Are you looking to increase your investment income? What is the simplest and quickest way to increase your earnings? Dividends! Not just any dividends but dividends that increase regularly. In this article let's take a look at the power of dividends and some recent dividend increases.
A dividend is money that you receive for being a shareholder. Essentially the company is sharing it's profits with you the shareholder. Let's take a look at a fictional company where the share price is $12 and the annual dividend is $0.48 per share. Let's assume you buy 170 shares in company XYZ for $12 each, your total investment is $2040. In the first year you can expect to receive $81.60 cash (170 shares x $0.48 dividend), which provides a 4% return on your $2040 investment:
Not only should you look for companies that increase dividends but also companies that have been paying dividends for a very long-time (see "Which Company Has Paid Uninterrupted Dividends For More Than 110 Years?").
Now let's take this a step further. If you stop and think about it, there is really only one reason a company's management and board of directors vote for a dividend increase - higher earnings or the reasonable expectation for higher earnings. Once again, the only variable is the amount of time it takes for the market to realize the increased value to the stock because of the dividend increase to push the price higher....From experience, we know that savvy market observers pay close attention to dividend yield, and when the price of a stock falls to a level that creates an attractive return, investment capital will flow to into the stock and halt the decline." In other words a dividend increase will increase the dividend yield, savvy investors will flock to the stock in order to take advantage of the higher yield, over time this results in an increase in the stock price.
Remember focus on quality dividend paying stocks when they are undervalued, and pay particular attention to stocks that regularly increase their dividends. Increasing dividends results in more money in your pocket.
*Page 34, Dividends Still Don't Lie, by Kelly Wright