Unlike earnings, dividends are real cash outlays. Earnings can be manipulated or massaged to meet or beat expectations, but dividend payouts cannot be manipulated. A company has to pay out a dividend from its cash coffers. More so, dividends can serve as a barometer by which to measure the health of some companies.

TUTORIAL: Investing Concepts

Sending a Signal
When a company pays a dividend, that is typically a good reflection that operations are doing well. Remember financial stocks a few years ago? Many that were paying solid dividends had to suspend or eliminate them as a result of huge losses due to asset charge-offs. When business operations are performing poorly, dividends are usually the first to go and that can send a strong signal to investors.

Conversely, companies that are increasing their dividend payouts may be sending a signal that operations are finally starting to show signs of improvement. Several months ago, financial titans like JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) increased their dividends as soon as they were cleared by regulators to do so. Months prior to that, many analysts suspected as much given the fact that JPM and WFC were considered two of stronger and better capitalized financials. On the other hand, Bank of America (NYSE:BAC) which is still facing a myriad of problems with regards to its loans, is still not paying a dividend. (For more, see Why Dividends Matter.)

Good Times Ahead?
Last week, Sallie Mae (NYSE:SLM), the largest facilitator of student loans, reinstated its common dividend to 10 cents a share. The company's CEO said the dividend payout reflected the "strength of our capital, liquidity and cash flow." Sallie's dividend announcement coincided with a strong quarterly performance which saw EPS climb to 48 cents from 40 cents. It's no coincidence that SLM shares climbed to $17, a new 52-week high.

With gold trading at record highs today, gold miners are reaping profits. Those profits are being returned to shareholders from Newmont Mining (NYSE:NEM), the second largest miner of gold. Newmont investors were treated to a 33% increase in the dividend payout to 20 cents from 15 cents, respectively. Newmont now yields 1.3%. Barrick Gold (NYSE:ABX), the largest gold miner, currently yields less than 1%. The company reports earnings later this week and a strong result could lead it to increase its payout.

The Bottom Line
Don't' discount the value of dividends. They are real and can't be manipulated via accounting gimmicks. And over the long run, dividends deliver tremendous value. (For more, see Dividend Facts You May Not Know.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  2. Stock Analysis

    Analyzing Sirius XM's Return on Equity (ROE) (SIRI)

    Learn more about the Sirius XM's overall 2015 performance, return on equity performance and future predictions for the company's ROE in 2016 and beyond.
  3. Budgeting

    5 Alternatives to Traditional Health Insurance

    Discover five of the most popular alternatives to traditional health insurance plans, alternatives that are increasingly popular as health insurance costs rise.
  4. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  5. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  6. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  7. Stock Analysis

    Analyzing Dish Network's Return on Equity (ROE) (DISH, TWC)

    Analyze Dish Network's return on equity (ROE), understand why it has vacillated so greatly in recent years and learn what factors are influencing it.
  8. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  9. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  10. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center