Which dividend stocks will continue to grow over the next 5 years?

 

Businesses associated with constantly rising share prices and a corresponding constantly rising dividend payouts are  attractive to dividend stock investors.

This is because, investors are confident that these businesses have managements that set and achieve progressively increasing total sales revenue and declining total costs. 

The result, progressively rising profits for appropriation as retained profits, dividend payouts and reinvestment for growth and expansion purposes.

Now, which dividend stocks will continue to grow over the next 5 years?

No one can accurately predict future share prices. Share prices are influenced by speculators' often irrational decisions. 

However, as an investor, you can make near accurate predictions by picking and investing in a portfolio of at least, 15 financially strong and stable high dividend paying businesses. Such businesses can be selected from the "New York Stock Exchange’s 106 Best High Dividend Stocks - Analyzed and Scored” reference book. This book was released in December, 2022.

From this book, the following dividend stocks would, all things being equal, continue to grow over the next five years;

1. Delek Logistics Partners LP (DKL)

2. Chevron Corporation (CVX)

3. Canadian Natural Resources (CNQ)

4. CTO Realty Growth (CTO)

5. Chenier Energy Partners LP (CQP)

How does price earnings (P/E) ratio affect the dividend policy of a business?

 

Every business set up for the purpose of making profit is primarily interested in reaching and maintaining a high level of performance where revenue exceeds expenses.  It measures its performance in terms of of the price of its shares, dividends and number of issued shares.

A business's dividend policy including the stability of the policy, is tied to the business's earned profits, cash flows, prospects of growth and the preferences of shareholders or investors.

Shareholders or investors considering investment options would assess dividend policies and results of shareholder or investor ratios (especially the price earnings ratio) of available businesses before making an investment decision..

The dividend policy indicates the proportion of earned profits a business is willing to pay out and the regularity at which dividends are paid out. 

Now note, when a company is not making stable profits, their shares will not yield regular dividends. 

What is the price earnings (P/E) ratio?

The price earnings ratio is an investor or stock market ratio that compares the market price of the shares to the earnings per share. This is calculated thus;

Market price/earnings per share.

Earnings per share (EPS) shows the proportion of a business's profit attributable (after deducting tax, minority interest and preference dividends but before considering extra ordinary items) to each common stock (or share) or attributable to issued number of common stock ranking for dividend. 

What is a good price earnings (P/E) ration?

There's no fixed rule for determining a good price earnings ratio. Generally, the lower the P/E ratio, the better. Why is it better? Because as the P/E ratio falls,  the dividend payout ratio is also lowered.

A lower dividend payout ratio is an indication that a business can pay regular dividends as it would have more retained profits to expand and grow. Dividend investors like a lower payout ratio.

The dividend payout ratio is calculated thus;

 Annual dividend per share/ earnings per share (EPS)

Organizational structure analysis Vs Financial analysis; Which is a better investment decision tool?

 

It's common for an investor to do the financial analysis of the company they want to invest in. It's uncommon for an investor to do the organizational structure analysis. The latter is usually done by management for the purpose of internal decisions.

The organizational structure of a company defines its business approach. The way a company approaches its business operations has a significant impact on its performance. Its performance is the primary determinant of either profitability or non-profitability.

The profitability of a company is known by carrying out the financial analysis of its performance within its industry over a range of financial years. 

Profitability and its consistency form the primary concern of an investor. It is the consistency in profitability that guarantees regular payment of dividends, interest on debt and return of principal.

The foregoing indicates that both organizational structure and financial analyses of investment options could improve investment decisions reached.

By studying the organizational structures of the companies they're interested in, an investor can compare these structures, assess weaknesses and identify strengths to better understand the performance behind the figures in the financial reports.

It is important or understand that the organizational structure of company defines its levels of control. For instance, an organization with a hierachical structure gives managers high levels of control over what employees do and how they work. An employee in this kind of organization reports  to a manager who in turn is responsible for outcomes 

Why should an investor be interested in levels of control managers have over employees?

An investor that is interested in investing in a stable business environment should prioritize a company with the hierarchical organizational structure. This structure gives managers high levels of control to demand that employees either produce accepted levels of performance or get disciplined.

On the other hand, an investor looking to invest in a rapidly changing business environment should consider a company with the matrix organizational structure. The matrix has lower levels of control.

Why is financial literacy important to good personal finance management?

 

Do you have a plan for your future? The answer is most likely a quick YES!

Does that plan include a financial plan (a budget to control your spending, saving and dictate your invesments)? The answer more likely a NO! 

Many make plans for the future without including a financial plan in them. Why do they ignore this all important map and means to get to their goals? It's most probably because they don't have a financial literacy. 

What is financial literacy?

Financial literacy is the acquisition of at least,  a basic financial knowledge that helps you to know how to fill your needs, spend responsibly and still set aside (save) a portion of your income for the future. 

Why is it important to save a portion of your income? So that you can have a significant portion of capital that may be required to invest, grow and secure a lifetime financial stability

Also for the sake of the protection of your investments (and your entire personal finance) against future risks and unertainties , financial literacy is very very important.

