It’s a flagging economy and thus investors will obviously prefer to bet their bucks in the safer counters. Investors, in order to shield themselves from the upheavals in the financial world, are now diligently choosing their portfolio of stocks that can give them the best returns.
On that note, while building the portfolio, one should not ignore the underlining dividend growth potential, which can also enhance the total return.
Investors prefer an income generating stock, and a dividend paying stock is always a preferable option. Meanwhile, keeping the hard cash in the bank’s locker is much a safer alternative than investing in stocks, so offering higher return on stocks becomes obvious to compensate for the risk undertaken.
Higher dividend growth companies have a better chance to attract investors that in turn provides an impetus to the share price. Through this strategy, the companies bolster investors’ confidence on the stock, thereby persuading them to either buy or hold the scrip instead of selling them.
A consistent dividend payment and increasing the same at regular intervals primarily reflect the company’s sound financial position, defined future prospects and intention to enhance shareholders’ value. But what might hurt shareholders’ sentiment is a dividend hike in one year, followed by a cut in the next year.
However, not all companies pay dividend regularly, and furthermore some companies do not declare dividend. Nonetheless, this never suggests that the stock is devoid of growth propositions, unless the underlying fundamentals indicate so. It might be that the companies want to preserve the earnings for future expansions rather than to payout in the form of dividend. So, do consider all the factors while picking the stocks.
Every stock has its own strengths and weaknesses that need to be evaluated. Dividend increase remains one of the criterions to be considered before taking any investment decision, but apart from that an investor must take into account the top and bottom lines’ growth potential, free cash flow generation capability, cash flow per share, return on capital and debt-to-total capital ratio to name a few. A diligent use of these tools will help in assessing and scrutinizing equity investments.
Dividend increases have now become a common trend among companies boasting a stable cash position and healthy cash flows. These strategies not only enhance shareholders’ return but also raise the market value of the stock.
The companies which recently increased quarterly dividend include, video game and entertainment software retailer, GameStop Corporation (GME) by 10% to 27.5 cents; textbook publisher and financial information provider, The McGraw-Hill Companies, Inc. (MHP) by 9.8% to 28 cents; media and marketing company Meredith Corporation (MDP) by 6.5% to 40.75 cents; specialty retailer of women’s apparel Limited Brands Inc. (LTD) by 20% to 30 cents; two beverage companies PepsiCo Inc. (PEP) by 5.6% to 56.75 cents and Dr Pepper Snapple Group, Inc. (DPS) by 12% to 38 cents a share.
Few other stocks that are worth a look on the dividend platform include Comcast Corporation (CMCSA), which raised its quarterly dividend by 20% to 19.5 cents; oil and gas exploration company, Occidental Petroleum Corporation (OXY) that raised its dividend by 18.5% to 64 cents; and Canadian communications and media company, Rogers Communications Inc. (RCI) hiked its dividend by 10% to 43.5 cents.Read the Full Research Report on LTD
More From Zacks.com
- Investment & Company Information