Do You Know Your Return on Investment?

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Any time you invest in something, you should figure our your return on investment (ROI). Your return on investment shows you how long it will take you to recoup your initial investment, as well as provide you with a basis of comparison moving forward. Figuring your ROI is an important part of doing your homework and deciding whether or not to continue with an investment. This is true of dividend stocks.

How to Figure Your ROI on Dividend Stocks

Members Only in dividend stocks, you need to figure your ROI based on the appreciation in the stock price, as well as what you earning in dividends. Some people neglect to consider these two items together. When you are focused on the dividends you are earning, and your income stream, you tend to forget that you have bought a stock, and that stock is affected by the market, gaining or losing in price independent of what you are being paid as a dividend.

Let’s say that you purchase a stock for $50 a share. The dividend yield is 4%, so you end up with $2 a year. Over the course of the year, your stock improves in price by $8, bringing the total to $58. Add your $2 dividend, and you find that your total is $60. Now, you haven’t earned $60 in profit; you have to subtract the original share price from your total. Your profit is actually $10. You divided that $10 by your initial investment of $50 to get 0.2. Multiply that by 100 to get a percentage: 20%.

Now that you know your ROI, it is time to use that information to determine how long it will take you to recoup your original $50 investment. You simply divide 100 by 20 to get 5. It will take you approximately five years to recover your initial investment when you consider the dividend plus the gain in stock price.

Things to Be Aware Of

Of course, there are items that can change the way you earn a return. Stock prices may not always go up. Indeed, three years in, the price might drop. Additionally, the company might cut dividends, changing your ROI. You can refigure your ROI at the end of the year if you are interested in tracking trends in your dividend stock. If it appears that the ROI is diminishing at a fairly regular rate, it might be worth it to consider dropping the stock. Figure out why the ROI is falling. If it has to do with broad economic issues, it might be worth it to hold on. However, if it appears that other problems are surfacing with the company, it might be time to sell and move on.

5 Perfect Dividend Stocks

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Top 100 Dividend List

We have 5 stocks with perfect 100 point ratings from the top 100 dividend list this month.

There are plenty of other high rated stocks coming it at just below perfect and all are worth consideration. McDonalds just missed being perfect because of what we consider a less than perfect dividend growth rate and net income growth rate. Their yield is a little lower than we prefer at 3%, but still solid.

Each of the 5 stocks rated 100 points have a 5 year dividend growth rate over 10% and a 5 year net income growth rate over 10%. Each also has a one year return of 17% or more.

The leader of the pack, and our new #1 rated dividend paying stock has a yield of 8%, a dividend growth rate of 99% and a big one year return of almost 55%.

The healthcare stock rated 100 has only one possible flaw with its higher than normal payout ratio. This stock is actually a REIT so it gets a pass on the payout ratio.

Safe Dividend List

Our safe dividend list saw for the first time no 100 point rated stocks. The highest comes in at 99 points for February. The previously rated number one 100 point safe dividend stock fell to number 5 after it’s payout ratio went above 90.

To learn more about the stocks listed here and get access to the Top Dividend Stocks: Join Now

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A High Margin Dividend Paying Stock

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The JM Smucker Company (SJM) has become a household name. Smucker is known for its fruit spread and jelly products around the world. Smucker has been an American fixture since 1897. The company sells jam, jelly, preserves, peanut butter, ice cream toppings, uncrustables, snack n waffles, coffee and specialty items. The company’s famous motto is recognizable worldwide. You have probably heard this saying as well “with a name like Smuckers, it has to be good”.

Smucker’s participates in the competitive packaged and processed goods industry. Smucker’s is one of the smallest players in an industry dominated by giants like Kraft Foods, Conagra Foods, and Nestle. Companies like Kraft are earnings giants that generate massive amounts of free cash flow. Smucker’s has sought to slowly grow its brand with its most recent acquisition being Folger’s coffee in 2008.

