Dividend Stocks: An Overview
Dividend stocks are stocks of companies that pay out a portion of their earnings to a class of shareholders on a regular basis. Usually, these companies are well established, with stable earnings, and a long track record of distributing some of those earnings back to shareholders.
The distributions are known as dividends and may be paid out in the form of cash or as additional stock. Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend.
While dividend stocks are known for the regularity of their dividend payments, in difficult economic times those dividends may be cut to preserve cash.
One useful measure for investors to gauge the sustainability of a company’s dividend payments is the dividend payout ratio (DPR). The ratio is a measure of total dividends divided by net income. It tells investors how much of the company’s net income is being paid to shareholders in the form of dividends versus how much the company is retaining to invest in further growth.
If the ratio exceeds 100% or is negative (meaning net income is negative), the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively greater risk of being cut.
Dividend stocks, as measured by the S&P 500 Dividend Aristocrats Index, have outperformed the broader equity market. The index has provided a total return of 0.3% over the past year, above the Russell 1000’s total return of -8.2%.
Below, we look at the top five dividend stocks in the Russell 1000 by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. Several of them outperformed the broader market in the past year.
These market performance numbers and all statistics below are as of Aug. 24, 2022.
Key Takeaways
Dividend stocks are stocks of companies that pay shareholders a percentage of earnings regularly.Dividends are usually paid quarterly but can be paid semi-annually or annually.Dividend yield is the…..
