Quarterly Payouts: Exploring Investments With Regular Dividend Schedules

Dividends are regular payments made by companies to their investors or shareholders. They are usually paid quarterly, but can also be paid monthly, semi-annually or annually. Dividends are a way for companies to share their profits with investors and are often seen as an indication of a company's financial well-being and stability. Dividends can be paid in cash or additional shares, and the amount is decided by the company's board of directors.

Dividend stocks: how to invest and best stocks to buy

Dividend stocks are shares of companies that make regular payments to their shareholders, usually in the form of cash. Dividend stocks can be a great choice for investors looking for passive income. Dividends are generally paid quarterly, but some companies pay dividends semi-annually or annually, and some even monthly.

Dividend stocks can be a useful source of income, but the best dividend stocks can also be an excellent way to increase your wealth over the long term. Dividend stocks have proven to be market-beating investments, and they are not just for income investors. Many great growth stocks also pay dividends.

How to Invest in Dividend Stocks

There are two main ways to invest in dividend stocks:

• Through funds (such as index funds or exchange-traded funds) that hold dividend stocks.
• By purchasing individual dividend stocks.

Things to Look for When Investing in Dividend Stocks

• Identify dividend stocks that meet your criteria, such as yield for income or a history of dividend growth.
• Research the history of earnings growth. Dividend growth is sustainable only if a company's earnings have also steadily grown at a similar or higher rate over time.
• Consider valuation. Paying a premium for a high-quality business can sometimes be justified, but overpaying can significantly weigh on long-term returns.
• Determine position sizing. Consider how much exposure you want to a particular stock, how much income you expect it to generate, and other factors to ensure you buy an appropriate amount.
• Focus on the long term. Dividend stocks deliver the best results when bought and held for many years.

What to Look for in Dividend Stocks

• Payout ratio: A stock's payout ratio is the amount of money the company pays per share in dividends divided by its earnings per share. A reasonably low payout ratio (say, 70% or less) is a good sign that the dividend is sustainable.
• History of increases: It's a very good sign when a company raises its dividend year after year, especially during recessions and other tough economic times, such as the COVID-19 pandemic.
• Steady revenue and earnings growth: When looking for the best dividend stocks to own for the long term, prioritize stability. Erratic revenue and fluctuating earnings can be signs of trouble.
• Durable competitive advantages: This is perhaps the most important feature. A durable competitive advantage can take several forms, such as proprietary technology, high barriers to entry, high customer switching costs, or a powerful brand name.
• Supportable yield: Compare dividend yields after ensuring the business is healthy and the payout is stable.

Best Dividend Stocks to Buy

• Lowe's (LOW)
• Realty Income (O)
• Chevron (CVX)
• Target (TGT)
• Starbucks (SBUX)
• Brookfield Infrastructure (BIPC) (BIP)
• Microsoft (MSFT)
• American Express (AXP)
• Clearway Energy (CWEN.A) (CWEN)
• Verizon Communications Inc. (VZ)
• Stellantis NV (STLA)
• Gilead Sciences Inc. (GILD)
• National Storage Affiliates Trust (NSA)
• British American Tobacco PLC (BTI)
• United Micro Electronics (UMC)
• Molson Coors Beverage Co. (TAP)
• Banco de Chile (BCH)

Dividend yield and how to calculate it

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is calculated by dividing the annual dividend per share by the current market share price and is expressed as a percentage.

The formula for calculating dividend yield is as follows:

Dividend Yield (%) = Dividend Per Share (DPS) ÷ Current Share Price

Here's an example of how to calculate dividend yield: Let's say Company A has an annual dividend per share of $6 and its current share price is $270. Plugging these numbers into the formula, we get:

Dividend Yield (%) = $6 ÷ $270 = 2.22%

So, Company A's dividend yield is 2.22%. This means that for each share of Company A's stock, an investor can expect to receive annual dividend payments amounting to 2.22% of the share price.

It's important to note that dividend yield only considers the dividend amount and the current share price. Other factors, such as the company's financial health, dividend consistency, and overall market performance, should also be considered when evaluating dividend stocks.

