A lot of times you’ll read about stocks that pay good dividends. Balanced investing requires at least some kind of dividend income in a portfolio. While you look forward to your favourite stocks going up in price, you may not particularly want to sell them for a quick profit if you feel they have a lot more room to run.
Dividend yield is calculated as a stock’s most recent annual dividend – interim and final dividend payment – divided by the current share price. That percentage is the yield.
If a stock price goes up, its dividend yield shrinks. If the share price drops like a stone suddenly, the dividend yield shoots up. Which is the better scenario in the long run? I would prefer a dividend payment that grows each year.
Here are four companies that have been growing dividend payments as a result of good earnings growth.
Super Retail Group Limited (ASX: SUL), the specialty retailer that operates such stores as Supercheap Auto, Rebel Sports, BCF and Amart Sports, has raised its dividend per share every year since 2005. In 2013, its annual dividend went up about 18%.
FlexiGroup Limited (ASX: FXL), the leasing and vendor finance service provider, has grown dividends by a compounded annual rate of 21.6% over the past five years and by 16% just within FY2013. That’s good dividend income.
Sky Network Television Limited (ASX: SKT), the New Zealand provider of free-to-air and multi-channel pay TV, had a good year in 2013. Dividends went up by 17.3%, higher than its past five-year annual compounded rate of 12.7%. That helps bring the trend up.
Flight Centre Travel Group Ltd (ASX: FLT) was the leader of this pack in one-year dividend growth with a 22.3% rise in 2013. More vacationers and international tourists sent profits up – likewise for dividends. The past five-year dividend growth was a compounded annual rate of 9.8%.
Usually dividends are a set percentage of earnings per share. Less profits usually send dividends down. Annual dividend payments from a stock that is experiencing weak business may be reduced when its new results come out. However, the dividend yield may not change so much if the share price falls proportionately.