June 24, 2022 by DividendStocks.com Staff
- Understanding Market Capitalization
- Selecting a Sector and Industry
- Consensus Rating and Upside
- Dividend Yield vs. Payout Ratio
- The Importance of Dividend Growth
- Payment Schedule
- 52-Week Range
Investing in dividend stocks is an effective investment strategy for several reasons. First, collecting a steady dividend payment on a regular basis can help provide investors with a reliable source of income to meet expenses. And if investors reinvest their dividends, they can build wealth slowly due to the benefit of compounding.
However, there are thousands of dividend stocks, ETFs and mutual funds to choose from. That’s why we’re offering this screener that allows investors to sort through dividend stocks based on criteria you select. For example, if you only want to see large cap dividend stocks that pay a yield of over 3%, you can do that. Similarly, you can even look for stocks in a specific sector or industry.
In this article, we’ll help provide investors with a basic understanding of how to make the most efficient use of this dividend screener.
Understanding Market Capitalization
Market capitalization (or market cap) is a measure of the market value of a publicly traded company’s outstanding shares. Typically investors hear about large cap, mid cap, or small cap stocks. However, in recent years market capitalizations are becoming more specific and now include mega cap, micro cap, and nano cap. The formula for calculating market cap is the company’s share price multiplied by the number of shares outstanding. In general, companies with larger market caps have more diversified businesses and their share price tends to be less volatile. Because of this slower growth, they are more likely to offer shareholders a dividend.
Selecting a Sector and Industry
Dividend-paying companies come from many different industries. And many times, investors care more about factors like dividend yield and payout ratio than a company’s particular sector. However, there are times when specific sectors or industries present investors with exceptional growth opportunities. Plus, certain investors only want to look at stocks in specific areas such as utilities, technology, or materials. Sector categories are broader and more general while the industry category is narrower and more specific.
Consensus Rating and Upside
Many dividend investors rely on the opinion of analysts. The dividend screener allows investors to select only those dividend stocks that have a certain rating (buy, strong buy, hold, etc.). The consensus upside is a way to fine-tune the screener even more. You can choose to see stocks that analysts expect to go up or down by a certain percentage.
Additionally, you can input your own consensus price target and/or current price for a stock. So if you were looking only for stocks that were under $100, you could set the screener to show you stocks with a current price of less than $100.
While this can be a useful screening tool, it’s important to know that the more specific you are, the fewer options you’ll have. That may be good if you’re looking for a dividend stock that meets well-defined objectives. But it may be too limiting for some investors.
Dividend Yield vs. Payout Ratio
A company’s dividend yield is a measure of how much money per share a company pays out as a dividend. The yield is expressed as a percentage. The formula for dividend yield is:
Annual dividend per share/price per share
For example, a company with a share price of $100 that pays a $5 dividend per share has a dividend yield of 5%.
5/100 = .05 (5%)
However, for the purpose of using the dividend screener, it’s not important that you know how to calculate dividend yield. It does that for you. What you need to understand is that when it comes to dividend yield higher is not always better. A strong dividend yield in one sector may be weak in another. And since a rising or falling share price affects dividend yield, it is a less reliable measure.
A better metric for many investors is the payout ratio. A dividend payout (or annual dividend per share) is the amount an investor will receive in the form of a dividend on a per share basis. So in our example above, if a company pays out $5 per share on an annual basis, an investor who owns $100 shares of the stock will receive $500 a year in dividend payments.
The Importance of Dividend Growth
The best dividend stocks are ones that have a long history of not only continuing to pay a dividend but also to grow that dividend. Many financial websites will calculate a company’s three-year dividend growth. Like dividend yield, this is a statistic that is best to be compared against other stocks in the same sector or with similar attributes (i.e. market cap). Sometimes a company grows its dividend strongly in one year, but that turns out to be unsustainable. In these cases, a company may be forced to cut its dividend which can scare away investors.
Payment Schedule
The majority of dividend-paying companies issue dividends on a quarterly basis. However, some companies issue dividends on a monthly basis. In many cases, these are companies such as real estate investment trusts (REITs) or master limited partnerships (MLPs) with a business model that requires that they pay out a significant amount of their earnings as a dividend. These companies may be an appealing option for investors who are dependent on a steady stream of regular income.
