Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How To Find High-Yield Dividend Stocks That Are Safe

InvestorEducation / Dividends Feb 14, 2019 - 01:57 PM GMT

By: John_Mauldin

InvestorEducation

BY ROBERT ROSS : Investing is all about making the right choices. And one of them is owning dividend stocks.

Let’s look at two companies as examples: Berkshire Hathaway (BRK.B) and JPMorgan Chase (JPM).

Since the 2008 financial crisis, both stocks have more than doubled:




JPMorgan Chase gained 141%. Berkshire Hathaway shot up 113%.

That’s a pretty big difference—but wait until we factor in dividends.

With dividends, JPMorgan Chase crushed Berkshire Hathaway big time.

Dividends Add Up Over Time

Since the start of 2008, JPMorgan Chase has regularly paid a dividend. The company’s average dividend yield during this period was 2.8%.

That’s not a huge dividend. It roughly matched the average S&P 500 dividend yield.

A modest dividend might not seem like much. But look what happens when it adds up over time.

On January 2, 2008, JPMorgan Chase stock was $42.17. Since then, the company has paid $16.46 in dividends.

If you had bought shares on that date, you would have earned a 39% return in just dividends.

That boosts JPMorgan Chase’s total return to 180%. Berkshire Hathaway shareholders who didn’t get paid any dividends are left with the same 113%.

That’s a huge difference. And it’s only over a 10-year period.

Over the past 20 years, JPMorgan Chase has rewarded investors with an 85% return—from dividends alone!

But there’s also another reason you must own dividend stocks today. It’s rising interest rates.

Dividend Stocks Thrive When Rates Rise

When interest rates are low, it’s cheaper for a company to borrow money.

When rates climb higher, the opposite happens. It costs more for a company to run and grow its business.

That can lower a company’s earnings and drag down its share price. But this isn’t true for all stocks.

A study by ETF provider Global X Funds found that between 1960 and 2017, stocks that performed best in a rising rate climate were high dividend-paying stocks.

How high? Stocks that paid 6.4% or better in dividends beat the S&P 500.

But here’s the catch. You must own the right kind of dividend-paying stocks. Be especially careful with stocks paying big dividends.

Hidden Dangers You Should Be Aware of

When rates rise, stocks with high dividends beat the S&P 500 seven out of 10 times.

But you don’t want to buy just any stock with a big dividend. Many struggling companies pay fat dividends as a way to lure investors.

Worse, some companies go as far as borrowing money to pay their dividend. That’s a recipe for disaster.

A Dividend Cut Is a Death Sentence for Any Stock

Even companies with timeless brands aren’t immune from dividend cuts.

Here’s what happened to General Electric (GE) when it took investors by surprise and slashed its dividend 50% in November 2017:



GE shares plunged over 10% on the news.

One year and a second dividend cut later, shares have been smashed 57%.

That’s why I developed a tool that helps gauge the safety of a company’s dividend.

I call it the Dividend Sustainability Index (DSI).

How to Select the Right Dividend-Paying Stock

Dividend Sustainability Index (DSI) looks at three key things when evaluating dividends.

The most important is the payout ratio. It is the percentage of net income a firm pays to its shareholders as dividends.

The lower the payout ratio, the safer the dividend payment.

The second is the debt-to-equity ratio. The more debt a company has, the harder it gets to run a business. This includes—you guessed it—paying the dividend.

The third is free cash flow. It is the amount of cash left over after a company pays its expenses.

If any of these measures is flashing red, the dividend is in trouble. Avoid these stocks by any means.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules