Utilising The Power of Dividend Growth In Equity Investment

Before now many investors think of dividend paying stocks as boring, offering low return on investment, compared to high flying penny stocks, whose volatility can be pretty exciting, with those who know how to successfully ride on them making a kill.
However, dividend paying companies are usually more mature and predicable, a situation some may consider dull, the combination of a consistent dividend and a rising stock price can offer earnings that are potentially powerful enough to be excited about.
Things to know with regards to dividend growth would include a high dividend yield. Understanding how to estimate dividend paying companies can give some insights into how dividends can boost returns on investment, especially if reinvested.
A common perception is that a high dividend yield indicates that the dividend paid is a fairly high proportion of return on the stock price and the most important measure.

However, yield that is considerably higher than that of other stocks in an industry may indicate not a good dividend but rather a dividend yield that is depressed, which is equal to annual dividends per share divided by share price.
The suffering price, in turn, may signal a dividend cut or worse still the elimination of dividend. The important indication of dividend power is not much a high dividend yield but high company quality and growth which you can discover through its history of dividend payment, which should increase over time. If you are a long term investor, looking out for such companies can be very rewarding.
Dividend payout ratio: This is the proportion of a company’s earnings allocated to paying dividends, which further demonstrates that the source of dividend- the company’s net profit aligns with its growth.

Therefore, if a company keeps a dividend payout ratio constant, say 5% and the company grows, that 5% begins to represent a larger and larger amount. For instance, 5% of N30, which is N1.50 is higher than 5% of N15 which is 75 kobo.
We can demonstrate this with an example. Let’s say you invested N1,000, in AXY Company, buying 10 shares, each at N100 per share. It is a well-managed company that has a price-to-earnings ratio of 10, and dividend payout of 10%, which amounts to a dividend of N1.00 per share. That is decent, but nothing to write home about, since you receive only a miserly 1% of your investment as dividend.

However, because AXY Company is well managed, the company expands steadily and after several years, the share price grew to N200. The payout ratio, however, has remained constant at 10% and so has the price-to-earnings ratio at 10%, therefore you are now receiving 10% of N20 in earnings or N2 per share because earnings is on the increase, even while payout remains unchanged. Since you paid N100 per share, your effective dividend yield is now 2% from the initial 1%.

For years, many investors have been using this dividend focused strategy by buying shares of blue chips companies. In the above example, we showed how lucrative a static dividend payout can be, imagine the earning power of the company that grows so much as to increase its payout.
In all of this, a company’s dividend policy plays an important role because the portion of its earnings that is paid to shareholders is pre-determined and also guides dividend equalization, where a company wants to maintain a steady payout, whether in bad or good times. This can be achieved with the board going into its reserves or retained earnings to make up for shortfalls to shareholders.

The company’s reserves serves as buffer between a certain dividend level and profits recorded. The sums are transferred and stored in a reserve account in good years and then withdrawn therefrom in bad years to sustain the dividend payout history. The same retained earnings can equally be used by the company for expansion purposes without borrowing.
As the New Year kick off with an uptrend market, smart traders and discerning investors should be preparing for the earnings season, and the associated tendency of dividend paying stocks to perform above average in the first quarter of the year. To profit from the potential gains of the earnings reporting season therefore, you should consider buying valued stocks with strong possibility of payout growth, irrespective of the current prices.

What to know when investing in stock market
It is true that to invest successfully and grow wealth in any market across the world, an investor must understand the bigger picture of the economy and stock market dynamics. The top wealthy men of today who made fortunes from equities investment are those that recognize the long-term nature of the stock market and know the appropriate keys with which to play the game profitably. The big picture gives an idea as to how all the facets of the economy work together to influence the share prices of quoted companies.

A booming economy will have a strong and promising stock market which is the leading indicator that reveals the country’s economic prosperity.
An economy consists of the socio-political and economic environments which influence business activities and in turn, drive a nation’s development and growth.

The economy is sub-divided into the market, sectors, industries and then companies. It also has economic cycles that go from boom to gloom. The boom stages are the early, middle and late expansion periods; while the gloomy stages are the early and late periods of contraction.
To be a successful investor, one must identify the stage an economy is, and which sector, industry and company can do well in all these stages by remaining in business and posting good earnings that can support its dividend payout in the future.

One therefore has to look at the nature of the particular company’s products and services, and try to determine whether demand for them are inelastic in nature such that a price increase will not have much effect on the demand for them. Is the company with a clear and simple business model that one understands? And lastly, is there a good management team with a succession plan in place?

Other factors used in identifying quality companies are consistent earnings growth, a profit margin that is above 10%, low debt, improved cash flow and good dividend payout ratio. This suggests that planning one’s financial freedom through equity investment is very possible if you buy the right stocks as you plan towards your retirement.

The 10 stocks selected below have shown strength in their earnings power on quarterly/yearly basis, recording consistent growth in dividend payout. Also, the nature of their products or services and business models support future performance.
In choosing any company, ensure it shows qualities that are consistent with the factors mentioned above to be considered. Also, select profitable and defensive stocks that meet your investment goals, because your objective helps you to plan your trading or investment.
For your retirement stocks pick, trading and investing for long term, sign up for Investdata buy and sell signal setup by calling 08028164085 and 0811181223.

When to buy and when to sell using Technical Analysis
To make real money in the stock market you don’t need to know why a stock price rises or falls, you just need to know two things: When to buy and when to sell. If you can quantitatively measure the buying and selling pressure of a stock, then you will know in advance whether the price of a stock is likely to go up or down. And you will then know if you should take a buy or sell position.
In other words, if you take a reading of the buying and selling pressure for a stock, you can successfully assess whether the price is likely to go up or down. There are numerous ways to measure the buying and selling pressure of a stock.

We want to teach you several methods. That way you can use all of them, or just work with the methods you are most comfortable. Remember, comfort and ease are what Investdata aims for and which our Buy and Sell Signal Setup offers subscribers
The best way to measure buying and selling pressure is to track the daily price movement of a stock. If the movement is increasing, then the buying is exceeding selling pressure and the stock is signaling ‘BUY’. On the contrary, should the daily price be on the decline, then the selling is exceeding buying pressure and the stock is said to be displaying a ‘SELL signal.

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