Dividends represent the percentage of net profits that the company shares with its shareholders. In order to receive dividends, it is necessary to follow the following formula choose a licensed brokerage company, create an account for a brokerage with it, buy dividend shares, and then wait for the dividend to be credited automatically to your account.
The dividend payment is not a legal requirement. The company can alter the number of dividends it pays or stop them if it is not able to earn enough profits due to problems with its business. These decisions are taken during the general meeting of shareholders based on the recommendations by the directors’ board. Apart from dividends, net earnings can be used for corporate development, employee bonuses, and contingencies, for example.
There are joint-stock companies that don’t pay dividends and instead invest all profits back into the company. These are typically issuers in the technology sector of the economy, or start-ups like Yandex, Ozon, and Cyan. Investors who buy these securities are betting on earning only because of the fact that the price of shares will increase.
How to choose dividend stocks
Shares exchanged on the exchange have two kinds: common and preferred. They differ with respect to a different number of rights. In the case of preferred shares, the owner has the right to first. Shareholders of these shares are the first to be able to collect dividends, whereas the shareholders of ordinary shares.
The list of preferred securities listed that are listed on the Exchange
Investors who are investing in dividends need to pay attention not only to the type of stock they hold however, they must also be aware of the overall performance of the company. If you are planning to hold the securities for a prolonged period, it is vital that the business transfers dividends regularly and doesn’t stop them due to the possibility of loss.
These factors will assist in analyzing the company:
- The capitalization of the company is high which is how much value is placed on the whole company on the stock market. The amount of capitalization is a sign of how stable the company and also how liquid the stock is. There is always a supply and demand for stocks that are large-cap. This makes them easily sold anytime.
- Profit and growth in revenue. There shouldn’t be any abrupt drops in these indicators, that could indicate problems in the company. Naturally, profits and revenue do not always rise but, overall, the trends are expected to be favorable. Remember that dividends come by net profit.
- A stable cash flow . This is the gap between expenses and income and shouldn’t be negative. If a business is experiencing low cash flows, it has to spend more money that it makes.
- Stable margin . If the margin increases as the business expands its sales system. It is well-established and efficient.
- Dividends have been paid over the past 5 years . This refers to the safety of dividends and is a guarantee that the business will keep paying dividends.
- The Payout Ratio of HTML0 is lower than 70-80 70%. This is the number of earnings that the business pays shareholders as dividends. If it’s too high, the business invests very only a small amount in research and development, which means that it doesn’t progress.
- Growing dividends. This is a positive sign that the business of the issuer is expanding and that he has the funds to raise the amount of the dividend.
- A high yield. The higher the number of dividends you receive, the better, but only if other requirements are satisfied. If a business is losing money and does not expand its markets, and doesn’t release new products, it’s best to avoid investing in the company even though it pays large dividends.
There are a variety of dividend strategies available on the exchange. The strategies described above are ideal for investors with a long-term view who use the “buy and keep” method. Other strategies can be incorporated with it, such as buying securities through an incline to make the entrance into the market more lucrative.
The best dividend stocks
This category includes those companies that do not interrupt dividend payments for a long time, and also regularly increase their size. They are called dividend aristocrats. In the US, these are large corporations that meet several important conditions:
- The market capitalization of at least $3 billion.
- High liquidity of the paper, that is, a daily large trading volume.
- Payments without interruption for more than 25 years.
- The constant increase in the actual amount of dividends or keeping it at the same level. For example, if a company paid $0.5 per share last year, it should pay the same amount or more this year.
There are no issuers that meet these criteria because the securities market does not have such a long history as the American one. However, there are a few companies that are considered our dividend aristocrats.
A large oil and gas corporation that has been constantly increasing dividends over the past 13 years, and in 2019 showed a sharp leap upwards.
This company belongs to the telecommunications sector, which is traditionally considered protective, as the telecom business is resilient to various crisis situations. Growth rates are relatively low, but there is stability in payments.
During the crisis of 2008, MTS quotes dropped significantly, but the number of dividends per share did not change. The events of 2014-2015 also did not affect the foreign policy.
In the coronavirus, MTS experienced difficulties. He closed salons, faced an outflow of migrants who were his clients, and recorded a decline in roaming revenues. At the same time, he still did not stop paying dividends.
In 2008, Gazprom cut dividends due to the global financial crisis. Further, dividends gradually, albeit intermittently, increased. The situation improved in 2018, when Gazprom, as a state-owned company, was obliged to increase payments and allocate 50% of net profit to them.
Another telecom company on our list. Regularly transfers payments, but does not show steady growth. If in 2008 Rostelecom paid about 3 rubles per share, then in 2021 the payment amounted to 5 rubles – this is a small increase over 13 years.
Construction giant LSR, which does not yet have a long dividend history. However, it boasts payouts of 78 rubles per share over five years from 2014 to 2019.
In 2019, the crisis affected LSR and it was forced to lower the amount of payments. In addition, in 2022, due to the geopolitical conflict in Ukraine, the board of directors recommended that shareholders not pay dividends. The final decision on this is yet to be taken at the next meetings.
Norilsk Nickel is also often referred to as the best dividend stock, although from 2009 to 2011 the company paid not very large dividends. There are differences in positions among shareholders: some of them believe that dividends should be cut, while the other part is in favor of increasing them. Thanks to the latter, Norilsk Nickel still paid decent dividends and showed good growth rates recently.
If you look at the chart, we will see that until 2015–2016 Sber did not really indulge shareholders, but in 2017 it went up sharply and began to show good growth rates.
