Dividends

I do not know how many people have said to me that they think that dividends a company pays will go up and down with the price of a stock. This is NOT how dividends work. What goes up and down with the price of a stock is the dividend yield.

For example, if you are getting a $1.00 of dividends yearly on a stock that cost $20, you have a yield of 5%. If the price of the stock goes up to $22, then your current yield goes down to 4.55% yield. If the stock's price goes up to $25, then your yield will go down to 4%. If the stock's price goes down to $15, then your yield would go up to 6.67%.

When the dividend rate ($1.00 in the above example) changes, a company usually puts out a press release talking about the change. Dividends can go down, but it is generally not a good sign if a company lowers dividends. When a company raises its dividend it is a generally considered a sign that a company feels that future earnings can cover the new increased dividend.

The best dividend stocks are those that raise their dividends consistently over time.

Please note this discussion is for stocks in Canada and the US. Other countries may do things differently. For example I have Barclay’s bank and they would give out a dividend in the early part of the year depending on how well they did in the past year and then a much smaller dividend near the end of the year. For example in 2003 I received a $336.76 US$ dividend on April 28 2003 and then $187.00 US$ on October 1, 2003.

Things changed for this bank after 2009 and they got into some difficulties. They started to give out 4 dividends a year, one bigger on at the beginning of the year and then 3 equal ones in the remaining part of the year.

On my other blog I wrote yesterday about First Capital Realty (TSX-FCR, OTC-FCRGF)... learn more. Tomorrow, I will write about Stella-Jones Inc. (TSX-SJ, OTC- STLJF)... learn more on December 15, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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