The Margins Are Good

The company has done a good job of doing more with less. Although Smucker has much smaller revenue and earnings numbers than its competitors, the company boasts the highest margins in the industry. Smucker’s operating margins were just shy of 19%, more than double the industry average. Gross margins were outstanding at nearly 40%. The company had $4.6 billion dollars in annual sales and $1 billion dollars in earnings. The company produced a gross profit of almost $1.8 billion dollars.

The company has a solid balance sheet with $535 million dollars in cash and $1.3 billion dollars in debt. Smucker’s has generated $545 million dollars in free cash flow over the past 12 months. Book value is pegged at $46.35 per share. Shares currently trade at 12.4 times next year’s earnings and 1.6 times sales. Smucker only trades at 1.3 times book value.

With a price to earnings ratio of 13.65, shares are trading right in line with the historical earnings growth rates. Earnings growth is expected to slow however with analysts forecasting growth at just 6.5% over the next five years. If the forecast is correct then the stock is not exactly cheap trading at two times PEG. Management must believe that the stock is cheap having instituted an aggressive buy back plan. Smucker’s has agreed to buy back 5 million shares of the company’s stock.

SJM Dividend

The stock has started to show up on the radar of income investors recently. Over the past year Smucker has developed into a dividend play. The company has been steadily increasing its dividend. Smucker just increased its dividend payout 10% last week. The company is now paying shareholders an annual dividend of $1.76 per share which is an effective yield of 2.85%. This is slightly higher than the 5 year average historical payout of 2.50%. The dividend is easily sustainable with the current payout representing just 35% of earning per share.

In my opinion, shares of Smucker are not a screaming buy but the stock is cheap compared to competitors. The company steadily produces earnings quarter after quarter and is slowly becoming an attractive dividend stock. Smucker’s is an attractive takeover target to larger companies in the industry.

Stable Cash Flow with Dividends

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One of the reasons that people invest in dividend paying stocks is in order to create an increase in cash flow into the personal economy. Being able to do this is one of the advantages of dividend paying stocks. You need to be careful, though. When using dividend paying stocks as a source of stable income, it is important to choose solid investments that will provide cash flow that is fairly reliable.

Beware of High Payouts

The basic formula for dividend yield is Annual Dividends per Share/ Price per Share. The result is expressed as a percentage. So, let’s say that you are to get $0.80 each quarter. That amounts to $3.20 per share each year. Perhaps the stock is trading at $75 a share. You divide 3.2 by 75 to get 0.04267. Multiple by 100 to get your percentage: 4.27% is your dividend yield. High yields are attractive because the assumption is that you will get a bigger payout.

You have to be careful of high yields, though. A popular example from recent financial history is that in the early months of 2008, Lehman Brothers had a 13% dividend yield. Do you remember what happened to Lehman later that year? That’s right: The company collapsed and helped trigger a global financial crisis. A high dividend payout is likely to be unsustainable. Additionally, a high yield could indicate that the share price is plummeting. Take our example above. If the share price drops from $75 to $40, all of a sudden the dividend yield is 8% (3.2/ 40). The yield has gone up, but the company might actually be in trouble. And your payout hasn’t actually risen.

Choosing Modest Dividend Yields for Stable Cash Flow

When a company has a high dividend yield, it could mean that they are a start-up trying to attract money, or that they are in a position that is unsustainable. Either way, there is a good chance that your yield could drop in the near future, lowering your income. If you are trying to increase your cash flow, this can create a problem.

Instead of chasing high yields, look for companies that have a yield of between 3% and 6%. These companies are often solid, with a long history of paying dividends. Such companies, like Kellogg’s, Coca-Cola , Pfizer and Johnson & Johnson are reasonably stable companies that have paid dividends for years.

While a dividend cut is always possible, you can reduce the chances of experiencing one when you look for solid companies. While they may not be flashy, if you are looking for stable cash flow, companies with dividend yields between 3% and 6% might be a good bet.

3 Advantages to Investing in Dividend Stocks

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Dividend investors know that there are some very real advantages to investing in dividend stocks. Here are 3 advantages to investing in dividend stocks:

1. You Can Earn Passive Income

One of the main reasons that people invest in dividend stocks is to earn passive income. Dividend payments come at regular intervals, and are in addition to what you might have gained in the stock price. Because you receive a regular dividend payment, it can be used as income. All you have to do is buy the stock and sit back.

