How to choose dividend stocks

What are dividend stocks

One of the opportunities to make money on securities is to buy them and then sell them when they become more expensive. But that's not all. Some companies periodically pay dividends - they distribute part of the profits among the shareholders.

The payment of dividends is a right, not an obligation of the company. Much depends on the financial position of the joint stock company. We closed the financial period at a loss - there is nothing to divide. We decided to invest in development and directed all the profits on this - and again nobody will get anything. The decision whether to pay dividends or not and in what amount is made by the shareholders at the general meeting. They are based on the recommendations of the board of directors.

Therefore, if you want to buy shares in order to receive dividends, you need to correctly assemble your portfolio.

What to look for when choosing dividend stocks

History of dividend payments of companies

To assess your chances of receiving dividends, you need to look at how often the organization provides them.

An issuer that pays dividends for 10 years in a row will be more attractive than one that does so for only two years, or one that periodically pauses and then resumes payments.

In other words, it is necessary to assess the stability and adherence of the company to its principles of dividend policy. You can usually find the information you need on the website of the joint-stock company in the section "For investors". It should be borne in mind that the dividend policy is subject to change. Therefore, it is worth rereading it periodically, advises Igor Faynman, an expert on personal finance and investments.

Dynamics of dividend payments

Of course, the size of the dividend does matter. But this is too obvious a criterion to which you will pay attention anyway. It would be nice to take into account how it changes from year to year. It's a good sign if dividends are growing steadily. First, the company operates profitably. Secondly, it is the prospect of getting more and more money.

Vitaly Mankevich

A common mistake of inexperienced investors is to take stocks for a large one-time dividend. You need to understand where the company takes money for payments (if not in debt) and what its prospects are.

Dividend Yield

We are talking about the ratio of the size of the annual dividend per share to the price of this share. You can calculate the dividend yield using a simple formula:

DD = share price / dividend per share × 100%

“This is how we appreciate the generosity of the company and its willingness to share its profits with shareholders,” explains Ksenia Lapshina. An issuer with a dividend yield of 2-3% is clearly inferior to those who pay 7-8%.

Closing rate of dividend gap

The transfer of dividends takes place on a certain day, which is known in advance and is determined by the company's board of directors. The day of payment is the so-called dividend cutoff: on this date, a list of shareholders is formed who will receive the money. The day after the cutoff, the stock usually declines in price by the amount of the dividend and then continues to move. This event is called the dividend gap.

Ksenia Lapshina

It is very important that after the cut-off, the stock grows in value. And the faster they grow and reach the level at which they were at the time of the dividend cut-off, the faster we will receive the dividend income due to us. If the share after the dividend cut-off decreases in price, then the dividends we received only cover the losses from the fall in the value of the shares and we do not get anything beyond that.

By the way, an investor should be aware of the dividend gap in order not to buy securities too expensive. According to Nikolai Klenov, a financial analyst at the Raison Asset Management investment company, it is important not to fall into a period when the share price is still relatively high, and it is no longer possible to receive dividends in this financial period.

That is, you need to buy securities of dividend companies before the date of fixing the register of shareholders who will receive the money - so that you get a little bit. At the same time, it is better to have time before the shares begin to grow, as it became known that there will be dividends.

Financial stability of the enterprise

It is advisable to take into account the size of the company, its popularity, see if it is included in any stock index. The stronger its financial position, the greater the chances that year after year it will have a profit, some of which will be distributed among shareholders.

Igor Faynman advises to look into the financial statements of the company. Open joint stock companies are obliged to publish the Information of the Ministry of Finance of Russia No. PZ-10/2012 on the entry into force of the Federal Law dated December 6, 2011 No. 402-FZ "On accounting" from January 1, 2013. Data or at least information about where they are published, you need to look for on the company's website.

Igor Fineman Personal finance and investment expert.

First of all, estimate the amount of debt. We understand that debts will not allow paying dividends. First, the profits will be used to pay off the loans. For lovers of mathematics, I recommend calculating the ratio of the amount of debt to the company's equity. If the result is greater than one, most likely there will be no dividends.

It is also worth remembering that dividend stocks tend to rise more slowly than non-dividend stocks. The latter invest all their profits in development - there is nothing left for dividends to shareholders. This allows such businesses to grow rapidly and increase the value of stocks.

Nikolay Klenov Financial analyst at the investment company Raison Asset Management.

If you want to receive passive income in the form of dividends, you should choose reliable, time-tested businesses. If you want to make money on the sale of stocks that have risen in the future, it is better to invest in relatively young issuers with great growth prospects.

What else do you need to know

Shares are common and preferred. The latter have several advantages. For example, the law allows Federal Law No. 208-FZ of December 26, 1995, to inscribe in the company's charter a fixed amount of dividends or a percentage of the par value of a share. This allows their owners to receive money even when there are no payments for ordinary shares. However, if there is nothing like that in the charter, everyone receives dividends in the same amount.

At the same time, the owners of preferred shares do not have the right to vote at the general meeting of shareholders. An exception is when decisions are made to liquidate or reorganize a company. According to Dmitry Volkov, Director of Teleport LLC, if you are a minority shareholder (your stake is significantly less than 1% of the company's share capital), then the absence of this right can be largely neglected.