Tag Archives: TSX:EMA

What is a Good Dividend Payout Ratio?

What is a good dividend payout ratio for a company? Is 70% too high? Does a company with a low ratio imply high dividend growth?

Using a concrete example, we’ll answer 3 simple questions to figure out if a company has a good dividend payout ratio that supports a healthy dividend. You can ask the same questions for any dividend company you’re interested in.

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However, a payout ratio based on earnings may not be appropriate for companies with big depreciation. Cash flows instead of earnings are better used in such cases, including for REITs and MLPs.

What is the payout ratio?

The payout ratio is the percentage of earnings that are paid out to shareholders as dividends.

For example, Fortis Inc’s  (TSX:FTS) is expected to pay out $1.525 per share of dividends in 2016. The company just hiked its Q4 dividend to $0.40 per share.

  • Fortis’s originally quarterly dividend per share was $0.375.
  • $0.375 * 3 + $0.40 * 1 = $1.525

Its earnings per share are estimated to be $2.17 in 2016. So, Fortis’s payout ratio is about 70%.

  • Annual dividend per share / Earnings per share
  • $1.525 / $2.17 = 0.7028

So, Fortis retained about 30% of its earnings to grow its business or repay its debt, etc.

A lower payout ratio implies a safer dividend than a higher ratio. Read More

Which Dividend Stock Is the Best Buy?

Only you can decide for yourself which is the best dividend stock to buy next. If there are several dividend stocks that you love, but you can only choose one to buy right now, here are some things you can consider.

Keep your allocations in check

You should know how much invested capital you have in each stock holding and each sector and or industry. You also should know how much they’re worth at market value. This is so that you won’t have too much invested in any company, which should help reduce emotional buying and selling.

Here’s a simple example. Let’s say that five years ago, for our portfolio, we originally invested $2,000 in each of Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Emera Inc (TSX:EMA), Alimentation Couche-Tard Inc (TSX:ATD.B), Amgen, Inc. (NASDAQ:AMGN), and Brookfield Asset Management Inc (TSX:BAM.A)(NYSE:BAM).

In other words, we invested an equal amount of money in each company for the equal-weight portfolio. Each holding made up 20% of the portfolio. Read More