What's a dividend stock?
A dividend stock is a publicly-traded company that shares regular profits with shareholders in the form of dividend payouts. Dividend companies typically offer solid profits and often pay consistent dividends. Many companies pay dividends on a regular basis — some annually, some twice a year, some quarterly. Some dividend stocks even offer payouts each month.
Here's the main question we're after in this article: Is it important to understand the history of a particular dividend stock before you invest? You may have already heard that past performance cannot guarantee future results, and that's true. However, you can still learn some important things as you consider a stock's dividend history.
Let's walk through the answer to the question, "What is dividend stock's history?" We'll also go over why it's a good idea to learn more about dividend stock history, the steps you can take to learn more about dividend stock history, and more.
What is Dividend Stocks History?
The dividend stock history tells you how a particular dividend stock has performed over the course of time.
You can learn a lot from analyzing historical dividend data and a stock dividend history. A company's history allows you to determine how strong a particular company is and whether you should invest in it. Analyzing the history of stocks can help you hone in on stocks that are undervalued and which offer a distribution yield that goes above and beyond other stocks you're considering.
Pro tip: There are several companies that have a long history of dividend stock payments, including the Dividend Aristocrats and Dividend Kings.
Why Should You Learn About Dividend Stock's History?
Looking at historical dividend payouts can give you an idea of historical dividend data, including a wide variety of information such as:
- Emerging dividend trends
- Insight into a company’s dividend approach
- Whether the company has a high payout ratio or not (which could mean that a has less money to invest in the future growth of the business)
- History of dividend cuts (which could result in more dividend cuts in the future)
- Halted or stagnant dividend payouts (which could lead to unsustainable dividend yields in the future)
A stock’s dividend history, similar to its historical dividend yield, can show you how it may perform over time. Companies that make favorable decisions usually perform better in all types of markets, both good and bad. Reinvested dividends have accounted for 84% of the total return of the S&P 500 Index, according to the Hartford Funds.
Steps to Learning About Dividend Stock History
Ready to dig into history? Here's how to learn more about dividend stock history and how it can help you make the most of your investment options.
Step 1: Consider various investment vehicles.
First, pick a few stocks to research. Maybe you already have a clear idea of the investments you want to research. Or maybe you're not sure whether you'll consider individual companies, mutual funds, exchange-traded funds (ETFs) or another type of fund. It's a good idea to consider a wide variety of securities and consider the strength and durability of many items before you make a final decision.
Mutual funds and ETFs will give you a more diversified investment approach. This means that instead of sinking all your money into one type of fund, you'll spread your money out with more diversified funds. If you want this more diversified approach, you may want to consider several of the following types of diversified funds: Vanguard Dividend Appreciation ETF (NYSEARCA: VIG), Vanguard High Dividend Yield ETF (NYSEARCA: VYM), SPDR S&P Dividend ETF (NYSEARCA: SDY) or iShares Select Dividend ETF (NASDAQ: DVY), for example.
Step 2: Do some research.
Financial news sites, apps, and aggregators can offer great research partners because you can use data, tools, and analysis opportunities to help you research dividend data. But where can you find these? Take a look at the following to aid your research:
- Brokerages: Your brokerage may offer some of the best research availability. You can find the history of dividend amounts and payout dates as well as screening and comparison tools. Your brokerage will also be able to compare and contrast similar investments to give you a better idea of the right types of investments that fit your particular needs. You can get a wide variety of personalized reports and analyses from your brokerage.
- Securities and Exchange Commission (SEC) EDGAR system: Don't forget that all publicly traded companies must report dividends paid to investors, as well as their financial information and operations on their Forms 10-K and 10-Q. You can research all of these on the EDGAR system.
- Additional resources: You can also access specific resources on other sites that you may need to pay a subscription for. These types of providers may give you wide access to a variety of information, including upcoming payout dates, selection tools, and other valuable items of information.
- Stock exchanges: The stock exchanges can also help you with your research. You can find out directly from the NASDAQ, for example, which offers a wide variety of research opportunities, including a dividend calendar, screener, and history tools.
Research also involves calculations. Consider comparing dividend yield and dividend payout ratio. The dividend yield compares the dividend paid to the share price of the company's stock. The dividend payout ratio, on the other hand, compares the dividend amount to the company's earnings per share. Use the stock search tool to enter the company name or ticker symbol that you're researching, which will review a company stock chart, profile, and fundamentals as well as whether it offers dividends. You can also find the yield, dividend paid for the year, and per share offered per dividend.
Calculating dividend yield looks like this: You divide the annual dividend per share by the stock's price per share. For example, if the annual dividend is $1 and the stock trades at $25, the dividend yield is 4%: $1/$25.
You can calculate the payout ratio by dividing the yearly dividend per share by the earnings per share. Finding the payout ratio is important because it'll help you identify how much you'll receive in dividends.
Step 3: Go with tried-and-true stocks.
Why fight the rising tide? You might not want to go any further than choosing from the Dividend Aristocrats or the Dividend Kings. You'll know that these have an excellent stock history by the fact that they're on the list at all. The Dividend Kings have a record of at least 50 years of consistent dividend increases, while the Dividend Aristocrats can prove a track record of 25 years of consistent dividend increases.
You may also want to consider a few other investment types. For example, you may want to consider investing in real estate investment trusts (REITs) and business development companies (BDCs) because they pay out almost all earnings to you, the shareholder.
You may want to consider steering clear of growth stocks because they typically reinvest everything they own back into the company. Instead of investing in shareholders, they must kick everything back into trying to grow their business.
Once you do make a final decision about your investments, you may want to set up a dividend reinvestment plan (DRIP), which means you use your dividend payouts to buy additional shares, which will allow you to benefit from compound interest over the course of time.
Learn more in our article, Dividend Kings vs. Aristocrats: Which Should You Choose?
Step 4: Watch out for dividend cuts and other warning signs.
We mentioned before that if the history of the company has shown a dividend cut in the past, it could be a warning sign for the future.
While you're doing your research, you might find it really difficult to push past the idea that you shouldn't invest in a company that has been offering large dividends. However, a company could be relying on borrowed money to keep investors interested. Keep companies at bay that have high debt-to-income ratios.
Research Dividend Stocks History
You can definitely spend your time researching dividend stock history, but don't let the history of the stock dictate your final decision. You'll have to consider a wide variety of factors before you make a final decision about what's right for you.
Ultimately, you're looking for a dividend stock to pay out a dividend year after year, which allows you to pay out dividend returns now and into the future. Consider a wide number of stocks, but the number you ultimately choose to invest in is a personal decision.
Still, confused about how to assess dividend history and/or the stocks you should consider? If you're not sure how to invest or how to get started, consider tapping into the services of investment professionals to make the best possible choices about dividend stocks. A fiduciary financial advisor can help you target the right kinds of dividend stocks for your particular needs and the types of stocks that will meet your goals.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Vanguard Dividend Appreciation ETF (VIG)||$149.23||+0.8%||1.99%||20.10||N/A||N/A|
|Vanguard High Dividend Yield ETF (VYM)||$101.70||+0.9%||3.20%||13.80||N/A||N/A|
|SPDR S&P Dividend ETF (SDY)||$119.49||+1.5%||2.68%||14.72||N/A||N/A|
|iShares Select Dividend ETF (DVY)||$112.56||+1.7%||3.68%||11.69||N/A||N/A|