Additionally, dividend yield can be influenced by the frequency of dividend payments. While dividends are typically paid quarterly, some companies may pay dividends more or less frequently. When calculating dividend yield, it's important to annualize the dividend amount by multiplying the quarterly dividend by four to get the annual dividend.

By understanding dividend yield and how to calculate it, investors can compare the dividend returns of different stocks and make more informed investment decisions.

Dividend payout ratio and how to calculate it

Dividends are the percentage of a company's earnings that are paid to its shareholders as their share of the profits. They are generally paid quarterly, but can also be paid out monthly, semi-annually, or annually.

The dividend payout ratio gives investors an idea of how much money a company returns to its shareholders relative to how much it keeps to reinvest in growth, pay off debt, or add to cash reserves. It is calculated using the figures found at the bottom of a company's income statement.

The formula for calculating the dividend payout ratio is:

Dividend Payout Ratio = Dividends Paid / Net Income

Alternatively, it can be calculated as:

Dividend Payout Ratio = 1 - Retention Ratio

Where the retention ratio is the percentage of net income retained by a company after dividend payments.

The dividend payout ratio can also be calculated on a per-share basis:

Dividend Payout Ratio = Dividends per Share / Earnings per Share (EPS)

Where EPS represents net income minus preferred stock dividends divided by the average number of outstanding shares over a given time period.

A dividend payout ratio of anywhere from 30% to 50% is generally considered good. A high payout ratio indicates that the company is reinvesting less money back into its business and paying out more of its earnings as dividends, attracting income investors who prefer a steady stream of income. On the other hand, a low payout ratio indicates that the company is reinvesting more money back into expanding its business, potentially generating higher levels of capital gains for investors in the future and attracting growth investors.

Dividend types

Secondly, dividends can be classified based on their form. The most common type of dividend is a cash dividend, paid directly into the shareholder's brokerage account. However, companies can also pay dividends in the form of additional shares of stock, known as stock dividends. Stock dividends are paid in fractional shares.

Thirdly, there are different types of dividend stocks. Dividend reinvestment programs (DRIPs) allow investors to reinvest any dividends received back into the company's stock, often at a discount. Special dividends are another type of dividend that pays out on all shares of a company's common stock but do not recur like regular dividends. Preferred dividends are payouts issued to owners of preferred stock, which functions more like a bond than a stock, and are generally fixed.

Lastly, dividends can be classified as qualified or non-qualified for tax purposes. Qualified dividends, issued by US-traded companies to shareholders owning the stock for more than 60 days, are subject to the capital gains tax rate. Non-qualified dividends are taxed at standard income tax rates.

Dividend taxes

Dividends are distributions of property a corporation may pay you if you own stock in that corporation. Corporations pay most dividends in cash, but they can also be paid as stock in another corporation or as any other property. Dividends are classified as either ordinary or qualified. Ordinary dividends are taxable as ordinary income, while qualified dividends that meet certain requirements are taxed at lower capital gain rates.

For dividends to fall in the qualified category, they typically must be paid by a U.S. corporation or a qualifying foreign corporation. Generally, you must also meet the holding period requirement. The holding period for most types of qualified dividends requires you to have held the investment unhedged for more than 60 days during the 121-day period that starts 60 days prior to the ex-dividend date. The ex-dividend date is typically one day before the "date of record" or "record date." If you purchase a dividend-generating investment on its ex-dividend date or after, you typically will not receive the next dividend payment.

The tax rate is 0% on qualified dividends if taxable income is less than $44,625 for singles and $89,250 for joint-married filers in the tax year 2023. Single filers who make more than $44,625 or $89,250 jointly have a 15% tax rate on qualified dividends. For those with income that exceeds $492,300 for a single person or $553,850 for a married couple, the capital gains tax rate is 20%.

There is an additional 3.8% Net Investment Income Tax (NIIT) on investment gains or income. The IRS uses the lowest figure of net investment income or the excess of the modified adjusted gross income (MAGI) that exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately to determine this tax.

Ordinary dividends are taxed at income tax rates, which as of the 2023 tax year, max out at 37%.

Frequently asked questions