Dividends

Want To Increase Your Investment Income With Dividends?

By Kanwal Sarai
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Investing TreeAre 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:

Initial Investment: $2040
Return after year 1: 4% = ($81.60 / $2040)
Now let's assume in year 2 company XYZ increases their dividend to $0.62 per share. How much money will you earn? 170 shares x $0.62 = $105.40
Here is an example of regular dividend increases:
Year 1: $0.48
Year 2: $0.62
Year 3: $0.87
Year 4: $0.98
Year 5: $1.21
In the fifth year you can expect to receive $205.70 (170 shares x $1.21) in dividends alone. This represent a return of 10.08% ($205.70 / $2040) on your initial investment. The dividends will be paid to you every year for as long as you own those shares, and as long as the company continues to pay those dividends.
As you can see dividend increase are very powerful, they increase the amount of money you receive each year. Here is a list of companies that have increased their dividends recently:
Amount of increase, Company Name (Stock Symbol)
Canadian Companies
15% Enbridge (ENB)
11% Leon's (LNF)
13% Empire (EMP)
19% Saputo (SAP)
25% Alimentation Couche-Tard Inc. (ATD.A)
17% Cogeco (CGO)
15% Canadian National Railway (CNR)
15% Canadian Utilities (CU)
15% ATCO (ACO.X)
US Companies
33% Sunoco (SUN)
59% CME Group (CME)
20% Hasbro (HAS)
20% Tupperware Brands Crop (TUP)
25% Access National Corp (ANCX)
40% National Instruments Corp (NATI)
25% Limited Brands Corp (LTD)
20% PetMed Express Inc (PETS)

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?").

Dividends Prove a Company is Making Money, and Dividend Increases Raise The Stock Price
*"Dividends prove the company is making money; you can't pay what you don't have. So instead of trying to determine profitability by studying a company's earnings, study its dividend history. At the end of the day dividends are the surest confirmation of a company's profitability, since dividends can arise only from the reality of earnings.

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.

 

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*Page 34, Dividends Still Don't Lie, by Kelly Wright

Kanwal Sarai

With more than 27 years of investing experience and a passion for investing and teaching, I demystify the world of investing. My goal is to help you grow your net worth by investing in quality dividend paying stocks. Build your own stream of increasing income today.

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Showing 3 comments
  • American Debt Project
    Reply

    What do you do when you buy a dividend stock that drops in value? Say you bought a stock and it has dropped in value by 20%, but it continues to provide yearly dividends of the original amount that they provided in the first year. I am in this situation now but just plan to hold on to the stock, since it is a solid company. It is disappointing that the price has dropped considerably though.

  • Kanwal Sarai
    Reply

    Hi American Debt Project,

    If the dividend has not changed, and it is a solid company I hold the stock. I am more of a "buy and hold" investor. I'm in it for the long-term so a 20% drop in value does not scare me. It would be nice if the stock price continues to appreciate, but these things are outside of our control. If the stock was purchased when it was undervalued, and the fundamentals remain strong, in the long run the stock should do well.

    cheers,
    Kanwal

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