In this low interest rate environment, dividends have been especially valuable to investors. Specifically, the value has come from the consistency of the dividend and as a bonus, an increase in the dividend. A company increasing its dividend is a high quality sign that business remains strong or is showing signs of improvement. Both signals usually have a positive effect on the company's underlying stock price.

SEE: How and Why Companies Pay Dividends.

The Second Coming of Financials
While many investors continue to have doubts on financial stocks, investors should focus instead on the actions taken by the company. Earlier this week, Goldman Sachs (NYSE:GS) announced that profits fell by over 20% in the first quarter, as the company continues to contend with weak demand for deal making. Nonetheless, the company boosted its dividend by nearly 30%. Granted, Goldman's dividend is still below what it was before the financial crisis, but the company giving more back to shareholders is a good sign. Even if earnings growth remains sluggish, Goldman is giving excess cash back to shareholders as opposed to investing that cash into unprofitable projects or growth. JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) continue to boost their dividends and as the financial industry slowly improves, dividend payouts will likely enjoy a second coming of sorts.

SEE: Dividend Tax Rates: What Investors Need To Know.

Big Payouts Getting Bigger
Oil and gas master limited partnerships (MLPs) have typically boasted big yields because they are required to pay out all available cash flows to shareholders as distributions. Plains All American Pipeline (NYSE:PAA), a Texas-based oil and gas partnership recently boosted its payout for the 30th time in 32 periods. Shares now yield 5.3% and currently trade near a high for the year as solid cash flows and a greater payout has kept investors demanding shares. An even bigger payout is available from Linn Energy (Nasdaq:LINE), a high quality MLP that has maintained is payout without interruption throughout the recession. More so, Linn has increased its payout so investors not only have benefited from a rising stock price, but a greater income stream.

SEE: Discover Master Limited Partnerships

The Bottom Line
Over time, dividends come to represent a greater proportion of the value created from investing in equities. Companies with a history of paying dividends tend to increase those payouts over time and value creating effect is magnified even further. Over time, dividends increase while your cost basis remains the same which can make your actual yield astronomically high.

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

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!