The top dividend stocks for October 2023 include Danish shipping, transport, and logistics company A.P.Moller (AMKBY), a diversified holding company, Icahn Enterprises LP (IEP), a renewable energy company, Enviva Inc.(EVA), and Torm PLC, (TRMD) a U.K. based global shipping company.
Key Takeaways
- Dividend stocks are issued by companies that pay shareholders a percentage of earnings on a regular basis, typically quarterly or, less commonly, semiannually or annually.
- The dividend yield represents the ratio of annual dividend amount with stock price. It is expressed as a percentage.
- Because it is linked to stock price, dividend yield changes as the price of a company’s stock rises and falls.
Companies paying dividends are usually well-established and have stable earnings. Many dividend-paying companies also have a long record of distributing a portion of earnings to shareholders in the form of dividends.
The dividend payout ratio (DPR) measures total dividends divided by a company’s net income. It is a useful way to measure how sustainable a company’s dividend payments are, as it shows how much of a company’s income is being paid to shareholders versus how much the company keeps to put toward future growth.
If a DPR exceeds 100% or is negative (meaning that the company has a net loss), the firm may be borrowing to pay dividends. Dividends in these situations are at a higher risk of being cut.
While dividend stocks are known for paying dividends regularly, the payout may be cut to preserve cash in tough times.
Dividend stocks, as measured by the S&P 500 Dividend Aristocrats Index, are up 7.5% in the last year versus the 14.6% gain of the Russell 1000 Index, as of Sep. 28, 2023.
Below, we look at the top four dividend stocks in the Russell 3000 Index as measured by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. The statistics below are as of Sep. 28, 2023.
A.P. Møller – Mærsk A/S (AMKBY)
This is a Danish shipping, transport, and logistics company. It provides container and special vessels, terminals, supply chips, and container box manufacturing services globally. Between share buy-backs and dividend payments, the company distributed $2.4 billion in cash to shareholders in the second quarter.
Icahn Enterprises is a diversified holding company with interests in investment, energy, automotive, food packaging, real estate, and other industries.
Enviva is a renewable energy company and the largest global producer of wood pellets. The company reported a net loss of almost $59 million in the second quarter of the year.
TORM is a U.K.-based shipping company with operations around the world. The company’s most recent dividend of $1.50 per share was paid in the second quarter this year.
Important Ratios to Analyze Dividend Stocks
Dividend yield: The dividend yield reflects the annual value of dividends received relative to a security’s per-share market value. Investors calculate this metric by dividing the annual dividend per share by the current stock price.
For example, if Company ABC issues a dividend of $10 annually with a current share price of $100, it has a dividend yield of 10% ($10 / $100 = 10%). Investors seeking high-yielding stocks can start their search by screening for issues with a divided yield above a certain percentage. Keep in mind that dividend yield is only one of many such metrics to consider before investing.
Dividend payout ratio: The DPR gauges how much of a company’s earnings are paid out to shareholders. Investors calculate the ratio by dividing total dividends by net income.
For instance, if Company ABC reported a net income of $50,000 and paid $15,000 in annual dividends, it would have a DRP of 30% ($15,000 / $50,000 = 30%). In other words, the company pays out 30% of its earnings to shareholders. Typically, a company that pays out less than 50% of its net earnings in dividends is considered stable and has the potential for sustainable long-term earnings growth.
Dividend coverage ratio: Dividend coverage measures the number of times a company can pay dividends to its shareholders. Investors calculate the dividend coverage ratio by dividing a company’s annual EPS by its annual dividend per share.
For example, if Company ABC reported $10 million in net income with an annual dividend of $2 million to shareholders, it has a dividend coverage ratio of five times ($10 million / $2 million). Usually, investors see a higher dividend coverage ratio as more favorable.
Benefits of Dividend Stocks
Among the many benefits of dividend stocks are the potential for dividend reinvestment and the possibility of passive income.
Dividend reinvestment: Investors may reinvest dividends they receive back into the same company to acquire more shares. This is called a dividend reinvestment plan (DRIP). Participating in a DRIP allows the investor to take advantage of compounding returns—a strategy that can be helpful in building long-term wealth.
Passive income: Companies that pay dividends typically issue them quarterly, creating a reliable stream of passive income that investors can spend in any way they like. Dividends also have the added advantage of offsetting share-price depreciation.
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As of the date this article was written, the author does not own any of the above stocks.
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