Investors are constantly seeking lucrative opportunities in the market. While there are multiple ways to capitalize on current trends, it is difficult to argue against the approach of considering stocks that offer reputable dividend payments. A dividend represents a periodic payment to shareholders out of a company's earnings. There is discussion regarding the benefits of dividends and whether they add or subtract value to the long-term outlook of a company. For instance, companies with histories of paying noteworthy dividends to shareholders may not be reinvesting enough capital back into business operations. Regardless, it is important to consistently analyze dividend trends as they relate to current market conditions.
Dividends are measured by the amount, frequency and ratio. The amount represents the actual dollar figure that a company's board of directors declares for its shareholders. The board of directors declares the date when an owner is eligible to receive the dividend, known as the ex-dividend date. Shareholders reap the benefits of dividend payments, and companies utilize them as a technique to bolster consumer confidence. As of March 2016, quarterly shareholder distributions, which include total dividends and gross buybacks, totaled approximately $240 billion for Q4 2015. This figure was the fifth-highest quarterly total in the last 10 years, a signal that companies are posting strong earnings.
An important consideration involves spotting companies demonstrating a history of increasing dividend payments. As of April 2016, Tyson Foods (NYSE: TSN) reported an increase in dividend payments by 200% over the previous three-year period. Reputable organizations aim to pay dividends quarterly. In addition to looking at the increase in the actual dividend payment, it is necessary to plot this increase against the earnings of the associated company. This calculation is known as the dividend payout ratio. Another metric measured financial performance is dividends per share (DPS). Southwest Airlines (NYSE: LUV) has posted astronomical growth figures in its DPS figure with a 650% increase over the previous three years. In addition, the company has shown a consistent track record, issuing a quarterly dividend in every year since 1976.
While individual company metrics prove worthy indicators, recent trends also point to certain sectors as showing notable dividend growth. Of the stocks that constitute the Standard & Poor's 500 (S&P 500) index, those in the energy, information technology and telecommunications industries issued some of the largest dividend payments in the trailing twelve months (TTM), as of Q4 2015.
From January to April 2016, the telecommunications industry significantly outperformed the S&P 500 as a whole, posting a dividend yield of 16% compared to the S&P 500 yield of just 2%. Part of the explosive growth related to the level of fear in the market related to interest rates. The current sentiment involves the Federal Reserve putting a halt to any increase in interest rates. An increase in interest rates would lead to a higher cost of borrowing for companies, thus resulting in less capital to pay to shareholders in the form of dividends.
While dividends represent the financial strength of companies, share repurchases are also an indication of economic stability. In some instances, companies purchase stock back from investors at a premium price, thus allowing the investors to earn returns on their original investments. Companies take part in this type of strategy if there is a belief that current share prices are undervalued. In Q4 2015 alone, companies in the S&P 500 index spent just over $136 billion on share buybacks. The information technology industry was prominent in buyback activity. Apple, Inc. (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT) were the leaders in this activity. Apple, in particular, has grown extremely confident in its recent share values that it has decided to fund its share buyback program by issuing bonds, a form of debt.