Continue reading...
The dividend rate is basically just the value of the annual dividend of a company, stated as the monetary value. Not to be confused with the dividend yield, or the dividend growth rate, both of which are percentages. Dividend yield and dividend rate are slightly different from one another. The dividend yield is the size of a dividend in relation to the share price, and is stated as a percentage. The dividend rate is actually the amount of money paid out per share, per year, stated as a dollar amount. Continue reading...
Different companies have different approaches to dividends: whether to pay them, whether it’s a fixed amount in the budget or dependent on the kind of expenses they incur each year. These and other considerations make up what is known as a company’s dividend policy. Companies may have a different phases in their development that will lead them to adopt different dividend policies along the way. As a young company in the Growth category, the dividend policy will most likely be not to distribute any dividends. Continue reading...
The Dividend Discount Model (DDM) is a method for valuing a stock, that looks at expected future dividend payouts and adjusts to present value. If the calculated value is less than the current trading price, the security is thought to be undervalued. The DDM is helpful as a tool but should not solely be used in valuation calculations. Perhaps its biggest flaw is that future dividends have to be projected and assumed, which is a far-from-certain practice. Continue reading...
Times Interest Earned (TIE) is also known as the interest coverage ratio, is a cash-flow analysis that compares the pre-tax earnings of a company to the total amount of interest payable on their debt obligations. A healthy ratio indicates that a company will probably not default on loan repayments. To compute this ratio, divide a company’s annual income before taxes by their annual interest payments on debt obligations. This ratio is not concerned with the actual principal due on loans since the principal amount is already pegged to some of the assets on the books of the company, and other fundamental equations will already factor that in. Continue reading...
Ex-Dividend is a classification on a stock that indicates the dividend payable is to the seller of the stock, not the buyer. If a stock is sold on the ex-date or after, the seller will receive the dividend payment. More articles about Dividends — Found Here Continue reading...
If a person buys a stock that pays a dividend on or after the ex-dividend date, where we understand “ex” to mean “after,” it means that the buyer would be buying the shares for the amount that still has a dividend (or some of it) priced-in, but the seller, not the buyer, will get to have the dividend, and the share price will go down immediately after the dividend is paid. Stock prices will tend to go up in anticipation of a dividend, and more so after the declaration date, which might be anywhere from two months to two weeks before the actual dividend is paid, when the company announces when a dividend is to be paid and how much it will be. Continue reading...
Profitability ratios are useful analytical tools to evaluate a company’s ability to generate profits relative to all costs and expenses. A company that has high profitability ratios relative to competitors/peers, or a company that has demonstrated to improve their profitability ratios over time, is generally viewed as a healthy and attractive company from an ownership perspective. Some examples of profitability ratios are profit margin, return on assets, and return on equity. Continue reading...
A dividend yield is a ratio that represents how much a company pays in annual dividends relative to its share price. A dividend yield is represented as a percentage, and is easily calculated. Simply divide the annual dividends paid per year (dollar value) by the per share price of the stock. Here’s the equation in simple terms: Annual Dividends Per Share / Price Per Share = Dividend Yield A company with a higher dividend yield means they pay out more of their profits to shareholders, but it also means that company may be allocated less of their free capital towards investment, research, and other growth areas. Continue reading...
This is a type of automatically convertible security that comes in the form of preferred stock shares, which function basically like bonds, that experience a mandatory conversion to common stock at some point. The dividend enhancement is a higher yield payout than other share classes are offered, to compensate the investor for the lack of control he or she has, since the shares will be converted at a predetermined time by the company. Mandatory convertible shares will offer a higher yield than their counterparts, but it will only last as long as the issuing company has determined. Continue reading...
When an ETF is not able to offer a quick, automatic dividend reinvestment option to clients, it can sometimes take a week or more to get the dividends back into the market. In a rising market, this lag can cause the reinvested amounts to purchase higher-priced shares than they would have been otherwise. This drags the performance of the fund down, compared to an index or more efficient fund. The structure of ETFs prevents them from immediately reinvesting dividends, and they often do not offer what is known as a DRIP, or dividend reinvestment plan, which is built into many pooled investments like mutual funds (and other ETFs). Continue reading...
Dividend ETFs invest primarily in preferred stock and stocks that pay regular dividends. Strategically, they tend to be either Dividend Appreciation or High Yield. Dividend ETFs are equity dividend funds that seek income from preferred stocks, common stocks. As of 2016 there are over 130 Dividend ETFs, and that’s up from about 29 in 2011 and 45 in 2012. This has become a popular strategy, obviously, and they all seek to distinguish themselves from the pack. Continue reading...
The “Joint and Survivor” option on annuities generally provides an income guarantee for the owner and his/her spouse. This option can be applied to an IRA or qualified plan, even though that can only have one owner. Payments from an annuity, even if it is part of a qualified plan or IRA which can only technically have one owner, can be based on two annuitants. This will usually be a married couple, and it ensures that either spouse will receive payments from the annuity, even if one pre-deceases the other. Sometimes the survivorship payout is only a percentage of the original payout, such as 50% or 70%, but this is agreed upon by the annuitants at the time of application, and cannot be changed arbitrarily by the company or the annuitants. Continue reading...
The current ratio is a measure of a company’s immediate liquidity, calculated by dividing current assets by current liabilities. The value of this ratio lies in determining whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are sufficient enough to pay-off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Generally speaking, the higher the current ratio, the better. Continue reading...
Dividend payments are allocated on a per-share basis. The company issuing them may announce the dividend in terms of the dollar value, but investors and analytical services will translate that into a percentage yield. When calculating the dividend from a company perspective, the total dividend amount that they are comfortable declaring is divided by the number of outstanding shares. The dividend per share is an important number, and the growth of this number is the dividend growth rate. Continue reading...
Arbitrage opportunities can be found in a few different places in the market, when risk-free profit can be made. If a stock is purchased before the ex-dividend date, and a put is exercised when the share price falls after the dividend is distributed, it is known as dividend arbitrage. Arbitrage is when an investor finds a situation where one thing can be exchanged for another, such as the same thing on two different exchanges or similar fixed instruments which can be swapped, when no risk is taken and a profit is gained. Continue reading...
Dividend capture is a strategy similar to dividend arbitrage that seeks to reap incremental gains somewhat reliably around the ex-dividend date of a stock. The investor seeks to benefit from the fact that stock prices don’t always go down as much as they should on the ex-dividend date, so by selling quickly at that point, the investor may still get a small gain from the dividend that will still be paid to him or her. Dividend capture is a strategy that plays on slight inefficiencies in prices around the ex-dividend date. Continue reading...
Leveraged Recapitalizations involve issuing new corporate bonds to finance a share buyback or large dividend, essentially rebalancing the capital structure of the business. Dividend recapitalizations will cause the share price to reduce, largely because the company’s debt-to-equity ratio has changed. This can be used to make the company look unattractive to potential acquirers. Recapitalizations are restructuring of a company’s capital. Dividend recapitalizations are sometimes called dividend recaps. Continue reading...