In this article, we look deeper into one of the metrics, Dividend Yield. Dividends are a great way to earn supplemental income while waiting for the value of the stock to appreciate over time. While picking a stock for its dividends, there are a few aspects to consider.
(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings. In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)
Step 1: Dividend Yield Of The Stock
This may seem fairly obvious but it is the first step, you want to be sure that the sock that you intend to purchase has a good dividend yield. Once you navigate to the stock of your choice on eToro, in this case, we use Apple (AAPL), click on the stats menu. You can find the dividend yield there. This number by itself can be quite meaningful and can help you understand the amount of steady income you can expect from this stock. To get the best value, it is best to hold off on judgement till more aspects are analysed.
Step 2: Check Dividend Payout
It is important to understand dividend payout in combination with the dividend yield. Dividend payout is the amount of dividends that the company is paying when compared to its earnings. You can get this ratio by dividing the dividend amount (not the percentage yield) by the earnings per share (EPS), which you can also find in the stats. A high number here means that the company is giving away all its earnings in the form of dividends. This may seem interesting in the short term, but it could mean that the company is not investing in its future. A sign that you should look deeper or pick another stock.
Step 3: Check Other Companies For Yield
It is important to shop around before you pick a stock for yield. Certain industries, often well-established ones, payout higher and more steady dividends. Usually, industries with high growth payout lesser dividends. For example, if we look at General Motors (GM), an automotive company, it has a higher dividend yield than Apple, which is a technology company. Similarly, ING Bank (INGA) has a dividend yield higher than GM and Apple.
Step 4: Check Industry and Dividend History
As we noticed in step 3, dividends vary greatly from company to company. They also vary from industry to industry. Therefore it is important to check the average dividend yield per industry before judging the dividend yield of a company. There are several sites that can readily provide this data. In addition to this, it is also important to check the dividend history of the stock. This too is readily available in many sites. Most dividend investors look for stability, which is indicated by a good dividend payout history.
Now that you know how to analyse dividends, feel free to try your hand at it using the eToro Demo Practice Account.
This Article is Part of A Total guidance list on How to pick individual stocks, make sure you go by the article one by one to get a bigger understanding of the total picture. 😉
- How to Pick an individual stock Part 1 - The Strategy
- How to Pick an individual stock Part 2 - 5 metrics to look at when stock picking
- How to Pick an individual stock Part 3 - P/E Ratio (Price-Earnings ratio)
- How to Pick an individual stock Part 4 - Earnings Per Share
- How to Pick an individual stock Part 5 - Dividend Yield
- How to Pick an individual stock Part 6- Company History And Strength
- How to Pick an individual stock Part 7- Debt-Equity Ratio
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