Sunday, 21 August 2016

Investment metrics : Raising dividends





Another metric that I use when determining when to put my hard earned money to invest is raising dividends.  I like dividend investing, pick your stock, investigate whether it is fits your criteria to be in your portfolio.  Of course, neither me or anyone else can control whether the stock price goes up or down.  I would be lying if I only purchased stocks that increase in value.  That fact is, we can't control anything when it comes to the price of the stock.  What we can control is when to buy and dividends.  For a long term perspective, raising dividends appeal to me, a company that pays outs dividends has an obligation from the board of directors to maintain profits.  In fact, if a company hikes dividends on a regular basis, this translates into the board of directors having not only to maintain profits but to increase them.

An example of the type of chart to look for would be Fortis (FTS.TO).  Currently at a stock price of $42.95 with a quarterly dividend of $0.375 per share, Fortis' dividend yield is 3.49%  The dividend yield for any stock can be calculated by this simple formula.

Dividend per share paid times number of times paid during year / stock price

In Fortis' case, the calculation would be:

(0.375 x 4) / 42.5 = 3.49%

The formula can be changed easily when dividends are paid monthly as opposed to quarterly simply by change the 4 to a 12 in the above formula.

That being said, my ideal stock would have a dividend yield between 3.00% to 5.50%  This is what I would consider the sweet spot of dividend yields.  It gives you enough skin in the game and is also not being greedy.  There are tons of stocks with dividend yields above 5.50% but a high yield indicates a possible dividend cut.  Who wants that.

Here is a chart that sums up the last 4 years of dividend payments for Fortis:



Dividend Date
Dividend
Aug 17, 2016
0.375
May 16, 2016
0.375
Feb 15, 2016
0.375
Nov 16, 2015
0.375
Aug 17, 2015
0.34
May 14, 2015
0.34
Feb 12, 2015
0.34
Oct 22, 2014
0.32
Aug 13, 2014
0.32
May 14, 2014
0.32
Feb 12, 2014
0.32
Nov 13, 2013
0.31
Aug 14, 2013
0.31
May 15, 2013
0.31
Feb 12, 2013
0.31
Nov 14, 2012
0.3
Aug 15, 2012
0.3
May 15, 2012
0.3
Feb 13, 2012
0.3
As you can, the amount of the dividend paid by the company increases once a year.  I like that.  If I was to go further back, I would see regular increases once a year.  Again I like that.  This is the type of chart I look for in a stock, raising dividends on a regular basis.

So along with my article on P/E ratios as an investment metric P/E Ratio  .  Raising dividends are another metric that I use to determine which stock my hard earned money I invest in.