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7 Things to Look for in Dividend Stocks

By U.S. News & World Report

Investors are seeking dividends.

Dividend stock investing has great appeal in the current investing environment. At present, 10-year Treasury bonds yield a little over 2.3 percent, and conventional savings vehicles like a one-year certificate of deposit at your local bank offer a roughly 1.5 percent rate of return on average. Meanwhile, many dividend stocks yield 3 percent, 4 percent or more annually from their payouts. But dividend stocks can significantly change their payouts to you at a whim, dramatically changing the value of your investment. If you’re investing in dividend stocks, you need to be very selective. And if you’re new to dividend stocks, here are seven crucial things to look for before you make a purchase.

Dividend per share

The most basic measure of a dividend stock is how much it pays out to investors for each share of ownership. These figures are readily available in news releases, financial filings with the Securities and Exchange Commission and on most financial websites that display stock information. It’s important to remember, however, that a big dividend per share is only part of the story. As you’ll see, there are plenty of circumstances when a company paying a smaller per-share figure actually ends up delivering much more in total dividends over the long term.

Annualized dividend

Of course, it’s not just the dividend that matters. One of the biggest appeals of dividend investing is the idea of a steady income stream via regular distributions from your investments. That means it’s crucial to find out just how regular those payments are. Some stocks pay a dividend once a year, some pay once per quarter and some pay once per month. A stock that pays 20 cents once a year actually pays less annually than a stock that pays 2 cents each of the 12 months in the year, for 24 cents total. If you don’t normalize for annual payouts, you may overlook a stock with dividend potential that pays a smaller amount but does so more frequently.

Ex-dividend dates

Dividends are always declared with an “ex-dividend date.” In layman’s terms, this is the deadline that determines who gets the payout and who doesn’t. Don’t confuse this with the date dividends actually get paid. For instance, AT&T (NYSE: T) declared its next quarterly dividend will be paid on Nov. 1 to shareholders of record on Oct. 10. That means you have to be a shareholder roughly three weeks in advance of that payment in order to get your dividend check. This is an important factor to consider, especially for companies that pay dividends only once a year. If you aren’t in time to get that distribution, then you miss out.

Special and uneven dividends

Of course, be careful before you simply tally up every dividend paid across the last 12 months. Some corporations choose to make big one-time payouts known as “special dividends” in order to reward shareholders. That’s what retailer Costco Wholesale Corp. (COST) did last spring, paying a $7 per share special dividend on top of its regular 50-cent quarterly dividend. That was great for shareholders at the time, but it’s not a repeatable event and you shouldn’t expect it to be. Much worse, obviously, is a company that was paying a juicy dividend and has recently cut its per-share payout. That’s a troubling sign, and it’s important not to give credit for dividends that won’t exist going forward.

Dividend yield

After you have a good handle on the annual payout that is normalized for any increases and decreases over the last 12 months, it’s time to calculate a stock’s dividend yield. This figure shows what percent of the current share price is paid out annually in dividends. In other words, if a $50 stock pays 50 cents in annual dividends, it has a yield of 1 percent. But a $5 stock that pays 5 cents in annual dividends also has a 1 percent yield. This is an important way to normalize your return from dividends, because the share price of stocks can vary widely. Think of dividend yield as a way to benchmark the annual return on your initial investment via dividend payments.

Dividend payout ratio

Now that you know how much a company pays back in dividends as a share of your initial investment, it’s worth considering how that payout will change over time. Consider that in 2012, Apple (AAPL) paid $2.65 in dividends and enjoyed corporate earnings per share of $44.15. That was just 6 percent of total profits, and left plenty of headroom for aggressive increases in payouts. Since then, Apple has nearly doubled its payout in about five years. The typical payout ratio for large stocks is around 50 percent of earnings. If the payout ratio is approaching 100 percent of earnings then it’s unlikely you’ll see increases — and worse, if things sour, you could see a dividend cut.

Underlying health of the stock

Even if you find a company that is paying out big dividends regularly and that has the earnings to sustain them, that’s only part of the puzzle. There are countless examples of dividend stocks that pay 2 percent or more in dividends crashing, and ultimately losing 20 percent or more in value across just a few months. Sometimes it’s a company-specific challenge, as we’ve seen with toymaker Mattel (MAT), and sometimes it’s a market-wide crisis, as we saw with bank stocks in 2008. It’s important to remember dividend stocks are still stocks — not bonds. And as such, they are subject to much more risk and volatility.

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7 Things to Look for in Dividend Stocks originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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