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Investments in shares for a long time allow their owners to receive pleasant periodic payments – dividends even in cases when the value of the securities itself goes down. Although few people know about dividend income, it has been successfully earned by many investors around the world, especially those interested in passive income. Experts share information on how you can earn dividend income.
How do I receive dividends?
For example, if you invested in MTS shares in 2010, then you could get 14.5 rubles of profit per share, which was 5.8% of its quote on the market at that time. Thus, a share of MTS worth 250 rubles in early 2010 brought 1,450 rubles of dividend income to shareholders holding 100 securities. If the share price has also increased by the end of the year, the shareholder has been left with only pluses. But if the exchange rate fell, then dividends were just a consolation bonus.
But it’s worth keeping in mind that dividend income isn’t always the most important metric for savers. Besides, high interest rates on dividends are not always directly proportional to the growth of quotations of the issuer’s securities. For a shareholder, a high dividend percentage is certainly better, but in the long run, both the build-up of payouts and their stability will need to be taken into account.
To take Kimberly-Clark, a successful hygiene and health care products company, as an example. It offers its shareholders a dividend of 3.21%, which may not seem like the highest rate. That said, the company has been raising payout percentages for 44 years and its stock has been rising since 2009. So why not invest?
Calculation of dividends
To find the issuer with the best dividends, it is worth studying a particular industry and comparing data for several of its representatives. Such information includes:
- Price/earnings (the ratio of a stock’s market price to its earnings, for example, average earnings over the last 4 quarters). This indicator makes it possible to understand how much the securities of the selected company are more profitable than those of other issuers. The higher the ratio, the more depositors pay for each unit of income.
- Earnings per share (yield of 1 security). This figure shows how a company’s net income compares to the average annual number of common shares issued. This is how you can determine how often a company raises shareholder distributions.
- Total Returns. This indicator gives an overall picture of the profitability of the securities. The growth of the share value is added to the interest on dividends, which gives the total yield on the share, which can be traced in analytics from brokers.
- Dividend Payout Ratio. Such a ratio makes it possible to understand whether a company can pay out profits to shareholders if its earnings fall. The indicator shows the percentage of profit per share issued by the issuer.
Taking into account all these parameters, it is possible to determine the most profitable company in terms of dividend payments, which will bring its shareholders a stable income, and its shares will show growth in value in the long term. In general, this investment option can be an excellent passive income, which in addition is not affected by inflation.
