Traders trying to benefit from high dividends and related exchange traded funds (ETFs) may look for companies offering high dividends, payouts that may reflect the companies’ healthy earnings growth.
Dividend growth and stock price appreciation are quite synonymous, according Todd Wenning for MSNBC. It is a common misconception that dividend-paying companies who pay a percentage of profits to shareholders are left without enough to reinvest, which would provide slower earnings growth.
Studies have shown that there is a correlation between higher dividend payouts and higher earnings growth. It is shown that companies will be more selective with projects they take on after paying a dividend.
Best dividend-paying stocks in the last decade are ones with capitalizations above $100 million, listed on major U.S. exchanges, provides yearly dividends, has not cut dividends in the last decade, and has increased its dividend at least once.
The companies that were small- to mid-caps 10 years ago had the potential for price appreciation, and had payout ratios below 50%, which allowed for dividend growth. By keeping dividend growth below earnings growth, the conservative companies allowed for opportunities to reinvest.
The top 10 of such companies are: XTO Energy (XTO), Agnico-Eagle Mines (AEM), Occidental Petroleum (OXY), CH Robinson Worldwide (CHRW), Teva Pharmaceutical (TEVA), EOG Resources (EOG), Corporate Office Properties Trust (OFC) Tanger Facotry Outlet Centers (SKT), Potash Corp. of Saskatchewan (POT), Apco Argentina (APAGF).
There are ETFs that focus on dividends, but note that companies mentioned above could be holdings in other sector-specific funds:
- PowerShares Dividend Achievers (PFM):down 12.8% in the last month
- WisdomTree Dividend Top 100 (DTN): down 14% in the last month
- iShares Dow Jones Select Dividend Index (DVY): down 15.7% in the last month
- First Trust Morningstar Dividend Leaders Index (FDL): down 21.5% in the last month
- Vanguard High Dividend Yield Index (VYM): down 13% in the last month
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.