Embed Size (px)
Citation preview
Welcome to Dividend Stocks Research Your premier site for
Rankings and Reviews of the best dividends stocks around. For more
info on dividend stocks visit our website
DividendStocksResearch.com
Hi, My name is Aaron and I‘m with Dividend Stocks Research, and today
were reviewing our recently published article…
How do you find a good dividend stock when even good, solid companies get roughed up?
Look at what’s happened recently... three valuable lessons for dividend investors. Each one is a mini-case study that helps you know how to
find a good dividend stock.
(And two of these lessons come from Dividend Aristocrats, the best
dividend stocks.)
IBM Corp. (IBM), Coca-Cola Co. (KO), and McDonald’s Corp. (MCD),
all solid dividend stocks, have basically told investors the same
thing.
“Times are changing and we haven’t kept pace. Things are tough right
now, so we’re not going to be performing very well for awhile.”
At IBM, there’s been a startling admission from Chief Executive
Virginia Rometty after turning in ten quarters in a row of flat or sliding
sales.
“We’ve got to reinvent ourselves like we’ve done in prior generations.”
Big Blue has been hammered hard…
At Coca-Cola, quarterly profits are down 14%. CEO Muhtar Kent has
told investors the company is working on a fix.
“We are streamlining our operations and further aligning our incentive
plans to deliver against our growth objectives.”
McDonald’s... in the same boat as IBM and Coca-Cola. In the latest quarterly results, sales at U.S.
locations open at least 13 months are off 3.3%.
CEO Don Thompson is searching for an answer, trying to find out what
kind of a menu will pull people back in.
"McDonald's is in the business of satisfying customers and that will
never fall out of favor. The question is what do you do to do that?"
Each one of these companies gives you a valuable window into the process of how to find a good
dividend stock, and the questions you should ask.
When the CEO of Coca-Cola, which has been paying steady, growing dividends for the past 51 years
admits that things aren’t going well, there’s one question we all ask as
dividend investors.
“Will they cut the dividend?”
You’ll find the answer to this question in three difference places.
First, take a look at the balance sheet. Check out how strong the cash flow is, how much operating capital is on hand, and how much
debt the company is burdened with.
Second, look at the dividend payout ratio. When a company plows too
much of its quarterly earnings back into dividends, there’s usually
trouble ahead. The company needs plenty of money for other things,
which could range from an acquisition to paying down debt. It might also need money for research, or to pay for a new division. Maybe
a new product that might take awhile to ramp up and become
profitable.
Here’s something else to remember about the dividend payout ratio.
The steadier it is, the better. Beware of fluctuations. And when the dividend payout ratio is steady, you’ll usually see the stock trade at a higher P/E (Price/Earnings) ratio.
This kind of consistency is a sign of quality, which helps the stock sell
for a premium. It’s the same idea as the premium price for a stock that
pays consistent dividends.
Third, shake down the leadership team. Solid management is talented
at anticipating problems. It takes action to soften the blow of these problems. The company’s C-level executives should have the skill to steer their organization through
rough stretches, to respond quickly to shifting markets, and to keep
their companies profitable.
But another issue comes into play here...
Will management have the courage to cut the dividend when it’s in the
best long-term interest of the company and its shareholders? Or will it take the easy way out, keep
the dividend payments rolling, keep shareholders happy, and in the
process, dig a deeper hole?
These are probably the toughest decisions a company’s leadership makes. The decision for you, as a
dividend investor, boils down to how you think management can
perform.... whether or not it’s up to the challenge.
Look at how you believe the company will perform, and the role it will play in the years ahead. Will
consumers get tired of what the company makes? Will its products
fall out of favor? Will changing tastes and changing technologies
pass the company by?
These are all good questions for you to ask.
And after looking at the balance sheet, the dividend payout ratio, and the management team, you’ll have an even better sense of where the
company is headed.
You’ll also have a better sense of whether or not the dividends will be
cut.
At Coca-Cola, putting an end to more than half a century of consistent, growing dividends would be as
shocking as the company revealing Coke’s secret formula.
Dividend Yield: 3.74%
There’s a different culture at IBM, which cut its dividend in 1975 and
1992.
McDonald’s... it falls between the two. It’s paid dividends without a cut for 37
years. So when you want to know how to find a good dividend stock, and you look at
the history of consistent dividend payments, don’t mistake past
performance for future performance.
Companies with a track record of paying dividends can make a better case for rewarding investors in the months and years ahead, but it’s no
promise.
And there’s no promise that IBM, Coca Cola, and McDonald’s will
continue to dominate their industries.
After all, in 1965, Howard Johnson’s did more business than McDonald's,
Burger King and Kentucky Fried Chicken combined.
Today, it has vanished, and only one HoJo remains.
IBM Corp. (IBM)Dividend Yield: 2.72%Annual Payout: $4.40 Payout Ratio: 25.1%
McDonald’s (MCD)Dividend Yield: 3.74%Annual Payout: $3.40 Payout Ratio: 63.4%
Coca-Cola Co. (KO)Dividend Yield: 3.0%Annual Payout: $1.22Payout Ratio: 59.2%
Want More from Dividend Stocks Research?
Follow us on Social Media
Want more FREE information on dividend stocks?
DividendStocksResearch.com
Get your FREE report now
What You MUST Do to Never Run Out of MONEY in Retirement!
CLICK HERE
READ THIS FREE REPORT!
