Believe it or not, these stocks pay you to own | Smart Change: Personal Finance

(Dave Kovalsky)

The Dow Jones Industrial Average It dropped about 800 points on April 26, and Standard & Poor’s 500 It has fallen more than 11% since the beginning of the year. This would put the stock market in correction territory, a drop of more than 10%. This means that most stocks are in negative territory for a year now, as is most of our portfolios.

Long-term investors should not make any rash decisions as long as they believe in their holdings and nothing has materially changed for a particular stock or its industry. Retracements historically don’t last as long as bull markets, and selling now will only lock in your losses before the market has a chance to come back.

But it might be nice to know that there are some stocks that pay you to own, regardless of the market environment – dividend stocks. It is especially important in markets like this because it can boost your overall return and provide you some income.

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Dividend 101

Dividend stocks are simply stocks that pay a regular dividend, or cash dividend, to investors, usually every three months, but sometimes once a month. Approximately 84% of stocks in the S&P 500 pay a dividend, while only about half of the stocks of small companies pay a dividend.

The best dividend stocks are usually those of large, pioneering, well-established companies with a history of consistent and stable dividends. Since dividends are paid out of dividends, the best dividends are those with consistent dividends. This is why many small businesses do not pay dividends or pay lower dividends. The same is true for younger developing companies, which are investing heavily in capital in their future growth.

When evaluating stock dividends, there are a few different indicators you should look at. The first is how long the company has consistently increased its profits. Companies that have boosted their annual payments for 25 consecutive years or more are called Dividend Aristocrats. Some companies with longer lines are very familiar – Procter & Gamble Company (65 years old), coca cola (59 years old), and Johnson & Johnson (59 years old).

The other key metric is yield. The dividend is the percentage of the stock price that it pays in dividends. The average return on the S&P 500 is about 1.37%. Therefore, the return on it will be considered good. Some companies have returns of 4%, 5%, or higher. The largest bank in the country, c. B. Morgan ChaseFor example, it has a return of 3.25%. Based on its $122 per share price, it paid a quarterly dividend of $1.00 per share during the quarter.

So, if you own 50 shares of JPMorgan Chase, you’ll earn $50 per quarter in dividend income, which you can either pocket or reinvest in the stock. For the year, the stock will yield $4 per share or $200 for 50 shares.

Payout ratio and total return

Another factor to consider is the payout ratio, which is the percentage of the quarterly dividend that is dedicated to paying dividends. This metric tells you whether a company is paying out too much or too little of its earnings. In general, a stock with a payout ratio of more than 50% or 60% may pay out as much of its earnings as those earnings may be better spread out in the company’s development.

On the other hand, a payout ratio of less than 50% is generally a good indication that the company is maintaining solid earnings without sacrificing some investment or other growth opportunities. Payout ratio of 25% to 40% can be considered a good point. Less than 20% may be low, but it indicates that the company could raise its dividend.

As mentioned, dividends can be held as income or reinvested in stock. When it is reinvested, it contributes to the total return on the stock, which is a combination of capital appreciation – or a rise in the share price – and reinvested earnings.

According to a recent report by Fidelity Investments, dividends have made up 40% of the S&P 500’s return since 1930. But during times of high inflation, dividends account for a higher percentage of the return. For example, in the 1970s, a period of high inflation, dividends made up 71% of the total return of the Standard & Poor’s 500. In the 1940s, another period of high inflation, it was 65%. Conversely, during the 2010 bull market, the ratio was only 16%.

Inflation is as high now as it has been in about 40 years, so it’s time to look for some good dividend stocks to offset some of your losses.

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JPMorgan Chase is an advertising partner of The Ascent, the Motley Fool Company. Dave Kovaleski has no position in any of the listed stocks. Motley Fool recommends Johnson & Johnson. Motley Fool has a disclosure policy.

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