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Dividend Increases & Yields to Watch

Dividend Increases

There are two components that comprise the return on a stock market investment: capital appreciation and dividends.

Of the two components of return the only one with any degree of certainty is the dividend. Why is that? First and foremost the cash dividend is a policy that must be voted on and declared by the board of directors. When a company board declares a dividend there are 3 specific dates associated with the dividend: The Record Date; The Ex-Dividend Date; and, The Payment Date.

The Record Date is the date a company establishes who its shareholders of record are. The primary purpose of the Record Date is to ensure that the cash dividend is paid to the appropriate people. The Ex-Dividend Date is the date on which the seller, and not the buyer, of a stock will be entitled to a recently declared dividend.

The Ex-Date is usually two business days before the record date. The Payment Date is the date shareholders who bought the stock before the ex-dividend date receive the dividend.

Because the dividend is central to our approach, we produce the Dividend Increases to highlight dividend activity as a convenience to our readers.

 

Yields to Watch

The dividend yields indicating the Undervalue area have been established over multiple market cycles. Although these low-price/high-yield areas are repetitive, they are neither absolute nor inviolate. In fact, a range of 10 percent above and below Undervalue is normal. Financial academics call this 10 percent range "the standard deviation."

For various reasons though, sometimes specific to a company or to its sector, or due to a disruption in the broad market, stocks will occasionally exceed this 10 percent range. Typically this is a transitory event as abnormally high-yields will attract sufficient buying interest to return dividend yields to long-established norms.

On those occasions when a dividend yield deviates 30 percent or 3 standard deviations or more from its historically repetitive area of Undervalue, Investment Quality Trends will highlight those stocks in the YIELDS TO WATCH so readers can make note of the abnormal behavior and conduct additional research before including a stock or stocks in their investment considerations.