It is even possible to set up an automatic withdrawal that will help you buy shares in dividend paying investments on a regular basis. As the number of shares you own increases, so will your income. Eventually you can stop investing in the shares and just sit back and enjoy the passive income.

2. Your Money is Usually (But Not Always) Safe

There is no way to guarantee that your money is safe when you invest it; there is always the chance of loss. However, many dividend companies – especially those that have been around for a while – are solid companies with staying power. When a company is paying out a dividend, it often means that it is in a good position to share its profits with shareholders.

When you invest in a dividend paying company, not only are you receiving a regular source of income, but there is also a chance that your principal will be protected. At the very least, there is a good chance that the company in question will ride out economic problems, recovering eventually.

3. You Can Boost Your Capital Gains

Instead of taking regular dividend payments, some companies allow you the chance to reinvest your dividend earnings. So, instead of getting cash now, your earnings are automatically used buy more stock in the company. This can boost your capital gains down the road, since you are essentially receiving free stock. If the price of the stock increases, the fact that you have more shares will benefit you, boosting your gains. These types of dividend investments are known as DRIPs (dividend reinvestment plans).

The main drawback to dividend investing is that the company can reduce its dividends in times of economic trouble, or for other reasons. Even so, for many investors making use of high yield dividend stocks is a wise choice. It allows them the chance to cultivate another income stream – or boost their gains – with an investment in a company that is likely to survive.

Build Passive Income with Dividend Stocks

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Passive income is the Holy Grail of many who fall into the category of “financially savvy.” Indeed, the ability to maximize money – without having to do a great deal of additional active work – is a concept that most people can cherish. One of the ways that you can cultivate a passive income stream is to make use of dividend stocks.


Use Dividend Stocks to Create a Passive Income Stream

In order to create a passive income stream with high yield stocks, you will need to make sure that the money is coming directly to you, rather than being reinvested.

You can have the money sent to you in the form of a check, or directly deposited into a bank account. The idea is to continue building up your holdings so that your dividends increase, eventually providing you with regular income – without you having to do extra work. There are two main ways you can build up your dividend stock holdings:

1. Lump sum

If you have a fairly large chunk of capital, you can buy a large number of shares in a company that pays dividends to stockholders. This money sits there, possibly earning a return if the share prices increases, and you get the added bonus of receiving a regular dividend payment. There is nothing else you need to do.

2. Dollar cost averaging

Perhaps you don’t have enough capital to buy a large amount of shares. In this case, you can build your holdings gradually. Put in what you can each month, and you will gradually increase your shares in the dividend paying company. After a while, you will notice your dividend checks getting bigger. Eventually, you will have a large enough portfolio to support a steady income stream, and you can stop investing new money if you want.

Remember, though, that you need to keep a few things in mind. You will have to pay taxes on your dividend earnings, so make sure you understand how you will be taxed. Additionally, companies can change the dividends they pay out, so your income can be reduced if a company lowers its pay out. Remember, too, that you could lose money if the price of the stock you are holding tanks. Most companies that offer dividends, though, are fairly stable.

In the end, dividend stocks can be a good way to cultivate a passive income stream that can keep offering you returns for years. No need to do extra work.

Johnson & Johnson Is Still The Cream Of The Crop

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If you have ever been to a grocery store then you have seen the name Johnson & Johnson. With a market cap of over $170 billion dollars, Johnson & Johnson is one of the largest manufacturing companies in the United States. Johnson & Johnson make pharmaceutical products, health care products, consumer staples and medical devices. You name it and Johnson & Johnson make it. The company is famous for its lotions, shampoos, soaps, aspirin, bandages, and beauty products.

