Here are numbers ambitious investors can sink their teeth into: Over the last 12 months, Netflix (ticker: NFLX) is off 14 percent; Amazon.com (AMZN) trades at about $750 per share; and Apple’s (AAPL) latest quarterly report, released Tuesday, showed earnings of $1.42 per share, which beat Wall Street expectations by 4 cents.
Ah, but what about the tally of the dividend — or for some, the ho-hum dividend? The frumpy dividend? The dividend that lacks that headline-grabbing bite?
Too often these payments — extended to shareholders as a result of quarterly excess earnings — are held in low esteem by some investors.
“It’s hard to escape the daily stock market prices,” says Grant Moore, a certified financial planner with Savant Capital Management’s office Rockford, Illinois. “Whether it’s on the news, on an app on your phone or in the paper, the S&P and Dow are seemingly everywhere.”
Yet savvy investors limit their attention to headlines and earnings reports. “Dividends can provide consistent cash flow over time so that investors may not even need to sell the stock if they’re able to just live on the dividend,” Moore says. “As a result, too much emphasis is placed on just the stock price alone.”
[See: Oil ETFs: 8 Ways to Invest in Black Gold.]
That’s especially true now. “The current reporting season illustrates the tendency for investors to focus on short-term stock price movements over long-term investment,” says Douglas H. DeLong, senior vice president and portfolio manager at Pennsylvania Trust, a wealth management and investment firm in the Philadelphia region.
“Investors generally do not recognize the importance of dividends,” DeLong says. “But according to a study by Strategas Research Partners, dividends have contributed over half of the market’s total return over the past 85 years.”
Those apathetic toward dividends should also take a cue from institutional investors, says David W. Karp, founding partner of PagnatoKarp in Reston, Virginia.
“Perhaps historically some people have ignored them, but now, given how low interest rates have been, investors have taken notice of dividends as a source of annual cash yield,” Karp says.
“We would argue that stocks with high free cash flow yield and high dividends are good holdings for investors, especially retirees,” says Sean O’Hara, president of Pacer ETFs, an exchange-traded fund issuer based in Paoli, Pennsylvania. “They generate higher income, have better growth potential and more downside risk management than broad-based indexes or other equities with less solid fundamentals.”
But attractive as dividends can be, some companies simply don’t play ball.
Apple, for example, stopped issuing dividends in 1995 and didn’t resume until 2012 — almost a year after the passing of Steve Jobs. As of Tuesday, Apple declared a dividend of 57 cents per share. That’s not exactly an avalanche of cash, and way off from the $3.05 given this time in 2014. But it’s better than iZilch.
This gets to the heart of the dividend question: How can dividends fatten portfolios over time? Experts contend that dividends can open the door to reliable returns, with the goodies sometimes streaming in for generations.
[See: 7 Global Goats That Could Bring Market Mayhem.]
Johnson & Johnson (JNJ), for example, is known in financial parlance as a “dividend aristocrat.” For 54 years now — ever since John F. Kennedy was in the White House — the health care and pharmaceutical giant has increased dividends every year. Even the mighty Apple hasn’t managed an unbroken string over just four short years.
In May, J&J’s dividend jumped 6.7 percent, upping the payout from 75 cents per share to 80 cents quarterly. Sure, a Band-Aid variety pack costs about $12. But over 54 years and an automatic reinvestment of dividends into shares, you could probably buy enough bandages to fill a semi.
So far in 2016, JNJ has paid $2.56 cents per share — or $256 if you owned 100 shares. “So the next year, the $256 that are reinvested would pay you another $2.56 per share plus whatever the increase is, typically 5 to 8 percent,” says Yale Bock, president of Y H & C Investments and a portfolio manager on Covestor.
“Over a long period, these reinvested dividends can accumulate a large number of shares, which can be worth substantially more, especially if the shares appreciate,” Bock says. In the long run, “return analysis has shown approximately 40 percent of the total return — capital appreciation plus income — is attributed to dividends.”
Yet some dividend kingpins have all the public profile of clothespin. Chicago-based Dover Corp. (DOV), for example, definitely lacks the high-tech sizzle of LinkedIn Corp. (LNKD) or Twitter (TWTR). Its business concentrates on fluid management, industrial products and manufacturing support systems. Yawn.
But while tech companies have flirted with trouble through 2016 — LinkedIn was rescued by Microsoft Corp. (MSFT), Twitter still in a #superslump — Dover even outdoes J&J, with a yearly dividend winning streak going on 60 out of 61 years. DOV’s dividend stands at 42 cents per share, more than twice the 16 cents per share offered 10 years ago. In September 2015, ETF Daily News named Dover its No. 1 dividend achiever.
Yet if you can’t be the king, it’s still good to be the ruler.
“Colgate Palmolive (CL), Procter & Gamble (PG), and Coca-Cola (KO) are all examples of ruler stocks,” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. That is, if you place a ruler on a graph from the start of dividend payments to the end, most points would be very close to the ruler.
[Read: The Valuable World of Value Investing.]
“Ruler stocks are ideal for dividend investors because of the consistency in the dividend growth,” Johnson says. Or, if you prefer, they’re a great measure of wealth creation.
More from U.S. News
8 of the Most Incredible Investments of the 21st Century
10 Long-Term Investing Strategies That Work
Chinese ETFs: 9 Ways to Play the Middle Kingdom
Crossing the Dividend Divide originally appeared on usnews.com
