Ask a question

Question On Dividends. Not Too Hard

Very Hard Question Through My Eyes?

We can figure this out in a two step process. (Or maybe there is a shortcut, but, I don't know of it.) :-)

In 20 years, the stock earns $20 per year forever. First, in 20 years, what will the value of the perpetuity be then?

We can use the perpetuity formula to figure that out.

PV = D / r Present Value = Dividend / rate

PV = 20 / 0.064 = 312.5

So, in year 20, the present value of the perpetuity will be $312.50.

But we want the present value /now/. So we apply a present value formula.

PV = FV / (1 + r) ^ n
PV = present value, FV = future value, r = rate, n = number of periods (years)

PV = 312.5 / (1 + 0.064) ^ 20
PV =~ 312.5 / 3.45806
PV =~ 90.37

Please note, I chose one of several available formulas. If you have been provided with a different formula in class, you should most likely use that one.

How can a company with stock worth over $1000 not pay dividends?

The price of the stock has no relation to their desire or ability to pay dividends.The price of a share of stock is simply the total value placed on the company by the market, divided by the number of shares outstanding. For example, Amazon has a market cap of about $770 billion (April 30, 10:30am). There are approximately 485 million shares outstanding. This leads to a share price of about $1,587. It doesn't say anything about their free cash or ability to pay a dividend. Looking at their balance sheet, they “only" have about $30 billion in cash and free cash flow of about $9.5 billion. But those two numbers don't directly play into the share price. If Amazon did a 100 for 1 stock split and their share price dropped to $16, that doesn't change their ability to pay a dividend.Now, a better question might be, when would a company decide to pay a dividend? Companies pay dividends for several reasons. The main reason you learn in business school is that the company doesn't feel that it can allocate its cash better than its shareholders can. In other words, if the company only thinks they can earn a 5% return on capital, but investors think they can earn a higher rate, they will ask for a dividend (via the market).Stocks that pay dividends tend to be (but are not limited to) lower growth, mature industries. Utilities. Industrials. Steady industries which may shed lots of cash, but the businesses aren't growing quickly.On the other hand, high tech industries generally do not pay dividends (though some companies are starting to). This is often because they spend a lot of money on R&D or may want to keep a large capital cushion to make acquisitions or other major investments.There are many factors that ultimately play into whether a company pays a dividend, including shareholder politics. The number of digits in their share price rarely plays into it.

Do you get dividends when you short a stock?

No, and actually you pay them. You receive a debit to your account in the value of the dividend.If you short a stock you also short the dividend.

What are some good stocks that pay dividends every month and not quarterly?

I’m surprised nobody mentioned “The Monthly Dividend Company” - the trademarked logo of Realty Income (Ticker: O).O is a commercial REIT, specializing in freestanding retail and service outlets. As a REIT, of course, its income is untaxed so long as it passes 90% of its net back to investors as dividends.O pays midmonth and has done so for decades. In addition, O tries very hard to increase that dividend quarterly. One of the very few bright spots in the 2009 debacle was that fact that even then, O raised its dividend. The raise may be negligible at times, but over time the increase is substantial and you are well-rewarded by compounding.The market rewards O by consistently pricing it at a big premium.Note that this is only my personal opinion, and in no way is to be taken as investment advice. Because shortly after you buy any stock you’ll see it turn brown faster than that banana you saved for breakfast.

Dividend investing: How much capital is needed to earn $500/month just on dividend returns? What are the best options?

The first part of this question has mathematical answer at any given time that I can determine for you, given the risks associated with pursing that I will then suggest one better course of action.  As of the time of this answer Western Asset Mortgage Capital Corp (NYSE:WMC) [1] has the highest dividend yield of any stock [2] at 22.64%, .90 cents paid out quarterly and a stock price of 15.90.  Given that you are trying to create $500 a month, or $6,000 a year you would need [$6,000/.2264 =] $26,501.77 in capital to return $500 per month.I certainly will not be recommending this approach to anyone because WMC is a volatile stock with a business model that is expected to suffer in a rising interest rate environment that many people would agree we are in today.  To get a better sense of the amount of capital needed to have a reasonably secure dividend return of $500 a month I will suggest using the 30 blue chip stocks tracked by the DJIA and investing in each of them equally.  This is not a complete recommended portfolio, but does provide a much more accurate sense of the capital needed to have a reasonable chance to create $500 in dividends per month for a considerable period going forward.The simple average (which we should use because I am suggesting investing in each stock equally, rather than price weighted as the DJIA is) of the yields of the 30 stocks included in the DJIA is currently 2.80% [3].  Using that as the yield it would take [$6,000/.0280 = ] $214,285.71 in capital to return $500 per month in dividends, but unlike in the other scenario your capital would be reasonably safe and have the potential for long term appreciation as well as increased dividend payouts, for instance PG [4], one of the DJIA components, has increased their dividend every year for the last 56 years and MMM[5] is on a 54 year streak. [6][1] Western Asset Mortgage Capital Corp[2] High Yield Dividend Stocks[3] Dividend Yield for Dow Jones Ind. Avg. Stocks, Sorted by Yield [4] The Procter & Gamble Company[5] 3M Co: NYSE:MMM quotes & news[6] 25-Year Dividend Growers Stock List

Can a dividend payout ratio be more than 100 percent?

dividend payout ratio is just a ratio of the dividend paid over the net profits. if it is >100%, means the company pays more than it could afford. meaning, the company loan bank's money to pay dividend to shareholder. and this is the worse dividend you must have.

i haven't heard any stocks that have >100% dividend payout, but borrowing money just to pay dividend is the last thing i'd expect from my stocks. simpky because, in business, you can only loan money if the expected return much higher than the interest rates. and giving the cash out to shareholders won't bring any value to the company. this can happen if the company been pushed so hard to pay dividend by its shareholders (most probably corrupt/proxy).

Do big companies pay less dividends after they grow big?

No, big companies usually pay larger dividends, because they don’t have many attractive opportunities to invest capital at high rates of return. When their markets reach saturation, their top products usually generate a lot of free cash flow, more than they need to reinvest in the business to produce growth. So they return excess cash to shareholders. It is hard for them to move to a completely unrelated business line, so they pay dividends.Smaller companies on the other hand are investing heavily in their current markets to get an edge on competitors and capture market share. So they need all cash flow they generate to invest in the future to grow or adapt, and as a result have little extra capital to return to shareholders.Fast growing companies usually pay no or little dividends, while companies in mature industries (Coca Cola, Walmart, Wells Fargo) return most of their net income in dividends. So it’s not just about company size, but rather the market they are in and underlying industry dynamics. Amazon, Facebook and Google are all huge companies, but don’t pay any dividends, because they can reinvest earnings to produce even more value in the future.

How to calculate Ordinary Proposed Dividend?

If all you are looking for is the amount of the proposed ordinary dividend, then there is a lot of data above which we don't need. The amount of shares authorized are never necessary to calculate the dividends. Neither is the par value, except on the preferred, but then only if the dividend is expressed as a percentage.

The solution is: 200,000 ordinary shares x 0.10 = GBP20,000.