Tag Archives: NASDAQ:GOOG

3 Important Dividend Investing Concepts: Real Life Examples

This is a guest contribution written by Ben Reynolds at Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to systematically find high-quality dividend growth stocks trading at fair or better prices.

Investing concepts can seem divorced from reality. Theories become more understandable through real world examples.

This article takes a look at 3 important dividend investing concepts and provides real world examples to help either explain the point or show evidence of why it matters.

Total Return

Total return measures exactly what the name implies. Total return includes the capital appreciation and dividends of an investment.

The concept of total return is critical to investing success. It is the one number that determines how quickly your money will grow. All other things being equal, the higher the total return, the better. Here’s  how you can double your money.

Calculating a reasonable expected total return will help to guide your investing decisions.

Returns in the market can come from only 3 places:

  1. Change in intrinsic-value-per-share (typically measured by earnings-per-share growth)
  2. Change in valuation multiple (typically measured by the price-to-earnings multiple (P/E))
  3. Dividends

My estimate of The Coca-Cola Co’s (NYSE:KO) total returns over the next 5 years is below.

First, we know the company’s dividend yield is 3.2%. The company is a Dividend King – it has paid increasing dividends for over 50 consecutive years. We can reasonably assume Coca-Cola will continue paying dividends.

3.2% a year is our expected return from dividends for Coca-Cola. Read More

Have New Money To Invest? Which Sectors To Buy? Which To Avoid?

Year-to-date, the Utilities ETF (NYSEARCA:XLU) has appreciated 21% and the big two telecoms, AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), have also appreciated more than 20%. Those are amazing returns especially including the above-average dividend yields utilities and telecoms typically offer.

However, with the bid up prices, it has become riskier to invest new money in utilities and telecoms.

The top five utilities in the XLU are all overvalued, including NextEra Energy Inc (NYSE:NEE), Duke Energy Corp (NYSE:DUK), Southern Co (NYSE:SO), Dominion Resources, Inc. (NYSE:D), and American Electric Power Company Inc (NYSE:AEP).

Reversion to the mean can happen for any of these utilities that are overvalued, and it could mean negative returns in the short term.
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