Dividend question

[Chris55]

Hello
I joined a few years ago hoping to learn about shares but never got around to doing anything but I'm back....... What I want to know is:
If I buy $1000 in share abc at $30 a share I get 33 shares and dividend yield is 5. And if I buy $1000 of share xyz at $80 a share I get 12 shares and dividend yield is also 5. Do I get the same amount of cash dividend for abc 30 shares as xyz 12 shares as I have invested the same amount of money in each company.

 

[Julia]

Don't think about how many shares you buy in what company or what the price is per share.
All you want to know is what % yield your invested capital is achieving.

eg You have $1000 to invest. The dividend yield is quoted as 5%. Ergo, 5% of $1000 = $50.
How many shares that $1000 of capital buys is irrelevant.
Then if it's 100% franked you can add the franking credit to that, roughly about 2.5% if fully franked.

If you do a search under various headings like 'dividend yield' 'grossed up yield' etc., you will find plenty of information.

 

[Smurf1976]

+1 to previous comment.

If the dividend yield is 5% and you buy $1000 worth of shares then the dividend will be $50. Whether that's 100 shares at $10 each or 10,000 shares at 10c each doesn't change this.

Things to consider:

1. Dividends can and do change. Eg just because a company paid a dividend of 50c per share recently is no guarantee that the next dividend will be the same amount. It's not like a term deposit with a bank where you are guaranteed a set rate of interest for the period of the deposit. That said, if the business itself is stable, has a long history of paying reasonably consistent dividends and nothing much is likely to change with the underlying business then the dividend probably won't change much at least in the short term.

2. Are the dividends franked either partially or fully? To compare a franked dividend paying stock with one that pays unfranked dividends, you need to adjust the figures to take tax into account.

3. Is the company paying dividends from real, ongoing income that is likely to be sustainable? Or are they running down cash / physical assets in order to make the payments? The former is far more likely to be sustained in the long term than the latter.

4. Be aware that if a company is paying a dividend yield that is unusually high (compared to other shares) then another way of looking at that is to say that the stock itself is cheap. Now, if a stock is cheap then that might represent a good buying opportunity but on the other hand it may well reflect a general expectation that there's trouble ahead. A high dividend yield is no guarantee that the business itself is going to prosper, or even survive at all, in the long term.

Myself, I look for companies with a good track record of paying increasing dividends over time, where the underlying earnings are also increasing and where there isn't an excessively high risk of things going wrong (eg due to technology or regulatory change).

 

[Wysiwyg]

I'm researching a company and they state payment of dividend with 100% of NPAT. Does this limit company growth with no retained profits? Will this affect upward share price movement?

 

[skc]

I'm researching a company and they state payment of dividend with 100% of NPAT. Does this limit company growth with no retained profits? Will this affect upward share price movement?

Yes and no. Most companies need some money to grow, and retained profit is but one source of money. Others include:

- Release of working capital
- Prepayment by customers (e.g. NVT)
- Debt
- Capital raising
- DRP
- Asset sales

Most companies will use some combination of the above.

If there are decent growth prospects, they should be funded. So the market will tend to suspect that 100% payout ratio may suggest a lack of growth prospects, unless the company has made it clear that there are other sources of money.

 

[Wysiwyg]

Thanks skc. To get an estimated dividend amount based on what is known :-

JHC Healthcare





NPAT for 2 months = 6m
NPAT for year estimate = 6m x 6 = 36m
Shares outstanding = 263m
DPS = 36m / 263m
DPS = 13.6 cents

At share price of $2.40 = 5.6%

 

[skc]

Thanks skc. To get an estimated dividend amount based on what is known :-

NPAT for 2 months = 6m
NPAT for year estimate = 6m x 6 = 36m
Shares outstanding = 263m
DPS = 36m / 263m
DPS = 13.6 cents

At share price of $2.40 = 5.6%

Makes sense. The accommodation bonds are essentially funding JHC's expansion, so it can afford a high dividend payout ratio without compromising growth funding.

FWIW, Wilsons estimates for JHC's dividend for FY15 to FY18 are 11.4, 13.5, 14.8, 16.5cps.