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 Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  2. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  3. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  4. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  5. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  6. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  7. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  8. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  9. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
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