NOVATEK has exemplary dynamics. It has been paying dividends for a long time, regularly increasing them. Minus – a small dividend yield: only 2.98% on average over the past five years.
Mineral fertilizer producer Akron did not make the list until 2016. Starting from 2017, the situation changed, and the company began to pay out about 300 rubles per share. The exception was the crisis year 2020. According to its dividend policy, Acron pays 30% of net income, but since it has already passed the peak of the investment program, it can afford more generous payouts.
Novolipetsk Iron and Steel Works did not pay large dividends until 2015, when the dynamics picked up sharply. In 2022, NLMK management asked the Board of Directors to postpone the decision on dividends for the 4th quarter of 2021 and the 1st quarter of 2022 due to the geopolitical situation. The final decision has not yet been approved.
Another metallurgical company. It showed a dividend payout rate similar to NLMK. Until 2014, they were modest, but starting from 2015, the company was able to increase them. In 2019-2020, Severstal reduced the payment due to the coronavirus, and in 2021 it returned to its previous pace. In 2022, the board of directors recommended to the shareholders’ meeting to cancel the dividend for the 4th quarter of 2021 and not distribute profits.
Phosagro definitely cannot be called a dividend aristocrat. It does not have a long history of payments and stability in its growth. Nevertheless, he regularly transfers payments, and the average dividend yield over five years has reached an attractive level of 10.03%.
Stocks with high dividend yield
An investor should not focus only on the size of the dividend yield, as this value is constantly changing. Moreover, if the business is stagnant and has no prospects, dividends may be reduced or stopped paying.
Before buying a share, it is important to evaluate the state of the company and check its financial performance. If you are a long-term investor, then it is better to look at the dividend yield for several years, and not just for the past or current period. Separately, check how the company behaved in crises and what decisions it made regarding payments.
Rating of stocks with the highest average dividend yield for five years :
- Severstal – 14.44%
- NLMK – 13.76%
- MMC – 11.52%
- Permenergosbyt – 11.11%
- NMTP – 10.42%
- FosAgro – 10.03%
- MTS – 9.9%
- Tattelecom – 9.57%
- FGC UES – 8.62%
- Cherkizovo Group – 8.61%
- Norilsk Nickel – 8.51%
- Unipro – 8.35%
- Tatneft – 7.96%
- Nizhnekamskneftekhim – 7.8%
- CHTPZ – 7.72%
- Seligdar – 7.71%
- Gazprom Neft – 7.37%
- Akron – 7.35%
- OGC – 2 – 6.88%
- Magnet – 6.74%
- LSR Group – 6.69%
- Gazprom – 6.66%
- Mosenergo – 6.62%
- Raspadskaya – 6.54%
- VSPO-AVISMA – 6.25%
- Lukoil – 6.12%
- Kazanorgsintez – 6.09%
- Sberbank – 6.07%
- Rostelecom – 6.02%
- M.Video – 5.47%
- Transneft AP – 5.46%
- Moscow Exchange – 5.41%
- KuibyshevAzot – 5.28%
- Polymetal – 4.78%
- PEAK – 4.55%
- Rosneft – 4.29%
- Pole Gold – 4.04%
Top stocks by dividend yield over the past 12 months:
- Severstal – 29.72%
- TCS Group – 25,99%
- NLMK – 24.38%
- Polymetal – 23.55%
- MMC – 20.35%
- QIWI – 19.93%
- Unipro – 19.10%
- ALROSA – 18.37%
- RusAgro – 16.96%
- Rosseti Center and Volga Region – 16.74%
- M.Video – 16.35%
- MTS – 15.53%
- OGK-2 – 14.57%
- FGC UES – 14.39%
- TGC-1 – 14.08%
- Rosseti Center – 13.84%
- Sberbank – 13.01%
- Magnet – 12.99%
- Children’s World – 12.88%
- Bank Saint Petersburg – 12.67%
- Sovcomflot – 12.61%
- Norilsk Nickel – 12.13%
- Raspadskaya – 12.05%
- Gazprom Neft – 11.16%
- FosAgro – 11.00%
- Permenergosbyt – 10.29%
- Mosenergo – 9.99%
- Lukoil – 9.74%
- Seligdar – 9.39%
- Nizhnekamskneftekhim – 9.37%
- Kazanorgsintez – 8.71%
- Inter RAO – 8.68%
- Tatneft – 7.93%
- Transneft (AP) – 7.73%
- Tattelecom – 7.64%
- PEAK – 7.59%
- Rostelecom – 7.51%
- RusHydro – 7.43%
- VTB – 7.07%
- Cherkizovo – 6.58%
- Beluga Group – 6.05%
- NKPH – 5.80%
- KuibyshevAzot – 5.73%
- MOESK – 5.65%
- Gazprom – 5.18%
- Gold Pole – 5.14%
- NOVATEK – 4.93%
- Rosneft – 4.91%
- OKey Group – 4,74%
- Segeza – 4.40%
- Mother and Child – 4.33%
- Akron – 4.17%
- Lenenergo – 3.55%
- Russian networks – 3.25%
Companies that will not pay dividends
The geopolitical situation and the situation in the Russian economy will definitely affect the activities of our public companies. Familiar sales markets may close, and enterprises that generate part of the profits through exports will begin to look for new buyers.
In order to adapt to structural changes and have a cushion of cash, many companies are taking a break and forgoing dividends. However, they do not exclude that they will return to them when the situation becomes clearer.
Here is a list of large companies that will cancel payments or want to do so: Rusagro, Enel Russia, X5 Retail Group, Raspadskaya, Moscow Exchange, NLMK, Severstal, Polymetal, FixPrice, Magnit, VTB.