The possession of quality financial literacy therefore, improves personal financial decisions about budgeting (the primary importance), savings, investments, insurance and the building of a reliable nest egg (retirement savings). 

It's worthy to note that;

 

"An investment in knowledge pays the best interest." — Benjamin Franklin.

An investment in financial knowledge pays the best interest that is large enough to guarantee financial freedom and stability in the present and in the future.

What are personal financial activities? They are explained below;

1. Budgeting - 

The simplest definition of a budget is “telling your money where to go.” – Tsh Oxenreider.

Budgeting is the process of preparing a detailed short term personal financial plan that is expressed in monetary terms.

The process of budgeting yields a financial plan ( an estimate/a budget) of expected revenue and expected expenses for a given period, usually one financial year.

A good personal financial budget should make the effective control of control of spending possible. It should also encourage savings and  the development of a sound investment habit.

2. Spending -

A sound financial knowledge gives you the power to keep your spending within budget, on filling absolutely necessary needs and avoiding unnecessary spending. Unnecessary spending creates indebtedness and discourages savings.

3. Savings - 

Revenue for a specific period - Expenses for the same period = Savings for that period.

As mentioned in (2) above, a good personal financial knowledge should help you weed out unnecessary spending and save a substantial amount within a specific period.

Why is it important to have savings?

4. Investment -

Investment is one of the primary reasons to have a substantial amount of savings at a given time.

This is because as Muhtar Kent correctly observes, "Without investment there will not be growth, and without growth there will not be employment." 

So, when you invest, you create opportunities for yourself and for others to grow and be employed.

A good investment is an asset that generates positive returns. These returns could form a significant equity contribution to a small-to-medium scale business startup capital, which would create jobs.

5. Insurance -

Life is full of risks and uncertainties. Tomorrow is promised to no one. 

There are no guarantees that uncertainties would not arise  tomorrow to destroy today's certain source of survival. 

This is a reality of life and this reality makes it necessary to protect (insure) your personal finance.

This protection may be in the form of taking out relevant insurance policies but you must know the relevant insurance policies to go for. 

How would you know the insurance policies needful and relevant to you, your family and your business? This is where the acquisition of a sound financial knowledge is useful. You need a financial knowledge to guide you to experts.

Other forms of protection against possible loss of financial stability in future are investment in less volatile assets like real estate and building a sufficient nestegg.

6.  Nest egg - 

Often  many self-employed business owners don't see the need to save a substantial amount of money for retirement. A nest egg could be used to take care of unexpected emergencies.

The above benefits of having a substantial retirement savings are a product of financial literacy.

Marketable securities meaning and examples.

What are marketable securities as a short term investment option?

First, what are marketable securities?

Many businesses prefer to invest most of their liquid resources in marketable resources instead of keeping them in idle cash.

Businesses prefer holding a greater portion of their liquid resources in this form, because marketable securities can be easily and quickly bought or sold (they are highly liquid, that is, easily converted into cash) at quoted market prices daily, on securities exchanges.    

Marketable securities consist basically of bonds and common stock of publicly owned companies. Investments in marketable securities yield returns in the form of interest and dividends. 

When marketable securities are bought, how is the purchase price calculated?

ABC Company makes a short term investment by buying 10,000 shares of the common stock of XYC Company at $0.35 per share. ABC also pays a brokerage commission of $500. The purchase price is $4,000 (10,000 x $0.35 + $500).

What happens when marketable securities are sold?

Either of two things happens when marketable securities are sold. The sales of a short term investment in marketable securities can either produce a gain or result in a loss.

A gain is produced when the sales price is more than the cost. For an example,  if ABC Company sells the entire 10,000 shares  of its XYC company for $0.50 per share and paid a brokerage commission of $500, the gain is $500 (10,000 x $0.50 - $500) - $4,000).

A sale at $0.40 plus a brokerage commission of $500 will result in a loss of $500.

A gain on sale of marketable securities by ABC Company could result in an increase in its market value. A loss on the other hand, could result in decrease in its market value.

Businesses classify their marketable securities on the basis of the length of time they decide to hold the securities. So, marketable securities may be classified as any of;

 

1. available for sale (APS) securities,

2. held-to-maturity (HTM) securities and,

3. trading securities.

1. Available-for-Sale (AFS) Securities.

Businesses hold available-for sale securities in both equity and debt for a while but can sell them as they often have a ready market price available. Most businesses classify their securities as AFS.

2. Held-to-Maturity Securities:

Held-to-maturity (HTM) securities are purchased and held until maturity. 

Held-to-maturity investments are commonly made in the form of bonds. Bonds have fixed maturity date and predetermined payment dates. Also, investors usually purchase bonds with the intent of holding them until they mature.

3. Trading securities

Trading marketable securities are bought and held for sale in the short term. The purpose for holding them is to make a profit from quick trade as opposed to holding them until maturity.