Competition

Johnson & Johnson has the benefit of competing in several different sectors. The company makes products that consumers need during economic booms and troughs. Johnson & Johnson has many competitors since the company competes in so many different sectors. Its chief competitors in the consumer staple sector are Proctor & Gamble, Unilver, and Kimberly Clark. In the healthcare sector, J&J’s competitors are Eli Lily, Abbott Labs, and Novartis.

King Of Industry

Johnson & Johnson is the industry king with revenues of over $62 billion dollar and a net profit approaching $14 billion dollars. This is the very definition of a cash cow with nearly $18 billion dollars in free cash flow this year alone. The firm has a fantastic balance sheet with $22 billion dollars in cash and just $12 billion dollars in debt. J&J has $8 per share in cash alone. It’s rare that you find a company with nearly twice as much cash as debt on its balance sheet.


Fundamentals

Quarterly earnings are up 2.2% from the previous year. Revenue growth was down slightly at 0.70% last quarter. That’s not significant enough to be concerned about. Over the past 5 years Johnson & Johnson has been able to grow earnings at a stable 7% clip. That’s right in line with future earnings projections of 6%. Margins were excellent with the company sporting a 26% operating margin and a 21% profit margin. Return on equity was high at 25% and return on equity was average at 10%.

Shares currently trade at 12.5 times next year’s earnings. That’s two times the projected earnings growth. The stocks trades at 3 times book value and 2.7 times sales. That’s expensive for the pharmaceuticals industry but cheap for the consumer staples sector. The stock normally trades at a premium valuation because of its safety and steady growth potential.

Johnson & Johnson is attractive to fixed income investors because of its great credit rating and outstanding dividend. Johnson & Johnson has increased its cash dividend for 48 consecutive years. The company is currently paying a $2.16 dividend which is a 3.40% yield. This is much higher than the 5 year historical yield of 2.60%. The dividend is easily sustainable with a dividend payout rate of 42%. The chances are very good that Johnson & Johnson will be increasing its dividend against this year for the 49th consecutive year.

Make $1000 A Month With These Dividend Stocks

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Generating monthly income is a top priority for everyone. Most of our expenses recur monthly and we need monthly income to keep things going. One of the most attractive features of dividend-paying stocks is that they pay you cash. But most dividend stocks pay out their dividend on a quarterly basis. Wouldn’t it be great to get paid monthly instead of quarterly?

Well you can. There are over 100 stocks that pay dividends monthly and many of them have high yields.


It takes money to make money with dividend stocks. We picked three of those stocks that would provide you with $1,000 a month income with less than $100,000 invested. We put together an example of the number of shares and the amount you would have to invest in each of the three companies to total $1k in dividends per month.

1. Pioneer High Income Trust – PHT

Pioneer high income trust has a dividend yield of 10.6% and pays out 100% of its income. Their dividend growth rate is on the decline but they have be consistently paying their dividend and they have a high yield. They are well below their 5 year dividend average of 12.9%.

Last Price: 15.54
Shares: 2250
Value of Shares: $34,965
Monthly Dividend Paid: $309.38

2. Pimco High Income Fund – PHK

The Pimco High Income Fund has a big yield at 11.3%. This is also below their 5 year average of 14.7% and their latest payout ratio is 129%. So there is a little risk here of the dividend being reduced or of the stock being sold off a little. They have been paying their dividend consistently though for 7 years.

Last Price: 12.89
Shares: 2510
Value of Shares: $32,353
Monthly Dividend Paid: $305.71

3. Alpine Global Dynamic Dividend – AGD

We saved the best for last. Alpine has a huge yield at 14.8% and their payout ratio is only 73%. They are actually above their 5 year dividend yield average indicating that the stock might be slightly undervalued. Another item to watch with the Alpine global dynamic dividend fund is that their monthly payments are not always the same. They tend to jump around from month to month at somewhere between $.06, $.11 and $.13 per share. We will use an average to calculate our numbers below.

Last Price: 7.81
Shares: 4000
Value of Shares: $31,240
Monthly Dividend Paid: $385

Adding it up

In total we have $385 + $305.71 + $309.38 = $1000.09 per month. To reach this level of dividend payouts we had to invest a total of $98,558.90.