What is a good dividend ratio?
So, what counts as a “good” dividend payout ratio? Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.
Healthy. A range of 35% to 55% is considered healthy and appropriate from a dividend investor's point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry.
Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.
Generally speaking, a DCR of 2 is viewed as good, as this indicates that a company has the capacity to pay its dividends twice over. A DCR of below 1.5 is viewed as a possible concern, signalling the use of loans.
Financial Health Indicator: The dividend payout ratio can be a good indicator of a company's financial health. A consistently high payout ratio may indicate that the company is financially stable and generating healthy profits, while a consistently low payout ratio may indicate financial weakness.
So, what counts as a “good” dividend payout ratio? Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.
Dividend Payout Ratio
The lower the ratio, the more secure the dividend. Any ratio above 50% is generally considered a warning flag.
| Stock | Trailing annual dividend yield* |
|---|---|
| AT&T Inc. (T) | 6.3% |
| Verizon Communications Inc. (VZ) | 6.3% |
| Healthpeak Properties Inc. (DOC) | 6.6% |
| Altria Group Inc. (MO) | 8.8% |
Stocks and mutual funds that distribute dividends are generally on sound financial ground, but not always. Stocks that pay dividends typically provide stability to a portfolio but may not outperform high-quality growth stocks.
Dividend Kings are companies that have paid and raised their dividend for at least 50 years. Some standouts to consider now include Altria, Kenvue, Coca-Cola, 3M, and Walmart.
What is a 30% dividend payout ratio?
A DPR of less than 30% to 35% is a safe ratio. Businesses starting out would pay these dividends and, hopefully, will launch from there. While the dividends would be low, this is a good place to start investing if you believe the company has potential. If the ratio is less than 0%, the company would be losing money.
$4 annual dividend per share / $10 EPS = 40%
A 40% payout ratio would be favorable for an investor because a payout ratio below 50% gives a company enough flexibility to reward shareholders while reinvesting in new projects. Some profitable companies, such as Alphabet Inc.
Lowe's Companies is a dividend paying company with a current yield of 1.88% that is well covered by earnings. Next payment date is on 8th May, 2024 with an ex-dividend date of 23rd April, 2024.
Basic Info. S&P 500 Dividend Yield is at 1.35%, compared to 1.47% last month and 1.66% last year. This is lower than the long term average of 1.84%.
While dividend yield refers to the percentage of the current stock price of a company paid out as dividend over a year, dividend rate is the amount of money that company pays to its shareholders as dividends on per-share basis.
Both metrics are important for equities investors. While the dividend rate indicates total expected income, the dividend yield provides more information on the rate of return and can be useful in comparing different income-paying assets. Apple, Investor Relations.
Understanding the Dividend Payout Ratio. The dividend payout ratio is 0% for companies that do not pay dividends and 100% for companies that pay out their entire net income as dividends. Several considerations go into interpreting the dividend payout ratio—most importantly the company's level of maturity.
Payout Ratio Basics
If a company has a dividend payout ratio over 100% then that means that the company is paying out more to its shareholders than earnings coming in. This is typically not a good recipe for the company's financial health; it can be a sign that the dividend payment will be cut in the future.
For example, if a company issued $20 million in dividends in the current period with $100 million in net income, the payout ratio would be 20%. To interpret the ratio we just calculated, the company made the decision to payout 20% of its net earnings to its shareholders via dividends.
Safe Dividend Stock #1
Ameriprise Financial (AMP) has a market capitalization above $30 billion, with more than 12,000 employees, and more than $1 trillion in assets under management. The company's operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection (insurance products).
Is there a downside to dividend investing?
“One mistake to avoid,” Cabacungan says, “is to buy a company's stock simply because it issues a high dividend.” If the company has leveraged excessive debt to fund the dividend, it could come at the expense of future profitability and hurt growth prospects.
To live off of dividend income alone, you need to receive enough dividend payments each year to cover your expenses. Once you know how much income you need to cover your expenses, you can divide that by the average dividend yield of your portfolio to get a rough estimate of how much you need to invest.
In the end, both Coca-Cola and PepsiCo are solid dividend stocks with strong brands and loyal customer bases. The key is to choose the one that best aligns with your investment goals and risk tolerance.
Microsoft (NASDAQ: MSFT), Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), Chevron (NYSE: CVX), Home Depot (NYSE: HD), JPMorgan Chase (NYSE: JPM), and United Parcel Service (NYSE: UPS) represent their industries well and are all top dividend stocks you can count on for decades to come.
| Dividend Stock | Current Dividend Yield* | Analysts' Implied Upside* |
|---|---|---|
| JPMorgan Chase & Co. (ticker: JPM) | 2.3% | 2.8% |
| Home Depot Inc. (HD) | 2.5% | 10.5% |
| Procter & Gamble Co. (PG) | 2.4% | 15.4% |
| Johnson & Johnson (JNJ) | 3.1% | 25.3% |
