DIVICENTS

Author: Steve

  • Payout Ratio

    Payout Ratio

    What is it?

    The payout ratio, or dividend payout ratio, is how much money the company earns (EPS) compared to what it is actually paying out to its shareholders in dividends (DPS), typically expressed as a percentage.

    As a formula it looks like this:

    For any dividend investor this is perhaps one of the most important metrics but probably the least used in practice.

    The reason the Payout Ratio is important is because it give you the clearest indicator if the potential for a dividend cut is coming. If a company is paying out more in dividends then it earns the Payout Ratio will tell you all about it.

     

    How does it work?

    1. DIVI-CENTS CORP has an earnings per share of $1 and dividends payout of $0.70 per share. This shows it has a Payout Ratio of 70%. Not Bad. Now lets look at the competition.
    2. DIVI-MART INC has an earnings per share of $2 and dividends of $2.55 per share. The Payout Ratio is 125%. Not too good!

    Which company has the more sustainable dividend payout?

    In some cases, a payout ratio can exceed 100 per cent.

    Why should you care?

    Depending on DIVI-MART INC balance sheet, it could possibly dip into it cash reserves or borrow depending on it’s credit, to keep the dividend going. The problem is a company can’t pay out more than 100% forever. Sooner or later it will be forced to do one of two things.

    1. Hope they can earn more money in the near future to cover dividend or
    2. Cut the dividend to a sustainable level

    More often than not a company will cut it’s dividend.

    As a dividend investor, this is the worst case scenario. When a company cuts it’s dividend, it’s usually a sign of distress and can cause a chain reaction. 

    Typically, when this happens, investors flee, causing the share price to drop so that the investor who stays ends up with a company worth less as well as a reduced dividend payment. 

    When you notice some holes in the ship, it’s better to flee and get your toes wet then to be stuck on board when it goes down and realize, there is no life vest.

    A good read in this link. Oil investors see $7.4-billion vanish as dividends targeted

    Further Reading

  • SOLD

    SOLD

    I sold all my shares of Kinder Morgan today. As I mentioned in my older posts, I will be exiting many of my oil stocks that I picked up during the downturn.

    I purchased KMI for $12.98 USD on Jan 15, 2016

    I sold KMI for $19.97 USD on Jul, 12, 2016 for a 54.12% capital gain in 6 months not including dividends.

    It crossed it’s 200 Day moving average so it might move higher on a technical level but whatever to that nonsense.

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    The reason I sold this today is two-fold.

    1) It sold a jewel of an asset to finance debt on what I see as a bad deal.

    2) The Dow, S&P hit new highs. Anytime I read headlines of new highs I start to prepare a bit more for the lows. This is not to say I expect the market to implode tomorrow but as Warren Buffet says “Cash combined with courage in a time of crisis is priceless”. According to Prof. Robert Shiller of Yale University, the market is historically over priced right now.

    Shiller P/E: 26.7 (+ 0.76%) as of Jul,12 2016

    Shiller P/E is 59.9% higher than the historical mean of 16.7
    Implied future annual return: -0.5%
    Historical low: 4.8
    Historical high: 44.2
    S&P 500: 2153.33

    I would bet that having near zero interest rates plays a large part in this market but i’m not sure that tells the whole story.

    Unfortunately I had very few shares of this. I was never comfortable with the amount of debt they carried and still am not. I bought this as well as another half dozen or so oil stocks that I figured could hold out in the low price environment for a sustained period of time and catch a better price when oil eventually recovered. I thought oil would stay lower for longer so I was only picking up $1000-$2000 per payday and didn’t want to leverage into it.

    So far I have only unloaded 2 of my oil companies

    Sold-

    TSE:TCK.B (+43.23) Sold way too soon!

    KMI (+54.12)

    Holding and looking to sell-

    TSE:ECA  (-36.44) Bought way too soon!

    TSE:BTE (+182.91) Bought just right….

    Holding and never plan on selling-

    TSE:SU (+16.42)

  • Dividend Increases So Far

    Dividend Increases So Far

     

    This is a list of the dividend increases for the later part of last year up until July 2016. I will update this as it changes and maybe make it a static page if it gets too long.

    Company Name Ticker Annual Dividend PerShare Org Annual Div Now DIV CHANGE %
    Old Republic International Corporation ORI $0.74 $0.75 1.35%
    American International Group Inc AIG $0.50 $1.32 164.00%
    Boardwalk REIT TSE:BEI.UN $2.04 $2.25 10.29%
    Royal Bank of Canada TSE:RY $3.08 $3.24 5.19%
    Magna International Inc. TSE:MG $0.88 $1.00 13.64%
    Power Corporation of Canada TSE:POW $1.24 $1.34 8.06%
    Pizza Pizza Royalty Corp TSE:PZA $0.83 $0.85 2.41%

     

     

    Grow baby, grow!