They Are Important like Graduation Announcements
In past “Understanding Dividend” posts, I have talked about dividend yield, dividend payout ratios, and dividend frequency. Today I want to talk about the importance of dividend announcements. What can you learn, and why is it important to watch announcements for the positions you hold?
You see announcements just about every day. I remember going to the post office in Naperville and seeing announcements on the bulletin board for WANTED criminals. When a baby is expected, the parents make an announcement. Wedding engagements are announced, as are graduations, promotions, bankruptcies, Black Friday sales, and a host of others. For investors, announcements from a company’s board of directors are important, but probably not as important as baby arrivals or wedding plans. Investors, however, should understand the value of the announcements.
What Can You Learn?
There are at least four things you can quickly learn. The first is the dollar amount of the dividend per share. Therefore, because I have 100 shares of WM, and the Waste Management board of directors announced a dividend of $0.65, I know that I will receive $65.00 at some point in the future if I don’t sell the shares before the Ex-Dividend date.
The second important piece of information is either “in line with”, “an increase of x.x%”, “a decrease of x.x%, or some even worse news, like having the dividend suspended. Because many of our stocks are dividend growth stocks, about once per year I see an email that tells me of the increase for each of our stocks.
The third piece reminds me of the “Forward yield.” This is expressed as a percentage of the current price for the WM shares. As you can see from the Fidelity display, the closing price for WM shares was $174.24. If I multiply the announced dividend ($0.65) by four, I get $2.60 per share in expected annual dividends. Then if I divide $2.60 by $174.24, I will see a yield of 1.49%. That agrees with the Seeking Alpha email. Remember, do not buy an investment purely on yield. You should know the payout ratio and the dividend history when making an investment decision.
The fourth piece gives me three dates. There are only two I look at. One is the “Payable” date, which in the case of WM is September 23. The other is the Ex-Dividend date. That date is September 8. The Ex-Dividend date is important, because if I sell my 100 shares any time before September 7, I will not receive the WM dividend.
The fifth piece is a very helpful link to the Seeking Alpha website. In the case of WM, the link is to “See WM Dividend Scorecard.” This takes me to a screen that looks like the following:
This is a quick way to see the Dividend Payout Ratio, the 5-Year dividend growth rate, and the number of years the dividend has been increased. As you can see, all three values are encouraging (if you have read my previous “Understanding” posts).
If you own shares of a Canadian company, like BNS, TD, or CM, then you will see the dividend expressed in “CAD.” This is the currency abbreviation for “Canadian Dollar.” The $1.03 dividend will not appear in your account. Rather, you will be paid in USD (United States Dollars) so you can go to a conversion web site to get the $1.03 translated to USD. The actual dividend, using a tool like that is
Why Are Dividend Announcements Important?
There are two reason I want to know if and when I will receive a dividend. The first is that I generally sell investments that cut or suspend their dividend. The reason is simple: dividend investors invest for dividends. If a company reduces or suspends their dividend, I want to understand “why.” Often the reason is that the company is experiencing problems. There are exceptions. When Ford suspended their dividend, I held my shares and bought more. The Ford dividend has been reinstated and is growing once again.
The second reason is that knowing a dividend is coming prevents two mistakes. The first is the general mistake of selling my shares during bear markets and recessions. I don’t care what the price of my shares are if I don’t sell them. I am more interested in the dividend. In addition, if I do plan to sell some or all of my shares, I will consider the Ex-Dividend date. Rarely do I sell an investment with a dividend that will be credited to my account in a couple of weeks.