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What is Considered a High Dividend Yield?

The S&P 500 Index is currently yielding 1.62%. This number is often used as a yardstick for assessing the magnitude of a stock’s dividend. If it is used, it should be used only as a floor or a minimum level, as it is very misleading as an average. Here’s why.

As of the time of this writing the following companies make up the top 25% of the S&P 500:

  1. Apple, Inc. [AAPL] – 0.60%
  2. Microsoft Corp [MSFT] – 0.95%
  3. Amazon.com Inc [AMZN] – 0.0%
  4. Meta Platforms Inc [META] – 0.0%
  5. Alphabet Inc [GOOGL/GOOG] – 0.0%
  6. Berkshire Hathaway Inc [BRK.B] – 0.0%
  7. Tesla Inc [TSLA] – 0.0%

Those percentages aren’t adding to 25%, so they’re clearly not the weights. They are the current dividend yields! Only 2 of the 7 pay a dividend and they are paltry at that.

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Explaining Dividends (Part 3 of 3)

What exactly is Dividend Yield? According to Investopedia, the dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. That’s as good a definition as any, but it leaves a few details out. It makes no mention of why we calculate it in the first place. Yield helps us put every stock on an even playing field, by relating their dividend to the magnitude of their price. A company with a $10 dividend trading at $100 per share will have the same yield as a company with a $1 dividend trading at $10. The dividend yield is 10% in each case. But the devil is always in the details. Most sites use either the last day’s closing price or even the real-time, current stock price as the denominator, and that makes perfect sense. However, it’s typically the choice for the numerator that creates the greater difference in published yields for a given stock. Some will use the trailing twelve month’s paid dividend and others will annualize the last paid dividend.

My formula for Dividend Yield annualizes the most recent declared, regular dividend and divides it by the last closing price. This is the best calculation because it is both prospective and conservative. It answers the question of what a purchaser of the stock today can conservatively expect to receive over the next year. Let’s look at the same example for Lowe’s Companies, Inc [LOW] using one of my favorite locales for accurate dividend information, Nasdaq’s own website.

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Explaining Dividends (Part 2 of 3)

We’re going to look at a very simple and common example of a company paying a dividend. This will lead to a more practical way of using dividends to assess risk.

A few Dividend Kings find themselves listed on the NASDAQ exchange. But what you may not have known is that the NASDAQ has its own website. It is very useful for obtaining accurate information about a company’s dividend, and NOT just for companies listed on their exchange. Below is an excerpt from the dividend history page for Lowe’s Companies, Inc [LOW].

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Explaining Dividends (Part 1 of 3)

I will keep this very simple. When a business wishes to raise money beyond what it can do from selling a product or performing a service, it will either issue common stock, preferred stock, or bonds. Though there are undoubtedly Dividend Kings with outstanding bonds and preferred stock, this portfolio will be built from the purchase of common stock or shares.

Common stock is an asset that represents ownership in a business. Shareholders can vote to elect the board of directors or to enact corporate policies. However, they are low on the totem pole. In the event a business decides to give up the ghost and liquidate its assets, bondholders, creditors, and preferred shareholders will be paid in full before common shareholders get a dime.

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Purchase Confirmation [FMCB]

My limit order to purchase 1 share of FMCB for $925.00 went through at market open today. Here is a glimpse of the portfolio. Obviously, this exhibit will have more meaning as the portfolio grows. Ditto for the summary by sector that I have added on the same page. I will update these Dividend King exhibits as needed. In the meantime, enjoy the rock steady price action of FMCB.

Dividend King of the Week [FMCB]

I have set up an account with TD Ameritrade for the purpose of holding this portfolio of stocks. My entry into a new position will be $1,000. Of course, this amount is perfectly scalable so long as one builds evenly. After a few weeks we want to have an equally weighted portfolio of 10 or 11 stocks. In case you couldn’t guess from the title of this post, the first Dividend King for this portfolio will be Farmers & Merchants Bancorp [FMCB].

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A Portfolio for the Ages

My goal is to gradually build a small portfolio of Dividend Kings and I hope you’ll follow right along. My intent is to acquire a core of 10 or 11 stocks over the next three months that together, represent a diversified1 portfolio with low expected volatility and a significant dividend yield. I may have narrowed the universe of stocks to Dividend Kings, but that in no way means we cannot achieve diversification. After that I will add to those positions or add additional stocks subject to some forthcoming limitations/constraints.

There are 44 Dividend Kings, all of whom have impressive histories, by default. Going forward, some of these companies could struggle, some could thrive. One thing we can reasonably rely on is that the dividends will keep coming in and that those dividends will increase each year. There are no guarantees. However, it is reasonable to believe that no CEO is willing to destroy such a legacy willy-nilly. They will take reasonable measures to counter or avoid any material threats to the dividend program.

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Why Invest in the Dividend Kings?

There are many ways to invest and grow your wealth. Stocks, bonds, ETFs, mutual funds, index funds, options, precious metals, real estate, etc. Legos. Ok, you get the idea. Frankly, all of these have their merits, and each have their chance to shine in different economies and at different times. Gold outperformed the other asset classes over the past 20 years. Bonds have had relative underperformance over the past 10 years and certainly now in this rising interest rate environment. However, stocks have outperformed all of the other asset types over the very long haul up until now and still offer the most promise over the long haul going forward.

Within the category of stocks or equities, there are four broad categories: Business Development Companies (BDCs), Master Limited Partnerships (MLPs), Real Estate Investment Trusts (REITs), and corporations. In turn the stocks of these broad categories can be classified into Growth or Value. These classifications are blurry at best, but in the spirit of boiling things down: growth stocks offer more capital appreciation in lieu of current income and value stocks offer a greater current income and less capital appreciation.

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Who are the Dividend Kings?

You may have heard of the Dividend Aristocrats. They are members of the S&P 500 Index, meeting certain minimum size and liquidity requirements, and have raised their dividends for at least 25 consecutive years. You can find the official list is put out by S&P Global here.

Dividend Kings are stocks with 50 or more consecutive years of dividend increases. However, they are not just a subset of the Aristocrats as one might assume. While each King easily satisfies the consecutive dividend increase streak (twice over!), they aren’t required to be members of the S&P 500 Index. Now, because this collection of stocks isn’t an official index, there isn’t universal agreement on the exact number of stocks that qualify for this distinction.

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Welcome

Welcome to Royal Dividends.  This site shows exactly how anyone can build a portfolio of stocks that grows and pays dividends for life.  I will show you which stocks I am buying, how much I am paying, and when I place the order.  All you need to do is follow along.

My secret weapon is simplicity.  There are thousands of books, articles, and websites on investing and trading, targeting every possible perspective, technique, and asset type.  Some of it is decent; a lot of it is useless.  However, it is this site that is going to show you how to successfully invest in stocks in the simplest and safest manner possible. How?  I boil everything down.

Out of the many hundreds of companies that pay dividends, there are less than 50 who have increased their dividend for at least 50 consecutive years!  They are called Dividend Kings.  Amazon, Netflix, Google haven’t even been around for 50 years and have never paid even one dividend. If you ever want any cash from these companies and so many others, you have to sell their shares (and hopefully for more than you paid for them).  Not the Kings. The Kings drop cash into your account every 90 days forever and you never have to sell them. This is the universe from which I will build a portfolio for the ages.  Stay tuned!

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