Dividends – Have Your Cake and Eat It, Too

Thursday, December 3, 2009

393529_cakeLast month I wrote about common stock dividends being a way to increase yield in “Another Way To Harvest Yields: Common Stock Dividends.”

Today I would like to add dividends into the recent growth discussions. They provide two benefits to common stock investors: income independent from a company’s stock price growth and the potential for an increasing stream of payments as the company grows. Here is the view of the Dow Jones Industrial Average stocks, sorted from low to high dividend yield…

DJIA div yld ++

The first column shows the current dividend yield – a decent income stream separate from the potential for stock price gains.

The second column shows the dividend cuts made during the recent economic/financial turmoil. (Note: The highlighted companies cut their dividends in 2008/2009 to conserve cash. The cuts were so large that there is a possibility that they will be partially reversed in the future.)

The third column shows the total earnings yield projected for 2010, and the fourth column shows the amount of earnings paid out in dividends. In general, companies with higher growth prospects tend to pay out less, retaining more earnings to reinvest in the business.

The last column shows the long-term (5-year) projected growth rate. Typically, the growth rate supports dividend increases as well as stock price gains. This is how we can have our cake and eat it, too.

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John Tobey on Seeking Alpha

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December 2009