In the table below you can see the P/E ratio and the current dividend yield of Nasdaq 100 stocks. In the last column I wrote if a stock deserves to be considered for dividend investing. The rule of thumb I used to spot dividend stocks is a current dividend yield greater than 2%. Obviously, if you want to invest in a stock you need to do a lot more homework than this.
The data are updated to November 20, 2018.
In the Nasdaq 100 there are many growth stocks, meaning stocks with a growth in revenue and EPS. As a result, it is normal that many Nasdaq stocks don’t pay any dividend. If you invest in a growth stock you are betting on a large capital gain rather than on a substantial dividend.
Moreover, several Nasdaq 100 stocks have a high EPS volatility and, consequently, a high stock price volatility.
There are stocks that pay high dividends, but among these it is better to avoid those that didn’t generate a profit in the last four quarters. The companies accompanied with a red cell in the P/E column posted a loss in the last four quarters. A company that pays out a dividend while making losses can represent a dangerous investment, so it’s better to avoid it.
Only 25% of the companies listed on the Nasdaq 100 present a current dividend yield above 2%. Whereas, among the stocks listed on the Dow Jones 30, this number rises up to 70%. This proves that there are more growth stocks listed on the Nasdaq 100 than on the Dow Jones 30. This means that most Nasdaq companies prefer to invest in their growth (and future) rather than paying out dividends to their shareholders.
Which are the stocks with the highest dividends? Do they have a negative or too high P/E? Are they in the maturity stage of their life cycle?
If we take a look at the five stocks with the highest dividend yield, we can notice that two of them, Vodafone and Qualcomm, don’t have a P/E ratio. This is because they posted a cumulative loss in the last four quarters and, consequently, it’s impossible to calculate their P/E ratio. Paying out a high dividend while making losses represents a red flag. This means that a company is consuming resources (dividends) while it’s not able to produce them (earnings), just to please its shareholders. The severity of the situation depends on its duration.
Companies in the maturity stage of their life cycle usually pay abundant and consistent dividends, while those in the growing stage of their life cycle invest all their profit in their businesses in order to foster their growth.
Which are the best dividend stocks for 2019? Let me know in the comment section below.
Check out my book: A Beginners’ Guide to Stock Investing.
Disclaimer: the content of this page doesn’t represent financial advice.
Data source: Investing.com