52-Week Range
Every investor is encouraged to buy low and sell high. One way to ensure that investors are buying shares when they have a better chance of increasing is to buy when a stock is near its 52-week low. Of course, this is no guarantee that the stock will rebound or when it will do so. Nevertheless, it can be an important data point for investors who want to ensure they’re not overpaying for a stock.
As an expert and enthusiast, I have a wide range of knowledge on various topics, including the concepts mentioned in the article you provided. I can provide information and insights on market capitalization, selecting a sector and industry, consensus rating and upside, dividend yield vs. payout ratio, the importance of dividend growth, payment schedule, and the 52-week range. I will provide information on each of these concepts in the following sections.
Understanding Market Capitalization
Market capitalization, or market cap, is a measure of the market value of a publicly traded company's outstanding shares. It is calculated by multiplying the company's share price by the number of shares outstanding. Market capitalization is often used to categorize companies into different size categories, such as large cap, mid cap, or small cap. In recent years, additional categories like mega cap, micro cap, and nano cap have emerged. Generally, companies with larger market caps tend to have more diversified businesses and their share prices may be less volatile. Companies with larger market caps are also more likely to offer dividends to their shareholders.
Selecting a Sector and Industry
When investing in dividend stocks, investors have the option to select stocks from different sectors and industries. While some investors focus more on factors like dividend yield and payout ratio, there are times when specific sectors or industries present exceptional growth opportunities. Sector categories are broader and more general, while industry categories are narrower and more specific. Investors can choose to focus on stocks in specific areas such as utilities, technology, or materials, depending on their investment goals and preferences.
Consensus Rating and Upside
Many dividend investors rely on the opinions of analysts when making investment decisions. The dividend screener mentioned in the article allows investors to select dividend stocks based on analyst ratings, such as buy, strong buy, hold, etc. Additionally, the screener provides a consensus upside, which is a way to fine-tune the search results even further. Investors can choose to see stocks that analysts expect to go up or down by a certain percentage. The screener also allows investors to input their own consensus price target and/or current price for a stock, enabling them to filter stocks based on specific criteria.
Dividend Yield vs. Payout Ratio
A company's dividend yield is a measure of how much money per share the company pays out as a dividend, expressed as a percentage. It is calculated by dividing the annual dividend per share by the price per share. While a higher dividend yield may seem attractive, it's important to note that a strong dividend yield in one sector may be weak in another. Dividend yield can also be influenced by a company's rising or falling share price, making it a less reliable measure. Another metric that many investors consider is the payout ratio, which represents the amount of a company's earnings that are paid out as dividends. The payout ratio is calculated by dividing the annual dividend per share by the earnings per share. The payout ratio provides insight into the sustainability of a company's dividend payments.
The Importance of Dividend Growth
When investing in dividend stocks, it is often desirable to select companies that have a long history of not only paying dividends but also growing their dividends over time. Many financial websites provide information on a company's three-year dividend growth rate. Comparing a company's dividend growth rate to other stocks in the same sector or with similar attributes, such as market capitalization, can help investors assess the company's performance. It's important to note that while a company may have strong dividend growth in one year, it may not be sustainable in the long term. Investors should consider the sustainability of dividend growth when evaluating dividend stocks.
Payment Schedule
The majority of dividend-paying companies issue dividends on a quarterly basis. However, some companies, such as real estate investment trusts (REITs) or master limited partnerships (MLPs), may issue dividends on a monthly basis. These companies often have business models that require them to distribute a significant portion of their earnings as dividends. For investors who rely on a steady stream of regular income, dividend-paying companies with monthly payment schedules may be appealing.
52-Week Range
The 52-week range refers to the highest and lowest prices at which a stock has traded over the past 52 weeks. Investors often consider the 52-week range as a data point when making investment decisions. Buying shares when a stock is near its 52-week low can provide investors with a better chance of potential price appreciation. However, it's important to note that the 52-week range is not a guarantee of future stock performance. It is just one factor that investors may consider when evaluating a stock.
I hope this information helps you understand the concepts mentioned in the article. If you have any further questions, feel free to ask!
