a really overlooked source for great dividend stocks
TRANSCRIPT
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Hi, My name is Aaron and I‘m with Dividend Stocks Research. Today were
reviewing our recently published article…
The NASDAQ usually isn’t the first place that comes to mind wend
looking for a great dividend stock. After all, we think about NASDAQ as
the home of growth stocks and upstart tech companies.
It’s where we figure we’ll run into young firms reinvesting their profits
in future growth… and companies that aren’t quite mature enough to
pay dividends.
But like most generalities about investing, some companies are
exceptions to the rule.
Consider these three companies… they’re probably in your
neighborhood, and also listed on the NASDAQ.
Costco (COST)
Costco is a NASDAQ-listed company that has been paying growing
dividends for ten years.
Starbucks(SBUX)
Starbucks has been paying dividends since 2011.
Apple (AAPL)
And there’s probably an Apple store at the mall. Apple turned a historic
page when it comes to paying dividends, restarting their dividend
payouts in mid 2012.
So when you look at the companies listed on the NASDAQ, you see well known firms making the shift from
young, exuberant growth companies to more established organizations.
So when you look at the companies listed on the NASDAQ, you see well known firms making the shift from
young, exuberant growth companies to more established organizations.
Because they’re transitioning into a more mature phase of their business cycle, they are building the financial ability to reward shareholders with
dividends.
So you don’t have to look far for NASDAQ stocks that pay good
dividends, do you?
But here’s something you do need to look for.
Even though some of these maturing companies are in a position to pay a
dividend, many don’t. This is common practice in the technology
sector.
Google (GOOGL, GOOG), Adobe Systems (ADBE), Amazon (AMZN), eBay, (EBAY) and Netflix (NFLX)
don’t pay dividends.
What should a NASDAQ dividend stock investor do when you see
strong profits and a strong balance sheet... but no dividends?
The big challenge is to sift through the data and decide when a
company will start to pay dividends.
There are good clues to watch for. Key benchmarks to keep an eye on:
•A healthy profit margin, 15% or higher, so it can produce solid cash flow.•Low debt with a debt-to-equity ratio below 1.•Revenue growth, with a track record of 10% sales growth going back 5 years.
But even when you have these three benchmarks in place, a company
might decide not to pay a dividend. You’re still rolling the dice. The organization’s strategy and its
culture could influence this. It’s just not the way they operate.
Whatever the situation, when we look at these NASDAQ stocks we
keep running into the history lessons. The problem with NASDAQ is there’s just not a lot of history to
bank on. The NASDAQ isn’t a senior living
community.
When you look at all the brief histories of relatively young
companies on the NASDAQ, you discover that there’s strength in
numbers. However, the big dividend numbers are really generated by big
companies.
NASDAQ’s large cap companies are the stocks likely to pay dividends...
For example:
•Intel (INTC)•Microsoft (MSFT)•CME Group (CME)•Cisco (CSCO)•Teva Pharmaceutical (TEVA)
But a long track record of dividend growth is hard to find.
Why? It’s just the nature of the
neighborhood. It’s a great reminder of one of the big differences
between the NASDAQ and the New York Stock Exchange.
Keep in mind that many of these NASDAQ listed stocks are not the hundred year old firms we find on
the NYSE.
Here’s an example…
Intel was founded in 1968. But they’ve only been really growing
their dividend since 2010. Microsoft is another NASDAQ stock that has
only been able to provide four years of dividend growth.
These two technology companies, both leaders, compete in a business defined by warp speed change. It wasn’t long ago we couldn’t even
imagine an operating system other than Windows, or chips other than
Intel.
What year did you buy your first desktop computer? What year did
you buy your first cell phone?
Did you ever think your cell-phone would do the job of your computer?
This kind of innovation is what we see with companies on the NASDAQ.
Innovation is a must. It’s essential for technology firms to grow their profits and it comes with a hefty
price. And as a result many companies forgo a dividend payout to focus their reinvestment dollars
on growth!
But there are lots of companies that don’t have this costly competitive challenge. There are all sorts of
NASDAQ stocks where the “innovation expense” doesn’t get in
the way of dividends.
Want To Check Out NASDAQ Stocks That Aren’t In Tech?
There are plenty of them, and Starbucks and Costco are probably
the best known.
But you’ll also find quite a few ETFs trading on the NASDAQ, and many of
these pay nice dividends.
There are also opportunities to invest in real estate, through REITs,
and energy, through trusts.
But here’s the thing.No matter what sector you’re
exploring, it’s important to identify companies that can be counted on for profitability that is strong and stable. You also want to see the opportunity for strong earnings
growth, and a low valuation compared with similar companies.
What happens when you see a high yield?
What’s the best way to get your arms around the risks and the
rewards?
Proceed With Caution When You Find Higher Yields
Just like any stock with an above average yield, a careful look at the
balance sheet is a good idea, and the payout ratio should also be checked.
In the spring of 2014, VodaphoneGroup (VOD) paid a dividend yield of
7.93%. On the surface, very attractive. But behind the scenes,
the company may have been struggling to achieve this, by
directing an unhealthy share of its revenues to pay the dividend. The
Vodaphone payout ratio was 68.1%.
By comparison, Intel (INTC) offered a yield of 3.38% and a payout ratio
of 47.6%. A safer route to take when you
explore the NASDAQ for dividend stocks is to drive down a more
familiar road. One of them is the road that leads to a group of stocks
with a track record of dividend growth.
The NASDAQ Dividend Achievers are stocks that have increased their
dividend payout each year for the past ten years. In 1979, Moody's Investor Service built a model to identify strong dividend-paying
stocks. This model is now owned and marketed by NASDAQ OMX, and
there are ten different sets of achievers.
These different indexes are specialized, focusing on different
types of dividend paying stocks such as UK stocks, Canadian stocks, or preferred stocks. Each one is an index and is tracked by an ETF.
How can you invest in the NASDAQ Dividend Achievers?
These two ETFs reflect two of the broader indexes.
NASDAQ Dividend Achievers (DIVQ)NASDAQ US Dividend Achievers
Select Index (DVG)
Keep in mind that a stock doesn’t have to actually be listed on the
NASDAQ to be a Dividend Achiever. But it does need a track record of growing annual regular dividends
for at least the past 10 years.
Don’t forget about the built-in benefits of investing in NASDAQ
dividend stocks. There’s an additional advantage you’ll capture.
The Extra Upside Of A NASDAQ Dividend Stock
Investing in a NASDAQ stock that pays dividends can provide your
portfolio with some built in diversity. It’s a way to position your portfolio for capital appreciation in
the growth of the actual share price, along with the opportunity to collect
income from dividends.
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